10 Sep 2014

High Court finds no implied term of mutual trust and confidence in Australian employment contracts

The High Court's decision today in Commonwealth Bank of Australia v Barker [2014] HCA 32 confirms that there is no implied term of mutual trust and confidence in Australian employment contracts.

The High Court held a term providing that neither party will, without reasonable cause, conduct itself in a manner likely to destroy or seriously damage the relationship of trust and confidence between them, did not satisfy the relevant test of "necessity" for it to be implied as a matter of common law in all employment contracts.

In making this finding, the High Court distinguished the Australian employment regulatory system from that of the United Kingdom (where the term is implied) and cautioned Australian judges that they must "subject [foreign rules] to inspection at the border to determine their adaptability to native soil" (including legal principles of other common law jurisdictions like the UK).

This decision greatly reduces the level of uncertainty Australian employers face in their day to day dealings with their employees. If the Full Federal Court decision had stood, employers would have had to grapple with a term that existed but could not be defined with any general certainty, and would be moulded to the circumstances of each case.

The High Court noted, however, that it is open to the legislature to enshrine a term of mutual trust and confidence in legislation. This does not, however, appear to be on the Abbott Government's industrial relations agenda at the present time.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.