Further to previous blogs (click here), the High Court of Australia this month heard submissions from both parties on the appeal of the Federal Court full bench decision of Commonwealth Bank of Australia v Barker[2013] FCAFC 83 (FCAFC decision).

The High Court decision (to be handed down sometime in the next 6 months) will determine whether employment contracts contain an implied term that an employer will not, without reasonable cause, conduct itself in manner likely to destroy or seriously damage the relationship of confidence and trust between parties.

If the High Court upholds the existence of the implied term, an interesting issue will be whether such a term can be expressly excluded from employment contracts. When this case was heard at first instance,, Besanko J held not only that such an implied term did exist but it could be excluded, stating at [329]:

If there is an implied term of mutual trust and confidence in contracts of employment, then it is a term implied by law, rather than because of the factual circumstances of a particular case. The term may be excluded by the express terms of the contract or it may be excluded because it would operate inconsistently with the express terms of the contract.

This view was subsequently upheld in the FCAFC decision at paragraph [89].

Conversely, in the first instance decision of Russell v the Trustees of the Roman Catholic Church for the Archdiocese of Sydney and Anor [2007] NSWSC 104, Rothman J held that such an implied term could not be expressly excluded as it formed an essential part of the employment relationship, at [127] – [128]:

If one destroys trust and confidence, and trust and confidence is a necessary and essential ingredient of a contract of employment, then the contract of employment is destroyed. Similarly, if one sought to exclude, expressly, the relationship of trust and confidence, if it were a necessary and essential ingredient of employment, one may still have a contract, but it is unlikely to be a contract of employment. Without trust and confidence there is no submission and subordination and no right of control. Without trust and confidence there is no contract of employment.

Such an analysis renders the duty not to act in a manner calculated or likely to destroy the relationship of trust and confidence in a fundamentally different position. Unlike most other implied duties, it cannot be excluded unless one does not want to have a contract of employment. If an employee destroys the trust of the employer necessary for the carrying out of the work, the employer would be unable to allow the employee to work and bind the employer. Similarly, if the employer destroyed the trust of the employee necessary for the giving of directions, the whole basis of the employment relationship ceases.

In the event that the High Court agrees that an implied term of mutual trust and confidence does exist in the Australian employment contract, it will be important to observe the High Court’s comments on whether the implied term can be expressly excluded. Watch this space!

Bridget Nunn