The Australian Common Law Of Employment: Need For Mutual Duty Of Trust And Confidence To Be Recognized In Essay.

History and Issues Surrounding the Australian Common Law of Employment

Discuss about the Employment Relations Law for Trust and Confidence.

The common law of Australia relates to the rules of law which are set through precedents, or the decisions given by the court. It is a law, which is not based on strict language as is the case with statutes or legislations, and instead is formed based on the particular scenario of the case, to bring clarity to certain issues[1]. A leading decision given under the Australian common law of employment was Commonwealth Bank of Australia v Barker[2]. Through this case, it was provided by the court that the employment contracts did not cover an implied term of mutual trust and confidence, which was earlier deemed to be present.

Even though this decision has been criticized as being a restriction in growth of employment contract law of the nation, it is important to note that this decision did not result in door being shut for the employees to apply the implied duty of good faith and cooperation[3]. This discussion is focused on highlighting the need for the mutual duty of trust and confidence, as has now been discontinued, to be recognized, but only in context of the employers being required to treat employees with proper respect. 

The employment contract is a contract, which covers the terms and conditions which set out employment of the employee and also governs the relationship between the employer and the employee. The employment contract can be drawn in writing, where the terms of employment are stated in a document and the parties sign the document; or it can also take place orally where the employment terms are exchanged and agreed upon orally[4]. This contract is binding on the employee, as well as, on the employer. The employment contracts often cover terms which are implied, as they are not stated in an explicit manner. Despite the level of details put in the employment contract, some terms continue to be implied. This is the reason for the implied terms to be present and to be continued in the employment contracts.

However, in Commonwealth Bank of Australia v Barker, the issues revolved around the mutual trust and confidence as being included as implied terms in employment contracts. This case saw the court holding that the employment contracts in the nation do not have the implied terms of confidence and mutual trust[5]. Even though the ruling was based on proper reasoning, it became a centre of attraction for criticism. This is because the implied terms are based on the theme that the employer would not do anything, which would hamper the employer employee relationship, and the same is true for the employee as well. When it comes to the practical aspect, this implied level is amended based on the specific nature of relationship and based on the facts of the case.

The Commonwealth Bank of Australia v Barker Case

The Australian laws are based on UK laws, and there is a need to make reference to the UK laws, for holding the need for implied terms of trust and confidence to be upheld. Courtaulds Northern Textiles Limited v Andrew[6] is a case where the court held that the duty of maintaining mutual trust and confidence was an implied duty. Where the implied terms are not complied with, the employee can bring in claims of constructive dismissal against the employer. This case did not simply impose the duty of mutual trust and confidence. Instead, it provided that the implied duty was applicable on the employers based on degree of reasonableness, along with proper cause to be shown. This duty was to be undertaken in a way so that the relationship of relationship of trust and confidence between the parties is continued[7].

The reasoning or the theme of this case was based on the ruling given under Malik and Mahmud v Bank of Credit and Commerce International SA[8]. In this case, the implied conditions were considered as being a part of the employment contracts. Through this judgement, the notion of employer being required to do the act which can be considered as reasonable and fair, while they deal with employees was reinforced. The case of Mcdonald v State of South Australia[9]saw the Supreme Court of South Australia reviewing the Australian and English cases in a comprehensive manner. This analysis led them to conclude that as per the Australian laws, the implied terms of mutual trust and confidence had to be considered as being a part and parcel of employment contracts. This means that the implied terms of mutual trust and confidence were deemed to be implied in the Australian based employment contracts as well.

With Commonwealth Bank of Australia v Barker, this situation was changed. Even upon the appeals being made to the High Court, from the decision given by the Federal Court, the higher court failed to agree that there had been a presence of implied duty of trust and confidence in the Australian employment contracts[10]. This is a crucial judgment as it has resulted in the employers to be safeguarded from such claims which were undefined, uncertain and which resulted in cases being brought forth based on the claims that the conduct of employer was destroying in serious manner[11]. The theme was to avoid any such claims, which were not clear and were not based on proper set of promises implied through the employment contract[12]. The crux of the matter here is that the employment relationship present between the employer and employee was limited to the express terms, as had been provided under the employment contract, along with the applicability of relevant statutes.   

Critical Analysis and Changing the Current Law

The reasoning behind this verdict was that an employer cannot be made liable for something which was not clearly stated with a degree of certainty. The perception of different individuals on what the level of mutual trust and confidence is lead to this decision. However, there is a need to note here that implied terms in any contract are included. Even when the employer does not specifically state that the employee has to protect the confidentiality of the business, is not allowed to indulge with competitors, and is to guard the client information, as these are detrimental for the business, these implied duties are present. These are even protected through the common law, and are based on reasoning of carrying the business as per the best abilities of employee, instead of working against it. So, the mutual duty of trust and confidence is instilled directly. The degree of the limitations of these implied terms is what led to the Commonwealth Bank of Australia v Barker decision. As the degree of the implied terms are not stated anywhere, confusions are created, and also results in unnecessary hassle for the employee and employer. There is an uncertainty on a casual talk with friend resulting in implied condition of confidence being breached, where a certain part of work is discussed by the employee. This is particularly controversial when the confidentiality clause is not expressly covered in the employment contract and is simply an implied term.

In Commonwealth Bank of Australia v Barker, French CJ, Bell and Keane JJ stated that implied duty of confidence and trust is not to be recognized in Australian general law of employment due to the fact that it covered broad terms regarding employer-employee relation, instead of being directed towards contract being performed[13]. The main point provided by the court was that only such terms should be implied, which were obligatory for the effective working of contracts of such class. This was based on the notion that only such terms are to be deemed as implied which were based on enjoyment of rights provided under the employment contract and where without these terms, the substance of employment contract would be drastically devalued or seriously undermined. So, in such cases where the contract can be deemed as effective without the inclusion of such terms, the implied terms are not required to be applied. However, this does not mean that no implied term can be applied or that the common law duties can be given away with, in terms of the duty of competence and care, and duty of fidelity on employee’s part[14]. 

Conclusion

To put it in simple words, the implied terms can be include where there is a common element, but where it is not specifically provided. For instance, the need for employees to be treated with respect, needs to be deemed as an implied term, even when it is not provided in the employment contract in an express manner. But, with the decision given under Commonwealth Bank of Australia v Barker, his has become a difficult task, as the implied terms are no longer applicable based on this precedent. This is the reason why the Australian common law of employment needs to recognize and bring back the mutual duty of confidence and trust, when it relates to the need for the employees to be treated with respect. The reasoning given by the court in this decision was undoubtedly correct, but it has resulted in the employees being kept aloof as some other unstated implied terms can no longer be applied. Even though such terms have not been explicitly denied by this case, but the irony is that the implied meaning of this ruling has resulted in the other implied terms under the Australian common law of employment being denied. This is the reason for changing the present law, and bringing back the implied terms of confidence and trust, as these are the foundation of employment contracts, be it of any nation. Further, the other nations, particularly the one from which the laws of Australia have been born, still continues to follow these norms.

Contentions have been raised that the long standing relationship between employer and employee often requires certain implied terms to be present[15]. In such cases, there is a need to fulfil the implied term, where these are reasonable in nature[16]. There is a need to adopt the necessity test, which is deemed as an objective test, to decide on the need for a particular implied term, instead of simply stating that there is no existence of implied term of duty and confidence. Apart from this, clarity can be brought through the degree of trust and confidence which the employment contracts bring forth, instead of denying the presence of it, just due to lack of clarity on level of trust and confidence being present. For this, the present day Australian common law of employment can take inference from other common laws. For instance, from the common law of tort, specifically negligence, reasonable test can be brought for. This reasonable test would determine the presence of level of mutual trust and confidence in an employment contract as an implied term, based on the view of a reasonable person[17].

Conclusion

Thus, based on the detailed analysis carried in the previous segments, with inference from the Australian common law of employment, it can be concluded that there is a need to look again at the decision given under Commonwealth Bank of Australia v Barker. Even though the theme set under this case and the reasoning behind this ruling were landmark, it does open the possibilities of employer evading their basic duties, in terms of not giving proper respect to the employees. In this regard, there is a need to revisit this ruling and take inference from the common law of other jurisdictions, like that of UK, where the implied terms of confidence and mutual trust continue to be present in the employment contracts. In order to deal with the problems which have been highlighted under Commonwealth Bank of Australia v Barker, there is a need to bring forth tests as are present under other common laws, like the reasonable test from the common law of tort, where the degree of implied terms can be based on degree of reasonableness. All in all, to safeguard the interests of the employees, there is a need for the Australian common law of employment to recognize the implied terms of confidence and mutual trust, so as to ensure that the employees are treated with respect, by the employer.

Articles/ Books/ Reports

Gibson A, and Fraser D, Business Law (Pearson Higher Education AU, 2013)

Latimer P, Australian Business Law 2012 (CCH Australia Limited, 31^st ed, 2012)

Cases

Commonwealth Bank of Australia v Barker [2014] HCA 32

Courtaulds Northern Textiles Limited v Andrew [1979] IRLR 84, EAT

Malik and Mahmud v Bank of Credit and Commerce International SA [1997] UKHL 23

Mcdonald v State of South Australia [2008] SASC 134

Others

Barnett S, Implied Duty of ‘Mutual Trust and Confidence’ in Employment Contracts (2018) <https://www.findlaw.com.au/articles/5395/implied-duty-of-mutual-trust-and-confidence-in-emp.aspx>

Burrows M, No implied term of mutual trust and confidence in employment contracts: Implications for employers (16 September 2014) <https://www.dundaslawyers.com.au/no-implied-term-of-mutual-trust-and-confidence-in-employment-contracts-implications-for-employers/>

Cave A, Implied terms in the employment contract (17 July 2014) <https://www.farrer.co.uk/how-we-help/employment-issues/WorkLife/WorkLife/Dates/2014/7/Implied-terms-in-the-employment-contract/>

Corrs Chambers Westgarth, High Court Says No Implied Duty Of Trust And Confidence In Contracts Of Employment (12 September 2014) <https://www.corrs.com.au/publications/corrs-in-brief/high-court-says-no-implied-duty-of-trust-and-confidence-in-contracts-of-employment/>

DLA Piper, Australian employment contracts and what terms will now be implied after Barker (06 May 2015) <https://www.lexology.com/library/detail.aspx?g=4a772d2a-8aba-4185-858f-6b0b80592704>

Fair Work Ombudsman, Employment contracts (2017) <https://www.fairwork.gov.au/awards-and-agreements/employment-contracts>

High Court of Australia, Commonwealth Bank of Australia v Barker (10 September 2014) <https://eresources.hcourt.gov.au/downloadPdf/2014/HCA/32>

Hunt & Hunt Lawyers, Mutual trust and confidence now a part of every employment contract (2017) <https://www.hunthunt.com.au/news-and-publications/mutual-trust-part-of-every-employment-contract>

Macpherson A, An Implied Duty of Mutual Trust and Confidence in Australian Employment Law Does Not Exist According to the High Court (2018) <https://www.corneyandlind.com.au/resource-centre/employment/an-implied-duty-of-mutual-trust-and-confidence-in-australian-employment-law-does-not-exist-according-to-the-high-court/>

Mueller B, and Mackenzie A, Trust and confidence – Where does that concept fit into the general employment law and unfair dismissal? (03 June 2016) <https://www.bartlettworkplace.com/blog/trust-and-confidence>

Tuck J, Price S, and Creighton B, High Court Says No Implied Duty Of Trust And Confidence In Contracts Of Employment (12 September 2014) <https://www.corrs.com.au/publications/corrs-in-brief/high-court-says-no-implied-duty-of-trust-and-confidence-in-contracts-of-employment/>