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Welcome to the September edition of our Corporate and Commercial Briefly.

Walking the Talk – Industrial Relations in the Real World
Full Day Seminar
4th April 2014

Following our highly successful industrial relations conference in 2013, the Norman Waterhouse Employment and Industrial Relations Team invites you to join them again for a full day of in-depth and interactive analysis of workplace issues.

Please click here to download a printable flyer.

This is your chance to submit your topics of interest to marketing@normans.com.au.

>   Employment – The implied term of mutual trust and confidence: A development as important as it is ambiguous
>   The honeymoon is almost over – Register your security interest before February 2014 or risk losing your property forever

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Employment – The implied term of mutual trust and confidence: A development as important as it is ambiguous

The Full Court of the Federal Court of Australia has, in the case of Commonwealth Bank of Australia v Barker [2013] FCAFC 83, taken the stance that an implied term of mutual trust and confidence exists in Australian employment law. This is a significant development which has the potential to introduce an entirely new species of common law dispute. The content of the implied term is different for every individual employer-employee relationship, and precisely what that content is will only be clear after a breach has actually occurred.

In addition to establishing the implied term of mutual trust and confidence, the case has usefully examined the way in which that term interacts with workplace policies. This is an important aspect of the case from the perspective of many workplaces, including local government workplaces and many private enterprises.

Facts

Over the course of more than 20 years with the Commonwealth Bank of Australia (CBA), Mr Barker (the Employee) ascended to the role of Executive Manager for Corporate Banking, Adelaide. The contract of employment provided that employment will be terminated due to redundancy if the Employee’s position became redundant and CBA:

‘is unable to place the Employee in an alternative position with [CBA] or one of its related bodies, in keeping with the Employee’s skills and experience’.

CBA also had a detailed Redundancy Policy (the Policy), which was not incorporated into the contract of employment.

The Employee’s role was eventually made redundant. CBA advised the Employee that attempts would be made to redeploy him, but essentially made no real effort to secure redeployment. The Employee’s employment was terminated on the grounds of redundancy.

The Employee was successful in a 2012 challenge against CBA in the Federal Court, and again more recently in 2013 in the Full Court of the Federal Court.

The implied term of trust and confidence generally

In both the 2012 and 2013 decisions, the Court has advocated the position (a position which is entrenched in the law of the United Kingdom but which has long been debated and treated with caution in Australian courts) that, in the absence of any express clause to the contrary, an employment contract shall be deemed to contain an ‘implied term of mutual trust and confidence’. This term is implied by law, not fact. This means that the presence of the term does not depend on the factual circumstances of each particular case.

Simply put, the implied term imposes a mutual responsibility on both employee and employer not to engage, without reasonable cause, in conduct that is likely to ‘destroy or seriously damage’ the relationship of confidence and trust between employer and employee. Precisely what will constitute such conduct will be different for all separate employer-employee relationships, and will be influenced by a variety of factors including the other terms of the contract, the employee’s role, length of service and the nature of the enterprise.

Importantly, the implied term of mutual trust and confidence only applies to conduct which occurs prior to termination and which is not ‘inextricably bound up with termination’. In this case, failures regarding redeployment processes were considered not to be inextricably bound up with dismissal and thus were subject to the operation of the implied term.

Interaction of the implied term with workplace policies

In the 2012 decision, the Court held that the implied term was breached because the Policy was breached. This was in spite of the fact that the Policy was not incorporated into the contract. The Court held at that time that the breach of the Policy was a breach of the implied term because of the seriousness of the breach and because the detailed nature of the Policy gave rise to specific expectations.

While the Court in the 2013 decision agreed that the implied term was breached, it came to the conclusion differently. Importantly, the Court decided that a breach of a policy that has not been incorporated into a contract cannot constitute a breach of the implied term, however serious. Thus, the breach of the Policy in this case was held not to be a breach of the implied term.

Rather, the 2013 decision saw the breach of the implied term being founded in several other factors. The contract specifically contemplated that termination for redundancy would only occur if a suitable alternative position could not be found. Furthermore, the Employee was a senior employee with CBA, and had been for many years. In addition, CBA is a large corporate employer with a significant workforce.

The Court considered that, with the above factors in mind, the implied term of mutual trust and confidence in this case required CBA to take positive steps to consult with the Employee regarding redeployment and to provide the Employee with the opportunity to apply for alternative positions within the organisation. CBA’s failures with respect to redeployment thus constituted a breach of the implied term of mutual trust and confidence in the contract between the Employee and CBA.

Take home message

It must be noted that the 2013 decision was carried by a majority of 2:1. The one dissenting judge gave a comprehensive and technical dissection of the implied term both in the United Kingdom and in Australia, and ultimately concluded that there is not an implied term in Australian law. The majority decision has been appealed to the High Court, so that Court’s decision regarding whether or not the implied term exists in Australia will be a watershed moment for employment law. Adoption of the implied term by the High Court would secure its place in the industrial relations landscape. Rejection of the implied term would be equally and oppositely significant.

However, until a decision is made by the High Court, the prevailing position in Australia is now that employers and employees owe a duty of trust and confidence to one another, unless this duty has been specifically excluded by contract. The implied term is somewhat amorphous, and precisely what constitutes a breach of it will only be clear after such a breach has occurred. It is for this reason that the dissenting judge in the 2013 decision has described the implied term as a ‘Trojan Horse’ which may give rise to previously unforeseen obligations only after those obligations have been breached.

An employer must give thought as to whether any action may damage trust and confidence between it and one or more of its employees. Employers may also wish to insert clauses into employment contracts to expressly exclude the operation of the implied term of mutual trust and confidence.

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


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The honeymoon is almost over – Register your security interest before February 2014 or risk losing your property forever

In July we brought you news of the first major case to consider the Personal Property Securities Act 2009 (PPSA), which held that the legal owner of property who failed to register their security interest on the Personal Property Securities Register (PPSR) lost their ownership of that property.

With that in mind, the provisions of the PPSA which provide security holders with temporary perfection for security interests which arose prior to February 2012 are set to expire in February next year. If you wish to preserve your security interest and you haven’t yet registered on the PPSR, we suggest you do so as soon as possible.

If you’re in doubt whether you have a security interest, the following are some examples of deemed security arrangements:

  1. a conditional sale agreement;
  2. an agreement to sell subject to retention of title;
  3. a hire purchase agreement;
  4. a pledge;
  5. a trust receipt;
  6. a consignment (whether or not a commercial consignment);
  7. a lease of goods (whether or not a PPS lease);
  8. an assignment;
  9. a transfer of title;
  10. a flawed asset arrangement.

Owners of property the subject of a security interest and other secured parties should also be aware of the requirements to register a security interest by reference to a serial number (such as for cars, boats and aircraft) or by indicating whether the security interest is a purchase money security interest (known as a PMSI). Failure to register correctly on the PPSR may result in you losing your security interest’s priority.

For more specific information on any of the material contained in this article or if you require any assistance in registering your security interest please contact Tom Walrut on 8210 1218 or twalrut@normans.com.au.


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