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'High Court decision: the implied term of trust and confidence in employment contracts is not part of Australian law'

Thursday October 30, 2014

The below article from 29 October 2014 has been provided by Gareth Jolly, Harriet Eager, and Kate Hurst, Minter Ellison

Landmark decision

On 10 September 2014 the High Court handed down its decision in Commonwealth Bank of Australia v Barker [2014] HCA 32. It unanimously ruled that the implied term of trust and confidence (Implied Term) is not part of Australian law and overruled the Commonwealth Bank of Australia v Barker [2013] FCAFC 83 decision (Federal Court Decision).

This is a landmark decision – resolving once and for all the vexed issue of the existence and application of the Implied Term. It greatly reduces the exposure of employers to major claims for contractual damages (such as 'lifetime damages' claims) – subject, obviously, to the terms of the individual employment contract in question.

Minter Ellison acted for the Commonwealth Bank in their successful appeal.

The background

In the Federal Court Decision, the Full Court of the Federal Court:

  • recognised the Implied Term – that is, a term implied into every employment contract that an employer 'will not, without reasonable and proper cause, conduct itself in a manner likely to destroy or seriously damage the relationship of confidence and trust between employer and employee';
  • decided that – in the particular circumstances (which included the size of the employer, the employee's length of service and passing references to redeployment in the contract) - the Implied Term required the employer to take 'positive steps to consult with [the employee] about the possibility of redeployment and to provide him with the opportunity to apply for alternative positions'; and
  • awarded damages of around $335,000, essentially on the basis that there was a 25% chance that the employee would have been redeployed, in which case his employment would have continued for an extended period.

What did the High Court decide?

The High Court ruled that the Implied Term is not part of Australian law.

The main judgment is the joint judgment of Chief Justice French, Justices Bell and Keane. They held that the history of the development of the term in the United Kingdom is not applicable to Australia and concluded that the complex policy considerations mean that it was a matter which was more appropriate for the Parliament than for the courts to determine.

Justice Kiefel and Gageler each delivered a separate judgement, also concluding that the Implied Term was not part of Australian law. Justice Kiefel placed reliance on the statutory unfair dismissal regime and also considered that an obligation to redeploy Mr Barker would be inconsistent with the express term of the contract providing for notice of termination. Justice Gageler commented on the vague nature of the Implied Term and its intrusion into an area of law extensively regulated by statute, most notably, unfair dismissal laws.

Why is it important?

Employees and their lawyers have been using the Implied Term to support massive claims for damages – often with long term employees' 'lifetime' damages claims, based on the assertion that, had the employee been treated fairly, they would have remained at the employer until retirement.

The High Court decision should bring an end to these claims when they are based on the Implied Term.

However, employees can still bring claims seeking contractual damages on other bases – such as the incorporation of policies.

And, of course, employees can still bring other types of claims, such as adverse action claims and - where employees have access - claims for unfair dismissal.

What you need to do?

While good news, you still need to make sure your employment contracts are properly drafted. The decision is likely to mean that employees adopt more inventive ways of bringing contractual claims.

If you have any claims on foot relying on the Implied Term, now is the time to revisit them. Employees will need to amend any existing court claims to drop reliance on the Implied Term. Negotiating positions may also be significantly affected.
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