In a much anticipated decision, the High Court of Australia yesterday overturned the previous decisions of the Federal Court of Australia and Full Federal Court of Australia which effectively imported a term of mutual trust and confidence into every Australian employment contract.

What happened?

Stephen Barker was employed by the Commonwealth Bank of Australia and was made redundant on 9 April 2009.

Mr Barker alleged in the proceedings that the Bank’s failure to redeploy him was in breach of a term of mutual trust and confidence which was implied into the employment contract.

Although a finding of an implied term has been common in some other jurisdictions, it has been rare in Australia, but has in recent times been increasingly asserted on behalf of plaintiff employees, often unsuccessfully.

Despite this, Mr Barker was successful at first instance before the Federal Court, which held that a term requiring that the parties act towards each other with mutual trust and confidence was implied into Mr Barker’s employment contract with the Bank and the failure to redeploy him was a breach of that term.

On appeal, the Full Federal Court (majority 2:1) agreed.

Critical findings

The High Court has now put to bed speculation about whether a term of mutual trust and confidence is to be implied into every employment contract in Australia.

The question before the Court was whether employment contracts contain a term implied by law that the parties will not, without reasonable cause, conduct themselves in a manner likely to destroy or seriously damage the relationship of trust and confidence between them.

In allowing the appeal, the High Court held that the proposed term was not necessary as it would justify implying it by law into all employment contracts.

Implications for employers

This case makes it clear that employers no longer need to worry about the spectre of the implied term if they are otherwise complying with their contract with the employee, and their various policies and statutory obligations.