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A wealth of implications in the ‘implied term’

RedundancySeptember 29, 2014

A wealth of implications in the ‘implied term’ (Last Updated On: November 18, 2016)

Last month, the High Court of Australia handed down what was perhaps the most critical decision in employment law for the last five years. In the case of Commonwealth Bank of Australia v Barker, the High Court upheld that ‘implied terms’ of mutual trust and confidence has no place in Australian employment contracts.

The court case

Stephen Barker was employed by Commonwealth Bank for 27 years. Barker was informed that his position was being made redundant and in the event where redeployment is unsuccessful his employment will be terminated. His access to work emails and phone were cut off immediately after this meeting, however emails containing information on redeployment opportunities continue to be sent to his work email. Barker did not receive these emails until close to the end of the redeployment period when they were finally forwarded to his personal email. His employment was terminated shortly after the fact.

While the redundancy itself was done by the book, Barker saw the miscommunication and perceived lost opportunity as a breach of duty of trust and confidence between the two parties. He then brought legal action against CBA on the grounds that this mutual term of trust and confidence was implied into his contract, and CBA’s bungled attempts at redeployment meant that his former employer have effectively breached the employment contract.

What are implied terms?

The ‘implied terms’ here means an unwritten clause that assumes a relationship of trust and confidence between an employee and employer despite it not explicitly set out in a contract. Put simply, both parties are obliged to act in good faith and general goodwill to each other during employment.

The concept of implied terms originated in the UK where it is a well-established common law doctrine. Unfortunately for UK employers, implied terms gave way to terminated employees being able to argue that their employers have breached this term. Employers have been fined for suspected breaches in cases that include bullying, lack of fair processes in workplace investigations and even excessive workload.

What does this mean for employers?

The heart of the matter is that this obligation is contractual in nature but difficult to define in practice. If such a term had been imposed into every employment contract in Australia, the potential financial fallout from claims would have been staggering. The Federal Court had previously found in favour of Barker by ruling that implied terms of mutual trust and confidence are recognised in Australia as law. Barker was awarded an additional $317,500 in damages along with $180,000 he had already received for redundancy.

Luckily for employers all over Australia, the High Court found in favour of CBA on appeal. The High Court ruled that implied terms should be confined to the UK, where employees do not have the same rights as their Australian counterparts and require an additional level of protection in their contracts. To that end, the High Court rejected the necessity of this term and found that any affirmation would constitute a ‘step beyond the legitimate law-making function of the courts’.

The matter was left open for a future decision to be made in Parliament and passed into legislation; however the High Court rejected the appropriateness of making such a finding independently of the government as it may interfere with current existing law and create inconsistencies. Employers everywhere can finally breathe a collective sigh of relief.

Harry Hilliar – Employment Relations Adviser

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