High Court to Examine Whether There is an Implied Term of Mutual Trust and Confidence in Australian Employment Contracts

By Adriana Orifici

The High Court has granted the Commonwealth Bank leave to appeal the decision of a majority of the Full Court of the Federal Court in Commonwealth Bank of Australia v Barker [2013] FCAFC 83 (Jacobson and Lander JJ, Jessup J dissenting), which recognised that an implied term of mutual trust and confidence (the Implied Term) exists in employment contracts in Australia. In the special leave application, the issues in dispute were described as giving rise to a ‘test case’.

In Australian employment contracts, terms may be implied in fact or in law.

The Implied Term is implied in law and requires that a party to an employment contract will not, without reasonable cause, conduct themselves in a manner likely to destroy or seriously damage the relationship of confidence and trust between employer and employee.

In the UK, the existence of the Implied Term was established in the 1997 decision of the House of Lords, Malik v Bank of Credit and Commerce International SA [1997] UKHL 23.

To date, no High Court authority has determined the question of whether the Implied Term forms part of employment contracts in Australia. Further, the decision of a majority of the Full Court of the Federal Court in Barker is the first time in which an intermediate appellate court has explicitly recognised the existence of the Implied Term as necessarily implied by law.

In the decision, the majority determined that the precise scope of the Implied Term was affected by the nature of the relationship and the facts of the case. Applying these principles to the facts of the case, the majority found that the Commonwealth Bank of Australia (CBA) had, by its conduct, breached the Implied Term after making its former manager, Stephen Barker, redundant and, consequently, Mr Barker was entitled to $335,000 in damages for that breach.

In a strongly-worded dissent, however, Jessup J determined that the Implied Term could not satisfy the test of necessity so as to be implied in the employment contract and found, in any event, that the Implied Term ought not be implied in employment contracts in Australia. Jessup J also observed that, even if the Implied Term existed, the CBA had not breached it in this case.

The existence of the Implied Term in Australian law, as a result of this decision, is significant. It means that, currently, the Implied Term exists in every Australian employment contract. So, for example, that an employee can make a claim for potentially substantial damages against his or her employer where the employer’s actions, leading up to termination of the employee’s employment, breach the Implied Term.

The granting of special leave will ensure there is certainty on the question of whether the Implied Term exists under Australian law. The High Court may also articulate with greater specificity the content of the Implied Term and whether it can be excluded by an express contractual term.

AGLC3 Citation: Adriana Orifici, ‘High Court to Examine Whether There is an Implied Term of Mutual Trust and Confidence in Australian Employment Contracts’ on Opinions on High (28 January 2014) <http://blogs.unimelb.edu.au/opinionsonhigh/2014/01/28/orifici-barker/>.

Adriana Orifici is a Research Fellow at the Centre of Employment and Labour Relations Law at Melbourne Law School.

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About Adriana Orifici

Adriana Orifici is a Research Fellow at the Centre of Employment and Labour Relations Law and is working on the ARC Discovery Project, ‘Reshaping Employment Discrimination Law: Towards Substantive Equality at Work?’ with Associate Professor Beth Gaze and Doctor Anna Chapman. Adriana completed articles in 2006 at Maddocks and practised in employment and labour relations law. She holds honours degrees in arts and law from the University of Melbourne and in 2013 completed a Master of Laws at MLS with first class honours.