The doctrine of mutual trust and confidence currently applies in Australia due to the Decision of the Full Bench of the Federal Court in Commonwealth Bank of Australia v Barker [2013] FCAFC 83. However, the case is on appeal to the High Court and a decision is expected shortly. In this article we explain the term and show why it has significant consequences for the way employees need to be managed, especially senior executives.

Introduction

We need to put the doctrine into context.

The “Employment Contract” can be written or oral or partly written and partly oral. It can be a Formal Contract or a Letter of Offer. To some extent the more that is expressed in a contract, the less that can be implied.

However, many contracts, especially those that are not documented correctly, can have provisions implied in them by law. For example, the National Employment Standards are implied and the Common Law Courts can imply other provisions. For example:

  • the implied term of “reasonable notice” when a contract of employment has no notice provisions;
  • the implied term of mutual trust and confidence.

The implied term of mutual trust and confidence

There was been a great amount of judicial conflict over whether or not the British concept of “mutual trust and confidence” has made its way into Australian Law. The matter has now been considered in Commonwealth Bank of Australia v Barker.

The facts are as follows:

In 2009 CBA restructured its Corporate & Financial Services business unit. Pursuant to that decision, Barker’s position became redundant. He was a 23 year employee.

CBA had a Redundancy Policy, which was expressed to not “form any part of an employee’s contract of employment”. The Policy was to redeploy employees to a suitable alternative position where it was possible to do so.

Barker was told by letter that his position was redundant, but that CBA wanted to redeploy him. Nevertheless, his email access was terminated, he had to clear out his desk, return keys and mobile phone and not return to work.

A month later, Barker received a letter stating that his employment had ended as a result of redundancy. CBA had taken no actions to redeploy Barker.

The Judge who originally heard the matter (Mr Justice Besanko), decided that the Redundancy Policy was an implied term of the contract of employment.

He then found that there was a serious breach of the Policy (and therefore a breach of a term of the employment contract) by the Bank. As a result of the breach of contract, Mr Barker was awarded in excess of $300,000 for the breach.

The trial Judge did not believe that the provision stating that the Policy was not a term of the contract had any effect.

On appeal to a Full Bench of the Federal Court, the trail Judge’s decision was overruled in some respects but the decision to award Mr Barker $300,000 was upheld, not for breach of an implied term created by the Policy,but due to a breach of the doctrine of “mutual trust and confidence”.

By this decision, the doctrine of “mutual trust and confidence” now exists in Australian law until such time as it may be overturned by the High Court. In other words, all employers must now assume that the doctrine applies and act accordingly as a breach of the doctrine will result in an award of damages just as if there had been a breach of the employment contract.

The doctrine can be expressed as an obligation that an employer will not, without reasonable cause, conduct itself in a manner calculated and likely to destroy or seriously damage the relationship of trust and confidence between the parties.

The dissenting judge, (Jessup J) described the doctrine as a “Trojan horse” because of its broad width and the fact that its operation will depend upon the nature of each employment relationship.

The lessons for employers

The appeal to the High Court has been heard and a decision is expected in the next few months.

Irrespective of that decision, employers should review their employment contracts, their Policies and their Procedures to take account of the doctrine. Above all, when dealing with employees, they must be aware of the doctrine and how it might be applied to the situation in which they are confronted.