The Commonwealth Bank of Australia (‘the Bank’) has failed in its appeal against a Federal Court decision that found the Bank had breached an implied term of its employment contract with a long-serving employee. The employee, Mr Barker, successfully argued that his employment contract included an implied term of mutual trust and confidence. The Full Federal Court found that the Bank breached the implied term when it failed to take positive steps to inform Mr Barker of redeployment opportunities after his position was made redundant.
At a meeting on 2 March 2009, Mr Barker was handed a letter which informed him that his current position was to be made redundant with effect from the close of business that day. The letter went on to say that it was the Bank’s preference to redeploy him to a suitable position within the Bank and that appropriate options would be explored in consultation with him. Mr Barker was also informed that if he was not redeployed within the Bank, his employment would be terminated on 2 April 2009. Mr Barker was told that he should clear out his desk, hand in his keys and mobile phone and not return to work. His access to the Bank’s email and intranet were terminated immediately. He was permitted to retain his SIM card for his mobile phone for a few additional days.
The Bank assigned an officer from its human resources department to manage Mr Barker’s redeployment process. The officer made a number of unsuccessful attempts to contact Mr Barker after 5 March 2009 on his work email and work phone. She was unaware that Mr Barker no longer had access to these facilities. On 26 March 2009, the officer managed to communicate with Mr Barker to inform him of a role within the Bank that would be suitable for his skill set. The Bank extended the effective date for Mr Barker’s termination of employment to 9 April 2009. Mr Barker did not apply for the position. On 9 April, Mr Barker was advised in writing that his employment was terminated by reason of redundancy.
In 2010, Mr Barker brought proceedings against the Bank for breach of contract of employment and for damages under the Trade Practices Act 1974 (Cth) (‘the TPA’). Mr Barker claimed that the policies in the Bank’s Human Resources Reference Manual (‘the Manual’), which covered the circumstances of redundancy, were incorporated into his contract of employment. He claimed that the Bank had breached these policies by failing to inform him of a suitable position within the Bank. Alternatively, Mr Barker claimed that there was an implied term of mutual trust and confidence in his contract of employment with the Bank. He claimed that this term had been breached by the Bank’s failure to comply with its policies after it notified Mr Barker of the redundancy.
At first instance, the trial judge found that the Bank’s policies on redundancy were not incorporated into Mr Barker’s contract of employment. This was because the Manual specifically included the statement that the policies it contained did not form part of an employee’s contract of employment. His Honour also dismissed Mr Barker’s claim under the TPA on the ground that the relevant representations were not made in trade or commerce.
The trial judge did agree with Mr Barker that an implied term of mutual trust and confidence existed in his contract of employment with the Bank. His Honour held that there had been a serious breach of this implied term when the Bank failed to observe the Manual’s redeployment policy. The Bank appealed the decision to the Full Federal Court.
The majority of the Federal Court upheld the trial judge’s decision albeit with some differences in reasoning. Jacobson and Lander JJ agreed (Jessup J was in dissent) that the weight of judicial authority in Australia was in favour of the acceptance of an implied term of mutual trust and confidence in employment contracts. Their Honours agreed that the implied term was that “the employer will not, without reasonable cause, conduct itself in a manner likely to destroy or seriously damage the relationship of confidence and trust between employer and employee”. This duty, they warned, should not be described as fiduciary. Instead, their Honours explained that “the content of the implied contractual duty must be moulded according to the nature of the relationship and the facts of the case”.
In this instance, the fact that Mr Barker was a long-term employee of a large corporate employer was relevant. In addition, the content of the duty was informed by a clause in Mr Barker’s contract which contemplated that his employment may be terminated in the event that the Bank was unable to place him in an alternative position. In these circumstances, their Honours held that the implied term required the Bank to take positive steps as from 2 March 2009 to consult with Mr Barker about the possibility of redeployment. In contrast to the reasoning of the trial judge, their Honours did not regard the Manual as being relevant to an assessment of the content of the duty. This was because it was understood that the Manual did not form part of the employment contract with the Bank’s employees.
The Bank’s actions from 2 March 2009 to 26 March 2009 were sufficient to amount to a breach of the implied term to consult with Mr Barker about alternative positions and to give him an opportunity to apply for them. The Bank was unable to do what was required of it because it withdrew Mr Barker’s access to his work email and mobile phone and neglected to inform the person responsible for communicating with Mr Barker about these events. Mr Barker was awarded $335,623.57 for loss of opportunity flowing from the breach.
Jessup J’s dissenting judgement contains a detailed analysis of the implied duty of trust and confidentiality as it applies in Australia today. His Honour does not believe it is a duty which should be developed within the common law. Interestingly, the ACTU was given leave to make submissions on the general question whether the implied term was part of Australian contract of employment law.
Commonwealth Bank of Australia v Barker  FCAFC 83
Lessons for Employers
- If an employee has been informed that their position has been made redundant, employers need to ensure that they have reasonable and effective processes in place to inform and consult the employee on redeployment opportunities. As a first step, employers should check that they have appropriate contact details for the employee during this period.
- Employers should ensure that their workplace policies include terms that make clear that the relevant policy does not form part of an employee’s contract of employment.
- The existence of an implied term of mutual trust and confidence in employment contracts is a new development in Australian law that has yet to be tested in the High Court. The indication in this decision is that the operation of an implied term of mutual trust and confidence in employment contracts will be informed by the content of an employment contract and other relevant factors, such as the size of the organisation and the length of the employee’s service.