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Employers have an implied term of mutual trust and confidence following redundancy

Employment Law News | April 2014

The recent decision of the Full Federal Court highlights the implied term of mutual trust and confidence contained in employment contracts and confirms the obligations of an employer in a redundancy situation.

The Full Federal Court in Commonwealth Bank of Australia v Barker [2013] FCAFC 83 confirmed the 2012 decision of the Federal Court which held that the Commonwealth Bank of Australia had breached an implied term of mutual trust and confidence contained in an employee's employment contract. The Court held that, unless expressly excluded, a term of mutual trust and confidence would be implied in all Australian employment contracts.

This decision means that an employee may claim for damages where they have suffered damage as a result of an employer's breach of the implied term of mutual trust and confidence where the breach occurred prior to the employee's termination.

Background

Mr Barker had worked for the Commonwealth Bank of Australia (CBA) since 1981. In 2009 he was informed that his position had been made redundant. He was then placed on paid leave and later advised that his employment would be terminated.

CBA's Redeployment Policy (Policy) provided that certain steps were to be taken by CBA to try to redeploy Mr Barker within the organisation. According to CBA's human resources reference manual, the Policy did not form part an employee's employment contract. Mr Barker brought proceedings, alleging that CBA had failed to take the steps required by the Policy, and in doing so had breached an implied term of mutual trust and confidence (Term) contained in his employment contract.

At first-instance [Barker v Commonwealth Bank of Australia [2012] FCA 942], the Federal Court found that, although the Policy did not form part of the employment contract, CBA's failure to follow the Policy and to take the steps that were necessary to facilitate Mr Barker's redeployment amounted to a breach of the Term.

CBA appealed to the Full Federal Court on the basis that the Term should not have been implied in the employment contract, and alternatively that no breach of the Term had occurred.

On appeal, the Court found that CBA had breached the Term by failing to properly explore Mr Barker's prospects of redeployment. The Court held that the Term is implied into all Australian employment contracts, unless expressly excluded by a contractual clause or is inconsistent with a contractual clause.

When deciding on the Term and whether a breach had occurred, the Court took into consideration:

  • Mr Barker's length of employment, being around 28 years;
  • The size of the organisation and workforce; and
  • The clause in his employment contract allowing for redeployment within the organisation as an option where the position becomes redundant.

The employment contract provided that Mr Barker would be terminated if he could not be redeployed within the organisation and CBA had expressed a preference for redeployment in a letter to Mr Barker giving notice of the redundancy.

The Court found that the Policy required CBA to take positive steps consult with Mr Barker of the redeployment option and to provide him the opportunity to apply for alternative positions, but the CBA breached the Term by failing to contact Mr Barker within a reasonable time regarding redeployment. Mr Barker's work email and mobile phone were deactivated and so the CBA failed to follow their contractual obligation to take the necessary steps to facilitate Mr Barker's redeployment.

The Term

The Full Federal Court expressed the Term as a requirement that an employer must not, without reasonable cause, conduct itself in a manner that is likely to destroy or seriously damage the relationship of mutual trust and confidence between employer and employee. The scope of the Term's application will depend on the nature of the employment relationship.

A breach of the Term may result in an award of damages, provided that the employee's loss occurs prior to their termination. Damages will not be available for the act or manner of dismissal, hurt feelings, distress, or reputational damage resulting from the dismissal.

Employers may wish to expressly exclude the Term to avoid claims for damages based on a breach. However, employers should consider the effect that this exclusion will have on the relationship with their employees.

Conclusion

Barker establishes new contractual law that could have serious ramifications for employers. As a result of this, employers should review and, if appropriate, amend their employment contracts to expressly exclude the implied term of mutual trust and confidence. Employers should seek advice regarding the necessary steps for minimising risk in this area.

If you require any further information or advice regarding Barker, or for a review of your employment contracts, please contact Forum Law, lawyers in the inner west of Sydney for advice and assistance.

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