Implied Duty of 'Mutual Trust & Confidence' in Employment Contracts
IN AUGUST 2011 we considered the implied term of ‘good faith’ in employment contracts. A recent decision in the Full Court of the Federal Court of Australia (Commonwealth Bank of Australia v Barker) confirms that special terms are implied into employment contracts. Employment contracts, unless otherwise agreed, contain an implied term that employers owe a duty of mutual trust and confidence to employees.
Mr Stephen Barker commenced employment with the Commonwealth Bank of Australia (CBA) straight out of high school. In March 2009, after 23 years with the CBA, Mr Barker was told that his position as an executive manager was redundant.
The CBA told Mr Barker, that if he was not relocated to an alternative position within the bank, his employment would be terminated. The CBA made a recommendation to Mr Barker that he apply for a particular role within the CBA, but Mr Barker did not apply for the position recommended to him. On 9 April 2009 Mr Barker was informed that his employment was terminated with effect from the close of business on that day.
Loss of chance of redeployment
Mr Barker filed proceedings in the Federal Court of Australia alleging the CBA breached an implied term of his employment contract. In particular, he claimed:
- There was an implied term of mutual trust and confidence in his contract of employment;
- Pursuant to that implied term, CBA was not to engage in conduct that was likely to destroy or seriously damage their relationship of confidence and trust;
- By not actively complying with its internal policies to find alternative positions for Mr Barker in the organisation, the CBA breached that implied term of mutual trust and confidence.
Mutual trust and confidence
Mr Barker was successful at first instance. On appeal, the Full Federal Court accepted that an implied term of trust and confidence exists in employment contracts. However, the content of the implied term is moulded according to the nature of the particular employment relationship. In the circumstances of this case, the CBA’s failure to take positive steps to consult with Mr Barker about alternative positions and to give him opportunity to find alternate work constituted a breach of the implied term of mutual trust and confidence. Mr Barker was awarded $335,623.57.
What employers should know
Employment contracts include an implied term of mutual trust and confidence. This duty requires the employer to not, without reasonable cause, conduct itself in a manner likely to destroy or seriously damage the ongoing relationship between employer and employee. Deciding which acts are, and are not, in breach of an implied term may be difficult. But where an employer fails to take steps to enable its employee to obtain the possibility of redeployment, contrary to its internal policies, the term may be breached.
The implied term of mutual trust and confidence means employers should:
- Ensure that they comply with their internal policies;
- Take positive steps to consult with employees facing redundancy;
- Inform employees facing redundancies of suitable redeployment opportunities; and
- Take a cooperative approach when identifying redeployment opportunities.