The concept of  implied trust and confidence in contracts can be a tricky one to get your head around. It’s also a hot topic right now, so we’ve called in a Guest Guru to  talk you through it.

Martin Bower is an  Associate at Kliger Partners Lawyers. He is an expert in the field of industrial  relations and employment law with over 10 years experience in both the public  and private sector.

There has been a lot of ink spilt over the outcome of a recent case in Federal Court of Australia, much of it claiming that this new decision heralds the dawn of a new cause of action for employees, and that all employers should rush to their lawyers to have their employment agreements and policies reviewed.

The concept of ‘implied trust and confidence’ in employment contracts infers the obligation of both employees and employers (so mutual) to act reasonably with respect to their employment relationship. One party is seen to have breached this when their actions have been likely to damage the trust of the relationship without proper cause. This was found to be the case in a recent Federal Court decision.

The facts of the decision (Barker v Commonwealth Bank of Australia [2012] FCA 942)

The decision relates to a claim by Mr Barker, whose position was made redundant by the Commonwealth Bank  in March of 2009. Mr Barker claimed damages
against the Bank for breach of contract, and also for a breach of the then Trade Practices Act 1974 (C’th) (now replaced by the Australian Consumer Law).

The main argument put forward by Mr Barker was that his contract of employment with the Bank incorporated a number of HR policies, as well as an implied term of mutual trust and confidence. Mr Barker argued that the Bank breached its own policy regarding redundancy, and so breached the implied term of mutual trust and confidence.

This case also involved claims relating to the conduct of a number of Bank employees, including claims of favouritism, inappropriate relationships between staff, and ultimately a claim that Mr Barker had, in essence, been ‘pushed out’ of the Bank and that the redundancy was a sham.

Justice Besanko ultimately rejected all but one of Mr Barker’s claims, awarding him damages on the grounds that the Bank had breached the implied term of mutual trust and confidence.

Ultimately Justice Besanko held that the way in which the Bank managed Mr Barker’s redundancy and redeployment, and in particular its failure to adhere to its clearly stated policy and procedures during a significant period, breached the implied term of mutual trust and confidence, giving rise to a claim for damages by Mr Barker.  Mr Barker was awarded $317,500 in damages.

What does this mean for me?

The case confirms that in order to show a breach of the implied term of mutual trust and confidence, an employee must demonstrate that the employer has breached the employment contract in some serious and fundamental way. What this will usually mean is a major failure of the employer to follow its own policy or meet its obligations towards an employee.

So, the lesson is that the best protection against a claim for breach of the implied term of mutual trust and confidence is to ensure that managers and supervisors, including the HR team, follow the processes and procedures set out in the company’s policies.

The Barker decision does confirm that the implied term of mutual trust and confidence may be relied upon by an employee in order to claim damages against his or her employer, but the underlying circumstances that give rise to such a claim will always be rooted in a serious failure to comply with that employer’s obligations, or unreasonable conduct by a manager or supervisor.

Mr Barker made a number of claims regarding his treatment by the Bank, but ultimately only this one was upheld, as a result of a serious failure by the Bank to manage a clearly set out process relating to redundancy/redeployment. Much of this failure arose because Mr Barker had been effectively ‘cut off’ by the Bank, meaning that he was unable to meet his obligations under the policy, leaving the Bank responsible for managing the process for him.

While the Court held that the implied term of mutual trust and confidence could be expressly excluded from an employment agreement, employers should remember that the implied term is a two-way street – an employee is also obligated to conduct his or herself in such a way as to ensure that the term is not breached. This includes following company policy and procedure, and not acting in such a way as to seriously damage the relationship between themselves and their employer.

Ultimately the Barker decision is another in a long line of decisions that confirms a long standing truth – terminating an employee’s employment, for whatever reason, should be handled carefully and thoughtfully. Employees who feel that they have been treated fairly rarely initiate legal action against their former employer.

If you want to ask Martin a question, email us at info@dev-hrgurus.tempurl.host.