Employment Contracts: The Implied Term Of Mutual Trust And Confidence

Key Points:

Employers should be wary of the possibility that a court could imply the term of mutual trust and confidence into an employment contract, and that a breach could bring consequences.

In February 2010, the Full Court of the Federal Court of Australia in the case of Yousif v Commonwealth Bank of Australia [2010] FCAFC 8 dismissed an appeal from a decision of a single judge of the Federal Court. Ms Yousif was employed by the Commonwealth Bank (the CBA) as a mobile lender until her employment was terminated in December 2008.

Ms Yousif claimed the CBA had breached various express and implied terms of her employment contract, including the implied term of "good faith, trust and confidence". The trial judge dismissed her application. In relation to the implied term, he decided that there had been no breach, assuming the term existed.

On appeal, the Full Federal Court refused to determine the issue of whether or not the implied term of mutual trust and confidence exists in Australian employment contracts, exhibiting a scepticism consistent with that of many other Australian appellate courts.

What is the term?

The term originated in English law and is now generally understood as:

"An employer will not, without reasonable or proper cause, conduct itself in a manner calculated to destroy or seriously damage the relationship of trust and confidence between the employer and employee." It is possible that this may extend to a general duty on the employer's part to act in good faith.

How can the term be breached?

The term can be breached by capricious and unreasonable conduct by the employer. Whether or not particular conduct will breach the term depends on the circumstances, but cases where breach has been found to have occurred include:

suspending an employee surgeon on full pay pending him undergoing a psychiatric examination, when there was...