In a highly anticipated judgment, the High Court of Australia last week reversed a decision of the Full Federal Court of Australia in finding that there is no implied duty of mutual trust and confidence in Australian employment contracts.

The case concerned a bank manager with the Commonwealth Bank of Australia (CBA) who had brought a claim against his former employer after being made redundant in April 2009. Specifically, the claimant argued that his former employer’s breach of a redeployment policy maintained by CBA amounted to a breach of an implied duty of trust and confidence in his employment contract. The Full Federal Court applied a principle established under UK employment law in finding that the implied term contended for by the claimant did exist and awarded the claimant damages of $317,500 for financial loss.

However, the decision of the Full Federal Court was overturned by the High Court on appeal where it was said, among other things, that the implication of an implied duty of trust and confidence was “…a step beyond the legitimate law-making function of the courts” and a step which “…should not be taken”. Justice Jessop likened the implied term to a “Trojan Horse” which only revealed the specific prohibitions it imported into the contract at a later time.

The High Court’s decision means that employers may not be exposed to the risk of a damages claim by failing to comply with the implied duty. However, it is also significant that Justice Kiefel noted that the legal question of whether a standard of “good faith” should be applied generally to contracts remains unresolved in Australia and His Honour declined to comment further on it in the context of employment contracts because it was not raised in argument by the parties in that case.

So despite the High Court’s decision, employers should continue to be mindful of the risk that a court might find that there is an obligation “to act in good faith” when making decisions about the employment of employees, particularly in circumstances where employment policies have been developed which are relevant to those decisions.

We would be pleased to advise you further in relation to the practical effect of the High Court’s decision on the current and future employment agreements of your business.

Contact Partner: Francesca Petroccitto
Direct Telephone : 07 3210 5771
Mobile Telephone : 0402 293 644

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