Implied Terms in Contracts of Employment

Until recently some courts and tribunals throughout Australia have been content to accept that certain conditions of employment are implied, that is that they are taken as being agreed between an employer and employee and do not need to be recorded in writing, or even discussed, to have application. A common term thought to be implied is that the employer and employee have a duty of trust and confidence to each other. Judges and Commissioners tended to fall into one of two groups, those who followed decisions in the UK that supported the concept of implied terms and those who did not. The implied duty of trust and confidence was tested again recently through the Court system.

In Commonwealth Bank of Australia v Barker [2014]HCA32  Mr Barker was made redundant from his position. Although his contract of employment did not mention it, he claimed the bank breached an implied term of his contract of employment by failing to maintain trust and confidence in him by not taking reasonable steps to redeploy him.

Mr Barker took his claim to the Federal Court of Australia where the Court found in his favour, that trust and confidence were implied terms of his contract of employment, and awarded him almost $320,000. The Commonwealth Bank appealed the decision and a Full Bench of the Federal Court supported the initial decision with a 2:1 majority. The Commonwealth Bank appealed that decision, this time to the High Court of Australia. The outcome of the High Court appeal was that all five Judges determined that there was no implied term of trust and confidence in contracts of employment.

Extending the decision of the High Court, no employees will be able to rely on an implied term of trust and confidence in their contracts of employment and, just as importantly, employers will not be able to rely on the implied term of trust and confidence. If that duty is to form part of a contract of employment, it must be specifically mentioned in the written contract. That is it must be explicit.

There a several terms of employment that employees and employers have commonly thought to be implied (if they have even thought about them at all). The decision of the High Court means all terms thought to be implied must be treated with suspicion. Common terms that we see are:

  • employee’s duty of fidelity
  • employee’s duty to obey lawful and reasonable instructions
  • employee’s duty of care and competence,
  • both employee’s and employer’s duty to act in good faith, and
  • employer’s duty to take reasonable steps to care for the employee’s health and safety.

Clearly, it should not be thought that the gloves are off in relation to all of the above matters. In some cases such as WHS and unfair dismissal there will be legislative protections for employers and employees, but the Commonwealth Bank decision means the parties to a contract of employment must pursue their claims under the relevant legislation and not as a breach of contract under the common law.

 In light of this decision, we advise clients to review their contracts of employment and/or policies to ensure all of the above duties, which are thought to be implied, are either deliberately not included or, if it is desired that they apply to the employment relationship, that they are explicitly included. Quartz Consulting can assist clients with reviewing and amending contracts of employment and policies.