A majority of the Full Federal Court of Australia has held that there is a term of mutual trust and confidence implied into all Australian employment contracts.

An employee was awarded damages in excess of $300,000 for a breach of the implied term of mutual trust and confidence (Term). The employee was made redundant and was subsequently terminated when he could not be redeployed. During the attempted redeployment process, the employer failed to take active steps to communicate with the employee. As a result, no contact was made with the employee for an unreasonable period of time. This constituted a breach of the Term.

In a 2-1 decision, the Court held that the Term is necessarily implied into all Australian employment contracts due to the nature of the relationship between employer and employee, but can be excluded by a contrary express term. The Court stated that the duties of an employer under the Term are still being developed and so the content of the implied contractual duty “must be moulded according to the nature of the relationship and the facts of the case”. The Court held that damages are recoverable for breaches of the Term which occur prior to, and independent of, the termination. However, damages are not available for hurt and distress as a result of termination.

We understand the decision will be appealed to the High Court and so the final status of the implied duty does not appear to be settled.