Summary

  • A majority of the Full Federal Court has found that the Commonwealth Bank of Australia breached the implied term of mutual trust and confidence for failing to take positive steps to consult with an employee about the possibility of redeployment and for failing to provide the employee with the opportunity for redeployment.
  • While the Full Federal Court's decision has clarified that ‘serious breaches’ of company policies will not amount to a breach of the implied term, the decision has arguably created more uncertainty as to precisely what circumstances will amount to a breach.
  • Employers should consider taking advice on steps to minimise risks in this area, including careful consideration of the legal and practical issues around the drafting of employment contracts and policies, and the manner in which 'disputes' and separations may be most appropriately managed.
  • The decision may, however, not be the final word on the subject. The Commonwealth Bank of Australia has filed an application for special leave to appeal the decision to the High Court.

Overview

A majority of the Full Federal Court (Jacobson and Lander JJ, Jessup J dissenting) has upheld a decision finding that the Commonwealth Bank of Australia (the Bank) was in breach of the implied term of mutual trust and confidence (the Implied Term).1

Importantly, however, the Court rejected the Trial Judge’s reasoning that this breach of the Implied Term arose out of a ‘serious breach’ of the Bank's redeployment policy which was expressly excluded from the contract. Instead, the Court held that the breach arose from the employee being a long-term employee of a large employer in circumstances where the employee's employment contract contemplated redeployment.2

Background

The case involved an employee, Mr Barker, who had commenced working at the Bank in 1981. In 2009 Mr Barker was informed that his position (as Executive Manager) had been made redundant. He was then put on paid leave and later advised that his employment would be terminated.

The Bank's redeployment policy provided that the Bank was to take certain steps to attempt to facilitate the redeployment of employees to be made redundant. However the redeployment policy was explicitly excluded from Mr Barker’s contract of employment. 

Mr Barker brought proceedings in the Federal Court alleging that the Bank had breached the Implied Term of his contract by failing to make proper efforts to redeploy Mr Barker elsewhere within the Bank.

At first instance, Besanko J found that:

  • the Implied Term formed part of the contract of employment between Mr Barker and the Bank
  • a ‘serious breach’ of policy by the Bank amounted to a breach of the Implied Term, even though the relevant policy was expressly excluded from being incorporated into the contract of employment, and
  • Mr Barker was to be awarded in excess of $300,000 damages for the breach.

Nature of the Implied Term in Australia

While there has been some doubt as to whether the Implied Term was recognised in Australian law, the joint judgment of Jacobson and Lander JJ ultimately found that the Implied Term has ‘obtained a sufficient degree of recognition’ and should be accepted.3

The majority clarified four key points about the operation of the Implied Term in Australia:

  • the precise scope of the Implied Term was developing and will depend on the particular nature of the employment relationship4
  • the Implied Term is not applicable in the context of ‘dismissal or to steps which are inextricably bound up with dismissal’5 While the majority acknowledged the line may be ‘difficult to draw’, they found that a failure to take steps to enable Mr Barker to obtain the possibility of redeployment was ‘separate from and anterior to’ the termination6
  • the Implied Term will not be implied where it has been expressly excluded or is inconsistent with the express terms of the employment contract,7 and
  • a breach of the Implied Term will result in the same damages as are ordinarily available for breach of contract (at least insofar as the breach is anterior to and independent of termination).8

Breach of the Implied Term and the role of company policies

Ultimately, the majority found a breach of the Implied Term on the basis that the Bank did not take positive steps to consult with Mr Barker about the possibility of redeployment and to provide him with the opportunity to apply for alternative positions within the Bank.9

The majority found that the content of the relevant duty in the context of the Bank’s employment of Mr Barker was informed most importantly by three facts:

  • Mr Barker was a long-term employee
  • the Bank was a large corporate, and
  • clause 8 of the employment contract (which applied to Mr Barker10) contemplated redeployment upon an employee’s position becoming redundant.11

The majority rejected the Trial Judge’s finding that a ‘serious breach’ of the Bank’s redeployment policy amounted to a breach of the Implied Term and, indeed, found that the redeployment policy was not relevant to the analysis, as it did not form part of the employment contract.12

Dissenting judgement

Jessup J’s dissenting judgement undertook an analysis of the case-law on the existence of the Implied Term in the UK and Australia, ultimately finding that:

  • there was no authority on the existence of the Implied Term binding an Australian intermediate appellate court,13 and
  • such a term should not be implied into employment contracts in Australia.14

Jessup J also found, that in any event, the Implied Term could not be breached by failing to adhere to a policy that was specifically excluded from the contract of employment.15

What does this mean for employers?  

The following key points may be taken from the decision:

  • The decision represents the first binding decision of an intermediate appellate court in Australia recognising the Implied Term and has therefore clarified a number of important aspects of the Implied Term, including that the term will be implied into all employment contracts as a matter of law. Nonetheless, the Bank has filed an application for special leave to appeal the decision to the High Court which, given the significance of the decision as well as the lengthy dissent in the case,  may well be granted.
  • The scope of the Implied Term will depend on the nature of the relevant employment relationship and the terms of the particular employment contract and, a breach will not be established simply through ‘serious breaches’ of company policies that do not form part of the employment contract.
  • The decision appears to suggest that parties are able to ‘contract out’ of the application of the Implied Term by express language. However, this position was not considered extensively and contrasts with the view of Justice Rothman16 (who has written on the point both inside and outside the courtroom).

Ultimately, while the decision has gone some way to clarify whether company policies will bind employers, the decision has arguably created more uncertainty as to precisely what the scope of the Implied Term will be in a particular case. Employers should consider taking advice on steps to minimise risks in this area, including careful consideration of the legal and practical issues around the drafting of employment contracts and policies, and the manner in which ‘disputes’ and separations may be most appropriately managed.