Implied terms in employment contracts: 'Good faith and fair dealing' -- son of 'trust and confidence'? The jury (and the judges) are still 'out'...

As is generally known amongst workplace law or relations practitioners, on 10 September 2014 the High Court decided in Commonwealth Bank of Australia v Barker [2014] HCA 32 that there is no term of "trust and confidence" implied by law in employment contracts in Australia, but left open the possibility that there may be an implied term of "good faith" in all contracts, including employment contracts - see [42] per French CJ, Bell and Keane JJ, and [104] to [107], per Keiffel J.

That of course has led many of us to postulate whether such a "good faith" term may be recognised as implied by law in employment contracts at some time in the reasonably near future. Or perhaps, that the High Court will determine the matter, one way or the other, reasonably soon in an appropriate case, so that lawyers are able to confidently advise their clients on the issue.

Interestingly, there have been two New South Wales Supreme Court decisions since the Barker decision that have addressed the point, and they form the subject of this article.

Background

It is important to start with an appreciation of the development of case law on the implied term of "good faith and fair dealing" in commercial contracts since the early 1990s.

The starting point is the judgment of Priestley JA in Renard Constructions (ME) Pty limited v Minister for Public Works (1992) 26 NSWLR 234 at 268, where his Honour propounded a view that "people generally... have grown used to the courts applying standards of fairness to contract which are wholly consistent with the existence in all contracts of a duty upon the parties of good faith and fair dealing in its performance."

That judgment was followed by a significant number of cases in both the NSW Supreme Court and the Federal Court where this notion of an implied term of "good faith and fair dealing" was analysed in the context of commercial (NOT employment) disputes. The case law authorities were helpfully reviewed and analysed by the NSW Court of Appeal in Burger King Corporation v Hungry Jack's P/L [2001] NSWCA 187. Suffuce to say in this context that the vast preponderance of the authorities support the notion that a term of "good faith and fair dealing" can be implied into commercial contracts - at least in particular cases, if not as a term implied by law in the entire class of such contracts. Moreover, the authorities seem to demonstrate that the courts are not reluctant to imply such a term into a particular commercial contract, as a means of ensuring that rights under a contract are not unreasonably exercised or used by one party against the other to defeat the common commercial purpose of the parties (se for example Burger King itself, but also Hughes Aircraft Systems International v Airservices Australia [1997] 76 FCR 151, per Finn J).

At the intermediate court level, there are still some lingering...