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Australia – Mutual Duty Of Trust And Confidence: High Court To Decide.

16 December, 2013

 

Legal News & Analysis – Asia Pacific – Australia – Labour & Employment

 

WHAT YOU NEED TO KNOW

 

  • The High Court has granted special leave to appeal the decision of the Full Court of the Federal Court in Commonwealth Bank of Australia v Barker (2013) 214 FCR 450, which held that a term imposing obligations of trust and confidence on employers would be implied by law into all contracts of employment in Australia unless inconsistent with the express terms of the contract.
  • Definitive guidance on whether the implied term forms part of Australian law and, if so, the content of the implied term can be expected when the High Court hears the appeal next year.

WHAT YOU NEED TO DO

 

  • For the time being at least, the decision of the Full Court of the Federal Court stands. Accordingly, employers should continue to take a cautious approach to all actions taken in the lead up to the potential termination of an employee’s employment. If the implied term survives the appeal to the High Court, it is the loss of chance of continued employment that an employee may suffer if the employer breaches the implied term in the lead up to dismissal that is likely to be the primary source of significant damages awards in this area.

Special Leave Granted


The High Court of Australia today granted the Commonwealth Bank of Australia (CBA) special leave to appeal the decision of the Full Court of the Federal Court in Commonwealth Bank of Australia v Barker (2013) 214 FCR 450.


In a prior article, we reported on the significance of the Full Court decision and its implications for employers, in particular that the decision:

 

  • recognised, for the first time in an appellate court in Australia, that an implied term existed in employment contracts which imposed upon employers the obligation to “not, without reasonable cause, conduct itself in a manner likely to destroy or seriously damage the relationship of confidence and trust between employer and employee”;
  • conceded that the duties of an employer under the implied term “are still being developed” and “must be moulded according to the nature of the relationship and the facts of the case”; and
  • emphasised that the implied term cannot be breached by conduct of the employer directed at terminating the employment relationship (for which remedies under statute may be available) and only acts which occurred prior to dismissal that may contravene the implied term.

In hearing CBA’s application for special leave to appeal that decision, the High Court was unpersuaded by Mr Barker’s argument that the matter was not a suitable vehicle for consideration by the Court of the wider legal issue of whether or not a term of trust and confidence should be implied into all contracts of employment as a matter of law. The High Court similarly rejected the argument that the appeal was not in the interests of justice having regard to financial hardship that would be imposed on Mr Barker. However, it imposed some conditions protective of Mr Barker on cost matters.


The High Court accepted CBA’s position that special leave ought to be granted on the basis that clarity was needed on the existence or otherwise of the term in light of conflicting first instance authorities, and that the question is one of general importance.

 

Implications Of The Decision


This decision means that Jessup J’s powerful dissent in the case in the Full Court of the Federal Court, which argued against the implication of a term of trust and confidence by operation of law, may yet be found to reflect the correct state of the law in Australia. Regardless, at the least, employers can expect to receive welcome further guidance on what is required to comply with a contractual duty of trust and confidence.


In the meantime, a cautious approach by employers to all action taken in the lead up to a potential dismissal of an employee is strongly recommended. This will minimise the risk of potentially significant damages claims arising out of alleged breaches of the supposed implied term of mutual trust and confidence.


MAKING THE CASE: Insights From Geoff Giudice


This afternoon’s decision means that the nation’s highest court will consider a number of important issues concerning the contractual obligations of Australian employers. Those issues include:

 

  • whether Australian employers generally are bound by an implied term of mutual trust and confidence
  • the nature of the implied term
  • whether the term can be excluded either by statutory provisions or by express contractual provisions
  • whether an employee can recover damages for breach of the term.

While we can expect a definitive answer on the first issue, it remains to be seen how far the Court goes in dealing with the other issues.

 

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For further information, please contact:

 

Richard Bunting, Partner, Ashurst
[email protected]

 

Geoffrey Giudice, Ashurst
[email protected]


David Woolias, Ashurst
[email protected]


Taboka Finn, Ashurst
[email protected]

 

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