Mutual Duty of Trust and Confidence in Employment Contracts

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Employment Relations Law
Discussion
24-Apr-18
(Student Details: )
(Word Count: 2030)

Employment Relations Law
Introduction
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 issues1. A leading decision given under the Australian common law of
employment was Commonwealth Bank of Australia v Barker2. 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 cooperation3. 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.
Mutual duty of trust and confidence
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
1 Andy Gibson and Douglas Fraser, Business Law (Pearson Higher Education AU, 2013)
2 [2014] HCA 32
3 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>
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Employment Relations Law
the employment terms are exchanged and agreed upon orally4. 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 trust5. 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 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 Andrew6 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
4 Fair Work Ombudsman, Employment contracts (2017)
<https://www.fairwork.gov.au/awards-and-agreements/employment-contracts>
5 Shayne Barnett, Implied Duty of ‘Mutual Trust and Confidence’ in Employment Contracts (2018)
<http://www.findlaw.com.au/articles/5395/implied-duty-of-mutual-trust-and-confidence-in-emp.aspx>
6 [1979] IRLR 84, EAT
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Employment Relations Law
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 continued7.
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 SA8. 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 Australia9saw 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 contracts10. 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
7 Alice Cave, Implied terms in the employment contract (17 July 2014)
<http://www.farrer.co.uk/how-we-help/employment-issues/WorkLife/WorkLife/Dates/2014/7/Implied-terms-in-the-
employment-contract/>
8 [1997] UKHL 23
9 [2008] SASC 134
10 High Court of Australia, Commonwealth Bank of Australia v Barker (10 September 2014)
<http://eresources.hcourt.gov.au/downloadPdf/2014/HCA/32>
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