Adriana Orifici, ‘High Court to Examine Whether There is an Implied Term of Mutual Trust and Confidence in Australian Employment Contracts’ (28 January 2014).

The High Court has allowed an an appeal from the decision of the Full Federal Court which recognised the existence in Australian law of an implied term of mutual trust and confidence between employers and employees. The ‘implied term’ requires that neither party act without reasonable cause in a way likely to destroy or seriously damage trust and confidence between them. Barker, a Commonwealth Bank employee made redundant in 2009, contends that the Bank failed to conduct his termination process in a bona fide manner because it did not follow its policy of attempting to redeploy employees rather than make them redundant, thus seriously damaging the relationship of mutual trust and confidence between them. A majority of the FCAFC agreed with that position, and held that the implied term had been breached, and that Barker was entitled to $335,000 in damages.

The High Court unanimously allowed the appeal. After examining the Australian approach to implications in law and the United Kingdom authorities that led to the recognition of the existence of the term ([30]–[34], in particular Malik v Bank of Credit [1997] UKHL 23), French CJ, Bell and Keane JJ held that the development of the implied term in the United Kingdom was not applicable to Australia ([35]ff). Whether or not the implied term existed in Australian law depended on whether it was ‘”necessary” in the sense that would justify the exercise of the judicial power in a way that may have significant impact upon employment relationships and the law of the contract of employment in this country’ (at [36]). Necessity could be defined by what ‘the nature of the contract itself implicitly requires’, and could be shown by the contract being futile without the implication but not merely be showing that the ‘reasonableness’ of the implied term (at [36]). Because the implied term places obligations on both employers and employees wider than those that are necessary, and because the consequences for employees in Australia generally were potentially wide and uncertain (see at [38]–[40]), the plurality refused to recognise the term and instead suggested it was a matter for the Parliament to determine (at [40]). Kiefel J and Gageler J in separate judgments agreed that the term was not necessary.