A recent decision by the Federal Court has led to a change in employment law, with an implied term of mutual trust and confidence now deemed to form part of an employment contract between an employee and employer.
The decision was handed down by the Court in Commonwealth Bank of Australia v Barket [2013] FCAFC 83 by a 2-1 majority. This decision set the precedent for the recognition of the existence of this implied term of mutual trust that must exist between employees and employers.
In this case the Court awarded damages to the employee due to his employer breaching this term of mutual trust. The court held that in the relationship between employee and employer, “the employer will not, without reasonable cause, conduct itself in a manner likely to destroy or seriously damage the relationship of confidence and trust between an employer and employee.”
The Respondent before the Full Court was an employee of the Commonwealth Bank of Australia for 23 years prior to entering into a new contract of employment in 2004 as an executive of the Bank. In March 2009, he was informed that his current position was to be made redundant as of close of business that day. The Bank stated that its preference was to redeploy him to another position, but if that was not feasible, his employment would be terminated in four weeks’ time.
The actions of the Bank that breached the implied term of mutual trust between employee and employer were the immediate termination of the employee’s work email facilities, the immediate termination of his access to the Bank’s intranet and termination of his work mobile phone soon after.
This made him virtually un-contactable to the officers of the Bank who were charged with managing the redeployment process. During the weeks following this, the Bank failed to take timely and meaningful steps, in accordance with its own policies, to engage with the employee to investigate redeployment options. The employee was subsequently terminated as he could not be redeployed to another position due to the bank’s actions.
The Bank’s employment policies, including its Redeployment Policy, were detailed in its HR Reference Manual. However, the HR Manual contained a particular clause, which stated that:
“This manual is not in any way incorporated as part of any industrial award of agreement entered into by the Bank, nor does it form any part of an employee's contract of employment.”
For this reason, the employee failed to successfully argue that the policies were incorporated into his employment contract. However, he succeeded in arguing that in failing to comply with those policies during the period prior to his eventual termination, the CBA committed a ‘serious breach’ of the implied term of mutual trust and confidence which sounded in damages (although on appeal, the Full Court held that it was the Bank’s failure to take positive steps to consult with the employee and inform him of suitable employment opportunities that breached the implied term, rather than breaching their HR policies per se).
The Full Court carefully examined the relevant UK and Australian authorities and affirmed that the term does not operate at the point of termination, but for accrued causes of action prior to termination and is unaffected by subsequent unfair dismissal and any statutory rights.
Since the term is implied by law, it may be expressly excluded from a contract by the parties, or excluded when inconsistent with the express terms of the contract. In this case, there was nothing in the employee’s employment contract that either expressly or impliedly excluded the term.
The Full Court held that the content of the Bank’s duty under the implied term was to ‘take positive steps as of the initial meeting with the employee, to consult with him regarding the prospect of redeployment and to provide him with the opportunity to apply for alternative positions within the Bank’.
In withdrawing his email, intranet and mobile phone facilities it created a situation whereby it was unable to comply with this duty, which constituted a serious breach of the implied term.
The employee was awarded $335,623 in damages for loss of the chance of redeployment as a result of the Bank’s breach of the implied term.
What are the implications for employers?
The decision in this case set a precedent as to the existence of an implied term of mutual trust and confidence in Australian contracts of employment.
Employers therefore need to be aware that, even if they have expressly excluded their HR policies from incorporation as terms of a contract of employment, failing to act in accordance with such policies could also amount to a serious breach of the implied term thereby exposing them to an action for breach of contract and, potentially, significant damages.
When dealing with an employee, an employer at all times must maintain a relationship where mutual trust exists between the parties and not limit their access to tools vital to the job without just cause.