Australian Federal Court confirms existence of implied term of mutual trust and confidence

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[authors: Joel Davis and Tessa Kelman]

The recent Federal Court decision of Commonwealth Bank of Australia (CBA) v Barker [2013] FCAFC 83 sets important new precedent for employment law. For the first time in Australia, an implied term of mutual trust and confidence has been incorporated into an employment contract, and damages awarded for a breach of that term.
 
The implied term of mutual trust and confidence has been recognised by UK courts since the 1970s, but until now has not found a home in Australian common law. In this watermark case, the court upheld this implied term and stated that an employer was required to not, without reasonable cause, 'conduct itself in a manner likely to destroy or seriously damage the relationship of confidence and trust' between the employer and employee.
 
Key facts
Barker was an executive manager at CBA. Barker's employment contract required CBA to consider redeployment opportunities prior to termination. When CBA moved to make Barker redundant, not only did they fail to consider redeployment opportunities, but they withdrew his email and phone facilities without notifying the redeployment officer. The redeployment officer had made a number of unsuccessful attempts to contact Barker by those means.
 
The court held that the implied term of mutual trust and confidence existed as part of Barker's employment contract. CBA had breached this implied term when it failed to consider redeployment opportunities and withdrew Barker's email and mobile phone facilities, damaging the relationship of confidence that existed between the bank and Barker.
 
Barker was awarded $335,623 in damages for breach of the implied term.
 
Lessons for employers
Employers should be careful to consider the employment of an employee beyond the mere contractual terms. Any behaviour that is likely to destroy or damage the employment relationship may expose the employer to a breach of mutual trust and confidence.
 
It is important to remember that this duty is a mutual one, where both the employer and employee owe the duty to one another. This means that where an employer expressly negates their duty of trust and confidence, the employee will have no corresponding duty (ie faithful service, non-compete and confidentiality obligations) unless it is forms part of their contract. Accordingly, employers should think carefully before attempting to exclude their implied duties to an employee. 
 
In general, this decision serves as a timely reminder for employers to ensure their actions when dealing with employees are fair and reasonable. In particular, employers should comply with reasonable consultation and notice periods and ensure they observe their own policies and procedures when managing employee transitions and workplace change.