We wrote in 2013 about a Federal Court case which by majority found an implied term of mutual trust and confidence in an employment contract. The case involved the redundancy of a long-term employee of the Commonwealth Bank. The employee claimed that the employer breached the implied term of mutual trust and confidence by not engaging properly in the redeployment process. The Federal Court held in favour of the employee and awarded damages of $317,000.
This decision was recently overturned on appeal to the High Court, which has found that Australian common law does not extend to reading in an implied term of mutual trust and confidence in employment contracts. The earlier Federal Court decision had signalled a new approach towards these types of cases, and an apparent judicial willingness to follow the direction taken in the United Kingdom (which supports an implied term of mutual trust and confidence in employment contracts). There were potentially significant ramifications if this position was confirmed on appeal.
The High Court has clearly ruled that there is no implied term of mutual trust and confidence in Australian employment contracts. However, the question of whether an obligation to act in good faith exists in Australian common law, and specifically in relation to employment contracts, was left open.
The orders of the Federal Court were quashed and the employer was required to pay four weeks salary in lieu of notice to the employee. The original award for damages was replaced by an order for the significantly lesser sum of $11,692.31.
Lesson for employers
The employment relationship between employers and employees is largely governed with reference to the employment contract and the terms within it. The importance of a well-drafted contract cannot be overstated. Employers should ensure their employment contracts, and the express terms within them, are comprehensive. In the event that issues do arise, with the relationship between employer and employee breaking down at some future point, the employment contract may be called upon to determine the dispute.
Sarah Waterhouse, Solicitor, BlandsLaw