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High Court surprises in Commonwealth Bank v Barker

No implied mutual trust and confidence term in employment contracts

What was the case about?

Mr Barker was advised that his executive manager position at the Commonwealth Bank of Australia was redundant. In accordance with his employment contract and CBA’s workplace policies, Mr Barker was also advised that CBA would attempt to redeploy him within the organisation, and that if no suitable role was found then his employment would be terminated with one month’s notice.

However, in the meantime Mr Barker was required to clear out his desk, hand in his keys and telephone and not return to work.  CBA also terminated Mr Barker’s access to CBA intranet and email facilities.

Over the following weeks, CBA’s human resources personnel made several attempts to contact Mr Barker via his CBA telephone and email in relation to redeployment opportunities. Unsurprisingly, Mr Barker’s did not receive those communications and eventually CBA terminated his employment because he had not been redeployed.

The Federal Court decisions

Mr Barker applied to the Federal Court, arguing that CBA breached an implied duty of mutual trust and confidence by failing to follow its own redundancy policies. The Federal Court agreed with Mr Barker and awarded him $335,623.52 in damages together with costs.

On appeal, the Full Court agreed with the initial decision but for different reasons. The Full Court agreed that the implied term existed, but did not accept that a serious failure by CBA to comply with its policies amounted to a breach of that term. However, the Full Court accepted that the implied term required CBA take positive steps to consult with Mr Barker about his redeployment options, which more or less had the same result – CBA breached the implied term by unreasonably failing to make contact with Mr Barker about his redeployment opportunities.

The High Court’s decision

In a surprising move, the High Court yesterday unanimously rejected the Federal Court decisions.

The High Court held that implying a term of mutual trust and confidence into every employment contract went beyond the proper function of courts, and that accordingly the term should not be implied. In any event, the High Court was not satisfied that such a term was necessary.

However, three members of the High Court (French CJ, Bell and Keane JJ) noted that the Court’s decision does not determine whether there is a general obligation to act in good faith in the performance of contracts, or whether contractual powers and discretions may be limited by good faith and rationality requirements. Those questions were not considered by the High Court in this appeal and remain unresolved.

What does this mean for employers?

This decision should discourage employees and their representatives from making claims that legitimate management decisions breach an implied contractual duty of trust and confidence.  It should also discourage employees from making ambit claims for contractual damages in circumstances where there is a written contract with a provision for termination on notice.

However, recent decisions such as Richardson v Oracle Corporation Australia still have the potential to encourage employees to make claims for hurt and humiliation arising from flawed or unlawful management actions.

Further, notions such as “good faith” and “fairness” are still relevant when dismissing employees protected by unfair dismissal laws.

Accordingly, it remains important that employers treat all employees fairly during their employment, and avoid taking any action against an employee that could be regarded as capricious or lacking in good faith.

Please contact the Workplace Relations, Employment and Safety team if you would like more information about this Alert.

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