Mutual Trust Case

High Court says no additional implied duty on employer.

The High Court yesterday overturned the decision of the Federal Court in CBA v Barker which found that employers have a duty not to act in a manner that is calculated or likely to destroy or seriously damage the employment relationship.

This duty, recognised in English law, is – or was – referred to as the duty of mutual trust and confidence, and had been gaining increasing recognition in some Australian courts as a duty implied in all employment contracts.

However the High Court unanimously rejected the argument that this duty should be adopted in Australian law, because:

  • it is not necessary to imply the term in order that employment contracts can operate effectively; and
  • there is a statutory regime governing unfair dismissal and it is the role of Parliament to determine whether to legislate that employers have this duty.

The High Court left open the door to there being a requirement that employers and employees act in good faith.

What are the implications?

Our experience had seen employees increasingly seeking to rely on the implied duty of mutual trust and confidence to argue that their employer had acted wrongfully in respect of steps taken up to the point of terminating their employment—with the aim of seeking damages for such conduct.

The risk faced by employers with respect to such claims has now substantially lessened.

However, some uncertainty remains on the issue of good faith. The Court did not deal with the issue, so it is unclear whether employers have such an obligation, and if so, what it actually requires them to do.

Employers concerned about this risk should consider best practice approaches to managing matters that may have an adverse impact on employees – such as disciplinary proceedings, performance management and actions leading up to termination of employment.

What should you do?

If you would like more information about this topic, or assistance in managing employment issues, contact our Employment, Industrial Relations and Safety Team.

For more information contact:

William Ward | Special Counsel
(02) 6279 4444