Back in December (here) we couldn’t contain our excitement about the Commonwealth Bank marching off to the High Court to challenge a decision of the Full Federal Court (Jessup J in dissent) which found that an implied term of mutual trust and confidence exists in every employment contract in Australia. As we said then, this question has plagued employment law for far too long. No more though! The High Court has spoken, unanimously declaring that there is no proper basis to imply the “mutual trust and confidence” term.
So what is this term of “mutual trust and confidence” all about and what was the question for determination by the High Court? “Whether, under the common law of Australia, employment contracts contain a term that neither party will, without reasonable cause, conduct itself in a manner likely to destroy or seriously damage the relationship of trust and confidence between them.”
This might sound like a sensible proposition, but there is one small matter that needs to be considered first – the law.
The law dictates that, in order to imply a term into a contract, it must be “necessary”. In other words, the transaction that is the subject of the contract will be futile without the existence of the implied term.
Although there will be plenty of naysayers, according to the High Court, an implied term of mutual trust and confidence is simply not necessary in employment contracts. It may be reasonable, but it’s not necessary.
While employers can breathe a collective sigh of relief that the High Court has completely shut the door on the implied term of mutual trust and confidence, it’s worth noting that it sneakily left the door ajar on the operation and scope of the duty of good faith: “The question whether a standard of good faith should be applied generally to contracts has not been resolved in Australia. Neither that question, nor the questions whether such a standard could apply to particular categories of contract (such as employment contracts) or to the contract here in issue, were raised in argument in these proceedings. It is therefore neither necessary nor appropriate to discuss good faith further, particularly having regard to the wider importance of the topic.”
And so a measure of uncertainty remains. Guess that will be the next ripe hunting ground for an enterprising employee.