The High Court has unanimously held that there is no implied term of mutual trust and confidence in Australian employment contracts.

In August 2013, a majority of a full court of the Federal Court found that all Australian employment contracts had an implied term of mutual trust and confidence.  Specifically, the Court held that an employer had breached the implied term of mutual trust and confidence, when it made an executive manager redundant for failure to consider redeployment opportunities in accordance with its policies.  This represented a fundamental shift in Australia’s workplace relations law as such an implied term had not been so convincingly recognised, as it has been in England. 

The High Court of Australia has now unanimously overruled the Federal Court and confirmed that there is no implied term of mutual trust and confidence in Australian employment contracts.   The High Court held there was no need to imply such a term into employment contracts finding that to do so would require the Court to assume a regulatory, as opposed to judicial function.  The majority Judgement states that the declaration of such an implied term was “a matter more appropriate for the legislature than for courts to determine”.

Along with the standard factors to be considered in determining whether a term should be implied or not, the High Court also discussed the mutuality of the implied term.  Specifically that the obligations would not only be imposed upon all employers, but also on all employees; employees whose voices had not been heard in this matter.  Moreover, the High Court found that the “mutual obligations [are] wider than those which are necessary even allowing for the broad considerations which may inform implications in law”.  

Additionally, and to avoid any doubt, the High Court held that English authorities which implied the term of mutual trust and confidence into employment contracts are not applicable in Australia.  In this regard, we note that the leading English authority deals with the relationship between employer and employee, rather than performance of the employment contract which this case focused upon.

The majority Judgement concluded that the absence of such an implied term should not be taken as reflecting upon the question whether there is a general obligation to act in good faith in the performance of contracts.

Whilst, it is now abundantly clear, that there is no implied term of mutual trust and confidence in Australian employment contracts; you should not assume that the mutual obligations of trust and confidence are wholly banished from Australian employment law.  Rather, this case should be seen as a warning to all employers on the importance of understanding the extent of their obligation to maintain trust and confidence in an employment relationship; especially when carrying out any termination and/or disciplinary matter.

Should you have any queries regarding the High Court’s decision or need assistance in managing your staff please contact one of our specialised workplace relations team members.