To what extent are companies obliged to follow their own policies? Does a serious breach of policy amount to a breach of the implied term of mutual trust and confidence? These interesting questions were recently considered by the Federal Court of Australia in Barker v Commonwealth Bank of Australia [2012] FCA 942.

The facts

Mr Barker was a senior executive of the Commonwealth Bank of Australia (the Bank) who had worked for the Bank for 27 years. On 2 March 2009 Mr Barker was advised that his position had been made redundant. His intranet and email access were cut off that day and he was asked to clear his desk and leave the premises.

For the next month Mr Barker had minimal contact from the Bank, despite being told that it was the Bank’s preference to redeploy him. A few emails were sent to his deactivated work email account but the Bank made no meaningful attempts to consult with him about redeployment.

On 9 April 2009 Mr Barker’s employment was terminated on the ground of redundancy.

The Bank’s Redeployment Policy

The Banks’s ‘Redeployment Policy’ required ‘… an open, well communicated and consistently applied process through which all employees affected by redundancy, redeployment and/or retrenchment are treated with fairness and dignity.’

The policy also required employees subject to redundancy to be given the earliest ‘practicable’ advice about potential redeployment opportunities, which were to be based on merit.

Importantly one of the ‘principles’ said to underpin the policy was that employees should be ‘reassigned and retrained where possible.’

Mutual trust and confidence and breach of the policy

Mr Barker argued that there was an implied term in his employment contract that required the Bank to refrain from doing anything likely to destroy or seriously damage the mutual relationship of trust and confidence. An integral part of his case was that in breaching its own redeployment policy, the bank had breached the implied term of mutual trust and confidence.

Justice Besanko found that while the decision to make Mr Barker’s position redundant was not a serious breach of policy, the Banks’ inadequate communication with Mr Barker in the period between 2 March and 2 April 2009 amounted to a failure to fulfill the Bank’s obligations under its Redeployment Policy.

There was no consultation with Mr Barker, the possibility of retraining was not raised and no redeployment plan was developed.

Justice Besanko held that the Bank’s ‘… almost total inactivity’ amounted to a serious breach of its redeployment policy which was sufficient to breach the implied term of mutual trust and confidence.

Judgement was entered against the Bank and Mr Barker was awarded damages.

Implications for Employers

The Bank’s breach of its own policies amounted to a breach of the implied term of trust and confidence, despite the fact that the policy manual contained a statement expressly excluding it from incorporation into employees’ contracts.

Employers should be aware that a serious breach of their own policies may amount to a breach of an implied term of an employment agreement, even where the policies are expressly excluded from forming part of that agreement.

Employers should review their policies to ensure they are carefully drafted and do not unduly restrict the exercise of the company’s discretion. Policies should also be followed in practice, especially when taking actions that will have a significant impact on employees, such as disciplinary investigations, terminations and redundancies.

Advice should be sought where it is unclear what course of action is required under a policy and what steps must be taken prior to making decisions.