The High Court of Australia has handed down its much awaited decision in Commonwealth Bank of Australia v Barker [2014] HCA 32.

All five members of the High Court found that a term of “mutual trust and confidence” should not be implied into all contracts of employment in Australia.

Although two of the five members provided separate reasoning, the High Court unanimously found that:

  • in order for a term to be implied in law into contracts of employment, the term must be “necessary”;
  • a term is “necessary” if, without the term, the enjoyment of the rights conferred would be “rendered nugatory, worthless, or … seriously undermined”; and
  • the implied term of mutual trust and confidence imposes mutual obligations wider than those which are necessary, and therefore it is not within the power of the judiciary to imply the terms into contracts of employment.

The High Court distinguished the Australian position from the position in the United Kingdom.

What does it all mean?

In its reasons, the High Court distinguished the implied term of mutual trust and confidence from other terms which may be implied into contracts of employment.  The High Court has left open the possibility of a number of other implied terms having operation (e.g. a mutual duty of co-operation, a mutual duty of good faith and an employee’s duty of fidelity) but did not deal with these definitively in this decision.

As was anticipated, a number of the Judges pointed out that Mr Barker’s contract contained an express term dealing with redundancy and redeployment, leaving no room for the operation of an implied term.  This was a major limitation on Mr Barker winning his case.

For some time, it has been assumed, at least tentatively, that an implied term of mutual trust and confidence exists in Australian employment contracts.  It is common for employees to institute legal proceedings alleging breach of contract on the basis of the implied term, treating it as something of a “catch all” legal obligation.  These legal strategies have been dealt a fatal blow. However, it is likely that applicant lawyers will now resort to the other potential implied terms left open by the High Court’s decision.

Employers also sometimes rely on the implied term – for example, as a basis for terminating an employee’s employment because of conduct which has undermined trust and confidence in the employment relationship.  This situation can be governed by the express terms of the contract in conjunction with relevant policies such as a Code of Conduct.