The ‘Trojan Horse’ - The (new) implied term of mutual trust and confidence in Australian contracts of employment

The employment relationship is characterised by a degree of trust and confidence. In a decision delivered on 6 August 2013, a majority of the Full Court of the Federal Court of Australia in Commonwealth Bank of Australia v Barker [2013] FCAFC 83 (Jacobson and Lander JJ, Jessup J dissenting)) elevated this feature to a new level.

The majority held that, in the absence of express terms to the contrary, there is an implied term of mutual trust and confidence in every Australian employment contract.

The implications of this for employers could be profound. The implied term was described by Jessup J in his dissent as a 'Trojan horse'. 1 This seems apt, given the very high level at which the implied term is expressed and its open-ended nature: in fact, the apparent 'wholesomeness' of the implied term may conceal a variety of unforeseen obligations.

WHAT IS THE IMPLIED TERM OF MUTUAL TRUST AND CONFIDENCE?

Over the last 15 years or so, the existence of the implied term of mutual trust and confidence in Australian law has been vigorously debated. Its formulation, content and consequences for employers have been explored in a number of cases at various levels of the court hierarchy.

As now expressed by the majority in Barker, the implied term of mutual trust and confidence requires that an employer will not, without reasonable and proper cause, conduct itself in a manner calculated and likely to destroy or seriously damage the relationship of confidence and trust between the parties. 2

WHAT HAPPENED IN BARKER?

In 2009, the Commonwealth Bank of Australia undertook a nationwide restructure of its Corporate and Financial Services business unit, resulting in Mr Barker's position being made redundant. Its Redeployment Policy was to redeploy employees to a suitable position where possible. The Bank's HR Reference Manual provided that the Policy did not '... form any part of an employee's contract of employment'.

Mr Barker was informed by a letter dated 2 March 2009 that although his position had been made redundant, the Bank's preference was to redeploy him. Mr Barker was told at the meeting that he should clear out his desk, hand in his keys and mobile phone and not return to work. His email facilities and access to the Bank's intranet were terminated immediately. However, on 9 April 2009, Mr Barker was advised in writing that his employment was terminated by reason of redundancy. In effect, no real steps to redeploy Mr Barker had been taken prior to his employment being terminated.

By that time, Mr Barker had been employed by the Bank for 23 years. His contract of employment (clause 8) contemplated that his employment may be terminated if the Bank were unable to place him in an alternative position. There was no express term in the contract excluding the potential operation of an implied term of mutual trust and confidence.

THE DECISION OF THE TRIAL JUDGE

At trial before a single judge of the Federal Court of Australia, Mr Barker's...