High Court Sweeps Implied Term In To The Dust Bin of History

In an eagerly anticipated decision, the High Court has overruled a Full Federal Court decision (discussed in our August 2013 newsletter) that resulted in a former executive being awarded in excess of $300,000. The High Court unanimously held there is no implied term of ‘mutual trust and confidence’ in Australian employment contracts.

The case involved a senior bank employee, Mr Barker, who was advised his role would be made redundant. Barker was told that “if he was not redeployed within the bank, which was the Bank’s preference, his employment would be terminated in approximately four weeks.” On the same day, Barker’s email account, voicemail and intranet account were terminated and he was asked to hand in his mobile phone. The Bank advised that he could be redeployed elsewhere if a suitable role was available. The Bank’s careers adviser tried to contact Barker by sending an email to Barker’s (now closed) email account, offering him redeployment support. Ultimately Barker was contacted but time had elapsed and the Bank wrote to Barker advising his employment would be terminated by reason of redundancy.

This was an appeal from the Full Court of the Federal Court which had found that the Commonwealth Bank breached the implied term of mutual trust and confidence when the Bank breached its redeployment policy and failed to consider opportunities for Mr Barker’s redeployment.

High Court Decision

The question before the High Court on Appeal was do employment contracts in Australia contain an implied term of mutual trust and confidence between employer and employee?

The High Court unanimously ruled there is no implied term of mutual trust and confidence in employment contracts that provides that neither party will, without reasonable cause, conduct itself in a manner likely to destroy or seriously damage the relationship of trust and confidence between them. The Court found the implication of the term was unnecessary in employment contracts and that it amounted to a step that was beyond the Court’s legitimate law making function. This is in marked contrast to the law in the United Kingdom where such a term is implied. Regardless, the term could be enshrined through future legislative changes. As of yet, such changes are not part of the Abbott Government’s IR Agenda and so it is unlikely they will occur any time soon.

What this means for employers

In the past 20 years, similar claims for compensation have been brought by dismissed employees for breach of the implied term, with varying outcomes. The decision should come as a relief to employers that it will now be increasingly difficult, if not impossible, for employees to bring such claims based on what was for many years uncertain and ill-defined law. The decision also suggests businesses may be able to embed further discretion provisions in their workplace policies and procedures with less legal exposure than was previously the case.

However the decision is not a complete get out of gaol free card for employers. While no implied term of trust and confidence exists in employment contracts, engaging in unreasonable conduct against an employee may still carry legal risk.

The decision is a timely reminder for employers to undertake a review of their employment contracts so they understand their terms and conditions and how they operate. HR Legal works with employers on redundancy and termination matters as well as drafting employment contracts that cover both implied and explicit terms.

Please contact us if you require assistance in this area.

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This article was produced by HR Legal. It is intended to provide general information only in summary format on legal issues. It does not constitute legal advice, and should not be relied on as such.