AREEA employee relations lawyer Holly Simpson-Zucal summarises a decision handed down recently by the High Court of Australia in which it was unanimously found that a term of ‘mutual trust and confidence’ should not be implied into employment contracts in Australia.

The High Court decision of CBA v Barker concerns Mr Barker who was terminated by CBA by way of redundancy in 2009. Mr Barker challenged his termination in the Federal Court alleging, among other things, that a term of mutual trust and confidence was implied in his employment contract and that CBA had breached this implied term.

The primary judge, Besanko J, held that there was a term of mutual trust and confidence implied into Mr Barker’s employment contract and that CBA’s breach of its own internal redeployment policy was a serious breach of this implied term. Besanko J awarded damages of $317,500 to Mr Barker.

On appeal, the Full Court of the Federal Court also found that a term of mutual trust and confidence was implied into Mr Barker’s employment contract. The Full Court found that the implied term required CBA to ‘take positive steps to consult with Mr Barker about alternative positions’ and give him the opportunity to apply for them and that CBA’s failure to do this constituted a breach of the implied term.

High Court Decision

The High Court accepted that the ‘primary question raised by the appeal is whether, under the common law of Australia, employment contracts contain a term 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 High Court refused to find that such a term should be implied into Mr Barker’s employment contract, holding that any such implication would be ‘a step beyond the legitimate law-making function of the courts.’

The High Court acknowledged the acceptance of this implied term in the United Kingdom but held that the ‘history of the development of the term in the United Kingdom is not applicable to Australia.’

The High Court raised concern about what the implication of such a term could mean for employees and noted that the ‘complex policy considerations…mark it, in the Australian context, as a matter more appropriate for the legislature than for the courts to determine.’

The High Court overturned the damages awarded to Mr Baker.

Click here to read the full decision: Commonwealth Bank of Australia v Barker [2014] HCA 32 (10 September 2014).

Implications for Employers

Prior to this decision by the High Court, significant uncertainty existed in Australia about whether or not an implied term of mutual trust and confidence was part of Australian law and, in the event that it was, what obligations it imposed on employers. This implied term was often relied on by high earning employees, who were otherwise exempt from the unfair dismissal regime, to challenge the reasons for, or process of, their termination.

This unanimous decision of the High Court ends any speculation about the existence of this implied term and provides much needed certainty for employers.

For more information and guidance on this matter, contact your local AREEA consultant.