Norman Waterhouse
   
Norman Waterhouse

Normans Alert

High Court rejects the implied term of mutual trust and confidence

The High Court has sensationally reversed the recent acceptance in Australian law of an ‘implied term of mutual trust and confidence’ in employment contracts. The decision in Commonwealth Bank of Australia v Barker [2014] HCA 32 has now ended over a decade of legal debate, with the conclusion that the implied term of mutual trust and confidence is not a feature of Australian law.

Why was the term rejected?

The implied term of trust and confidence was originally an invention of English law. The term is automatically implied into English contracts of employment (unless inconsistent with an express term), and provides that the parties to the employment contract must not engage, without reasonable cause, in conduct likely to destroy or seriously damage the relationship of trust and confidence between the parties.

When looking at the previous (now overruled) decision in these proceedings which upheld the existence of the implied term, we remarked on how this rather ambiguously defined term would introduce uncertainty as to what conduct is permissible by either party to an employment contract. The High Court agrees with this assessment, describing the application of the proposed term as ‘inherently uncertain’.

Australian common law does support the implication of implied terms into employment contracts. However, an implied term will only be implied into a contract if, among other things, the presence of the term is ‘necessary’ to give business efficacy to the contract. The High Court found that a term of mutual trust and confidence is not ‘necessary’ to give business efficacy to an employment contract. Consequently, the High Court determined that such a term should not be implied into employment contracts by law.

The conditions in England which necessitate the implication of a term of mutual trust and confidence into employment contracts do not exist in Australia. The High Court determined that other Courts which have simply imported English principles regarding the implied term of mutual trust and confidence without ‘inspect[ing them] at the border to determine their adaptability to native soil’ have erred in doing so.

Can employers and employees now simply destroy trust and confidence without consequence?

The answer to this question is no. Despite the lack of an implied term of trust and confidence, actions which ‘destroy trust and confidence’ are likely to fall foul of existing statutes and legal doctrines. These include principles relating to adverse action, discrimination, and the duty of co-operation. Employees also have an obligation of fidelity to employers. Additionally, the High Court has expressly opted not to decide upon the question of whether it is necessary to imply a term of ‘good faith’ into employment contracts, leaving that particular debate open to further argument.

What does it mean for employers?

The extinguishment of this debate restores some clarity as to what conduct employers and employees can and cannot engage in within the bounds of their contracts of employment.

However, the absence of the term of mutual trust and confidence does give employers and employees alike one less string to their bow in pursuing claims or defending decisions. This will compel employers and employees to identify with greater precision the legal reasons for their claim or decision.

Importantly for employers, it is no longer possible to rely on the shape-shifting implied term of ‘mutual trust and confidence’ to argue that an employee has breached their contract, or in turn to justify a dismissal or other action. If an employer wants an employee to be bound by a particular term or policy, it must be included or incorporated by an express term in the applicable contract of employment.

For more specific information on any of the material contained in this article please contact Sathish Dasan on 08 8210 1253 or sdasan@normans.com.au, or Lincoln Smith on 08 8210 1203 or lsmith@normans.com.au.


 

Forward this issue

Do you know someone who might be interested in receiving this monthly newsletter?

Forward

Unsubscribe

You're receiving this newsletter because you signed up on the Norman Waterhouse website or you signed the Normans terms of engagement.

Unsubscribe

Contact us

Level 15, 45 Pirie St
Adelaide SA 5000
+ 61 8 8210 1200
www.normans.com.au
normans@normans.com.au


You're receiving this newsletter because you signed up at normans.com.au or you signed the Normans terms of engagement.
Having trouble reading this email? View it in your browser. Not interested anymore? Unsubscribe Instantly.