Historically, employment relationships were based on the right to control that a “master” held over their “servant”. Thankfully we no longer describe the relationship in those terms and while an employee continues to have a duty to obey the reasonable and lawful directions of their employer, increasingly, courts are recognizing the mutuality of obligations between the parties. The employment relationship now appears to be a “two way street”. HR need to be across these case law developments, in order to ensure that key business decisions and staff treatment are in line with the “mutual trust and confidence” obligation.

In the recent decision of Commonwealth Bank v Barker (on appeal),1   the Full Federal Court considered the nature of the contemporary employment relationship and offered some clarity on the issue of the mutual obligations of employer and employee. They confirmed that the duty of mutual trust and confidence is implied into all contracts of employment under Australian law.

The implied duty has most commonly been conceptualised as meaning that the employer must 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.

The original Barker decision

By way of background, in the original case of Barker v Commonwealth Bank,2  Mr Barker, an employee of the Bank for 27 years, was made redundant after the Bank failed to make attempts to redeploy him internally. Barker argued that the bank had acted in breach of its own policies and in breach of the implied duty of mutual trust and confidence.

As the Bank’s policies did not form part of Mr Barker’s contract, the court found that the Bank’s failure to comply with the policies was not a breach of contract.

Barker successfully argued, however, that the implied duty of mutual trust and confidence was implied into his contract. The trial judge reasoned that although the redeployment policy was not itself a term of the contract, a serious breach of the policy still amounted to a breach of the implied duty.

In this case, based on the specific circumstances, the bank’s failure to take any action at all in regard to the redeployment of Barker was a serious breach of policy and a breach of the implied duty.

As a result of this breach, Mr Barker received compensation for his lost chance of being redeployed within the bank, calculated at $317,500.

The result of this original Barker decision appeared to indicate that a serious breach of a workplace policy by an employer would amount to a breach of the implied duty, even if the policy was not part of the employment contract.

Barker on appeal

After the original decision in Barker, the Bank appealed, disputing the existence of the implied duty and, arguing that, even if it were upheld, their actions did not constitute a breach.  The Full Federal Court, in a 2-1 decision (Jacobson & Lander JJ in the majority, Jessup J dissenting), dismissed the appeal. The appeal Court held that the implied duty does exist in Australian contracts of employment and that the Bank’s actions constituted a breach.

In finding that the Bank breached this implied duty, their Honours took a different approach to that of Bessanko J. They considered that by finding that a serious breach of the Bank’s redeployment policy amounted to a breach of the implied duty, Bessanko J “treated the content of the implied duty as co-extensive with an obligation to observe the redeployment policy.”

Their Honours rejected this approach as the redeployment policy was not incorporated into Mr Barker’s contract and so a breach could not constitute a breach of the implied duty. Their Honours held that, in determining what an employer must do in order to comply with the implied duty, the specific facts must be considered.

Relevant to the Bank was the fact that Mr Barker was a long-term employee of a large organisation.  Therefore, the Bank was required to take positive steps to work with Mr Barker toward finding him an alternative position. Its failure to contact him during the relevant period was unreasonable.  This was partly due to the fact that they could not do what was required. This was because they had removed Mr Barker’s email and mobile phone access without telling the person responsible for contacting him.

In their Honour’s opinion, this was sufficient to amount to a breach of the Bank’s duty not to engage in conduct likely to destroy or seriously damage the relationship of confidence that existed between the Bank and Mr Barker.

The implied duty is concerned with preserving and continuing the relationship of employer and employee

The decision in Barker represents the growing recognition of the implied duty of mutual trust and confidence in Australian law.  The decision recognises the changing nature of the contemporary employment relationship in which there is a greater expectation of mutuality in the responsibilities of both parties.  The term is probably derived from the duty of co-operation between contracting parties. It is focused on maintaining an ongoing employment relationship, rather than imposing obligations at the time of dismissal for instance.

If either party acts in a way which is likely to destroy or seriously damage the relationship of confidence and trust between employer and employee, they are likely to be in breach of the term. Even so, it is unclear exactly what the implied duty requires of employers and this is still being developed.

The employer could potentially breach the implied duty in myriad ways. As an example, in Bliss v South East Thames Regional Health Authority, Bliss, a surgeon, was unjustifiably required by his employer to undergo a mental health assessment. Bliss successfully sued his employer on the basis that they had breached their implied duty not to conduct themselves in a manner likely to damage or destroy the relationship of confidence and trust between the parties to the contract.

How can your employer ensure they are complying with the implied duty?

While it appears that the implied duty is now an established term in Australian employment contracts, the exact scope and content of the implied duty is unclear.

The approach adopted by the majority in the Barker appeal is that in determining whether the implied duty is breached or not, the court will have regard to the specific circumstances. From previous cases, it seems that employers may breach the duty if they seriously fail to comply with contracts, procedures and policies or act ‘unfairly’ in relation to other dealings with employees, such as in the course of misconduct investigations or disciplinary processes. The length of tenure of the employee, the size of the organisation and other contextual factors may also be relevant.

Given this, it is important that employers do ensure at the very least that they are complying with workplace policies, unless they have a reasonable justification for not doing so. The Barker decision on appeal shows that the implied duty will extend beyond the scope of workplace polices. What is required of the employer will probably depend on broad concepts of what is fair and reasonable in the circumstances, and not just what is in the relevant policy.

This is a profound development in the way in which employers need to approach both individual and strategic decision making which may affect how employees are treated, throughout the full “life-cycle” of their employment with the employer.

We suggest that HR ensure that the business’s policies are properly understood and owned by all those who need to implement them, and that leadership training for key decision makers specifically incorporates a reflection and commitment to “fair and reasonable” dealing. If your organisation’s values already have high-level statements about being an ethical, EEO and/or fair employer, this could be a good starting off point.

It may be of course that your culture is already one where you feel confident that you have selected managers who act fairly and reasonably, and that you have fostered a workplace culture where there is implicit in any decision a true commitment to ethical and fair dealing. If so, you may be the “worried well”.

Even if you are, (and particularly if you cannot honestly claim that high-moral ground), at the very least we would suggest that you fully examine how you are currently travelling with how you comply with a number of key “employee treatment” related policies, and their content. For example, think about reviewing your policies and processes, as they actually are rolled out, in say either a workplace investigation matter, or disciplinary or redeployment context. Ask yourself the question, from the “180 degrees” perspective of the employees affected, whether the proposed or actual decisions and treatment on the ground equate to fair and reasonable treatment. If you cannot honestly say that they are fair and reasonable, you may wish to act now in improving what may otherwise be a serious gap in how the organisation treats its employees.

[1] Commonwealth Bank of Australia v Barker [2013] FCAFC 83

[2] Barker v Commonwealth Bank of Australia [2013] FCA 942

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