Employment Law: High Court retreats from the Rubicon

The High Court has delivered their landmark judgment in Commonwealth Bank of Australia v Barker, definitively rejecting the implication of a mutual trust and confidence term in Australian employment contracts.

In a judgment that will relieve employers and that clarifies a previously unsettled area of law, the Court broke from British legal developments in a decision cautious about the possibility of encroaching on legislative territory.

Mr Barker, a senior and long-serving employee of the Commonwealth Bank, was made redundant in 2009 as the result of restructuring. Although the Bank made attempts to offer Mr Barker redeployment opportunities, he had been stripped of access to his work email and consequently these messages did not reach him until just before the date of termination.

At first instance, Mr Barker alleged, amongst other things, that the Bank ‘had failed to conduct the termination or redundancy process in a bona fide and/or proper manner’, which represented a breach of both the redundancy policy and equal employment opportunity policy. While these policies expressly stated that they did not form part of the employment contract, Mr Barker alleged his contract contained an implied term of mutual trust and confidence, and the Bank’s actions had breached this term.

Drawing on extensive British jurisprudence, both Besanko J of the Federal Court and Jacobson and Lander JJ of the Full Federal Court agreed with Mr Barker. They noted the implied term was necessary to ‘prevent the enjoyment of rights conferred by contract being rendered nugatory, worthless, or seriously undermined’, before quoting another case to the effect that its development ‘can be seen as consistent with the contemporary view of the employment relationship as involving elements of common interest and partnership, rather than of conflict and subordination.’ Mr Barker was awarded damages in the sum of $317,500.

These decisions represented a significant shift in Australian workplace law, potentially finding an implied term of mutual trust and confidence in every employment contract across the country. However, relying on Jessup J’s strong dissenting judgment, the Bank appealed to the High Court.

Across three concurring judgments, the Court upheld the appeal. Having quoted Brennan J’s statement that ‘there must be constraints on the exercise of the power, else the courts would cross “the Rubicon that divides the judicial and the legislative powers”’, the Court found that such an implied term was ‘a matter more appropriate for the legislature than for the courts to determine’.

Mixing historical metaphors, and having witnessed the Full Federal Court march on Rome, the High Court felt compelled to beat a hasty retreat across the Rubicon lest the implied term ‘act as a Trojan horse’ in employment contracts across Australia.

The take-home message for employers, already apprehensive after the recent Richardson decision, is that they can breathe easy – for now. The Court’s principle-based as opposed to factually-driven rationale in Barker was such that distinguishing the judgment in a later case would prove difficult and thus, barring (unlikely) legislative intervention, the implied term of mutual trust and confidence appears to be no more.

However, the Court left open the possible existence of an implied term of good faith in employment contracts, refusing to be drawn into a consideration of the merits of such an argument. Until another matter brings that question squarely before the Court, it seems the familiar “mutual trust and confidence” pleading will simply be replaced by that of the equally vague “good faith”.