The High Court of Australia unanimously overturned a decision of the Full Court of the Federal Court and found that Australian contracts of employment do not contain an implied term of mutual trust and confidence.

The decision of Commonwealth Bank of Australia v Barker [2014] HCA 32 is one of the most significant decisions for employers in recent years.

The facts
Stephen Barker’s employment with the bank was terminated by reason of redundancy on 9 April 2009.

On 2 March 2009, Mr Barker was told that his position was to be made redundant and that if he was not redeployed within the bank, which was the bank’s preference, his employment would be terminated approximately four weeks thereafter.

Having been deprived of access to his bank email account and voicemail, Barker was not informed about an alternative position within the bank until 26 March 2009.

He was not contacted by a recruitment consultant involved in facilitating the recruitment process for that position, nor was the possibility of retraining for that role discussed with him.

Barker commenced proceedings against CBA in the Federal Court of Australia, and he alleged that the conduct of the bank was in breach of an implied term of mutual trust and confidence and resulted in him being denied the opportunity of redeployment.

The primary judge held that there was a term of mutual trust and confidence implied in the agreement between Barker and the bank and that the bank’s serious breach of its own redeployment policy amounted to a breach of that implied term.

The Full Court, by majority, agreed that a term of mutual trust and confidence was implied by law into the agreement, but held that the primary judge erred in treating the term as co-extensive with an obligation to observe the redeployment policy.

The majority held that the implied term required that the bank take positive steps to consult with Barker about alternative positions within CBA and give him the opportunity to apply for them.

By failing to make contact with him for a period which the primary judge had found to be unreasonable, the term had been breached.

By grant of special leave, CBA appealed to the High Court.

The question in the appeal was whether employment contracts contain a term of mutual trust and confidence 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.

Allowing the appeal, the court held that the proposed term was not necessary in the sense that would justify implying it by law into all employment contracts.

Implications for employers
In a legal update on the case, Minter Ellison noted that employees and their lawyers have been using the ‘implied term’ to support massive claims for damages – often with long term employees’ “lifetime” damages claims, based on the assertion that, had the employee been treated fairly, they would have remained at the employer until retirement.

“The High Court decision should bring an end to these claims when they are based on the implied term,” Minter Ellison said.

“However, employees can still bring claims seeking contractual damages on other bases – such as the incorporation of policies. And, of course, employees can still bring other types of claims, such as adverse action claims and – where employees have access – claims for unfair dismissal.”

What you need to do?
“While good news, you still need to make sure your employment contracts are properly drafted,” Minter Ellison said.

“The decision is likely to mean that employees adopt more inventive ways of bringing contractual claims. If you have any claims on foot relying on the implied term, now is the time to revisit them.

“Employees will need to amend any existing court claims to drop reliance on the implied term. Negotiating positions may also be significantly affected.”

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