Federal Court implies a new duty in employment contracts

A recent Federal Court decision has thrown a spanner in the works. The spanner in this analogy is the finding that all employment contracts imply a duty of mutual trust and confidence.  The works is anyone who is party, either as an employer or an employee, to an employment contract who is trying to comprehend the implications of this decision.

In Barker v Commonwealth Bank of Australia [2012]  FCA 942, the Federal Court awarded Mr Barker $315,700 in damages after finding that the Commonwealth Bank of Australia (CBA) had breached a duty that was previously unrecognised in Australian employment law. The single Judge Besanko J recognised that Mr Barker was entitled to damages for loss of chance to be redeployed due to the CBA’s breach of the implied term of mutual trust and confidence by acting in serious breach of its stated redeployment policy.

Justice Besanko found that there is an implied duty of mutual trust and confidence in all employment contracts (not effected by statute or an award), and a serious breach of a company policy amounts to a breach of that implied duty.  This breach may give rise to an action for damages for breach of contract.

Employment-law

Barker v Commonwealth Bank of Australia

Mr Barker was an Executive Manager at Commonwealth Bank of Australia before being made redundant in 2009.  In a meeting discussing his potential redundancy with his superiors, he was handed a letter confirming that CBA preferred to redeploy staff where possible and if redeployment was not possible, he would be made redundant.

CBA’s redundancy and redeployment policies delineated the company’s next steps, and reiterated their policy that CBA would redeploy staff to suitable alternative positions in the case of redundancy.  These policies clearly stated that they were not to be incorporated as terms of the contract of employment.

Although CBA suggested one potential interstate position to Mr Barker, Mr Barker was made redundant and provided with a settlement of $182,000 in respect of his redundancy entitlements.

The Court held that CBA’s policies were not incorporated into the terms of the contract of employment.  However, the existence and use of such policies created a duty for CBA to comply with them in so far as was necessary to maintain a relationship of mutual trust and confidence.

What does this mean for employers and employees?

The implied duty is mutual, which means that both employers and employees have a duty to conduct themselves in a manner that will not destroy or seriously damage the relationship of trust and confidence between employer and employee without proper cause.

While this implied duty of trust and confidence has been recognised in the UK for some time, the extent and practical implications of the duty are not yet known in an Australian setting.  This decision, however, does make it clear that a serious breach of human resources policy will amount to a breach of the duty.

Practical tips for employers

  • Review your company’s policies to ensure that they reflect the business’s intentions.
  • Please note that policies may be made up of a series of emails or statements, and may be relied upon by your employee.  Set out your business’s policies clearly and in writing.
  • The company’s policies should be aspirational, rather than prescriptive.  This should help mitigate any potential serious breach in policy.

Mangled gears aside, employers must now consider this new obligation in the context of their existing employment policies.  Be aware of your business as a complete and cohesive entity; all your legal and HR related documents must reflect the responsibilities, functions and overall direction of your business.  Consider your actions in light of the general policies and

Disclaimer

This article contains general commentary only.  You should not rely on the commentary as legal advice. Specific legal advice should be obtained to ascertain how the law applies to your particular circumstances.

Malcolm Burrows - Dundas Lawyers

Malcolm Burrows B.Bus.,MBA.,LL.B.,LL.M.,MQLS.
Legal Practice Director
Telephone: (07) 3221 0013

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