Commonwealth Bank of Australia v Barker is a leading Australian judgment of the High Court which unanimously and firmly rejected the proposition that contracts of employment in Australia should contain an implied term of mutual trust and confidence.
Background
Factual Background Mr Barker was employed by the Commonwealth Bank from when he left school in 1981. per Besanko J. By 2004 he had been promoted to a position as an executive manager. On 2 March 2009, Mr Barker was told that his position was to be made redundant and that if he was not redeployed within the Bank his employment would be terminated. Mr Barker was placed on paid leave and his access to the Bank's intranet and email facilities was terminated. Having been deprived of access to his Bank email account and voicemail, Mr Barker was not informed about an alternative position within the Bank until 26 March 2009. He was not contacted by the recruitment consultant involved in facilitating the recruitment process for that position, nor was the possibility of retraining for that role discussed with him. The Commonwealth Bank terminated Mr Barker's employment on 9 April 2009 by reason of redundancy. At the time of his dismissal, Mr Barker's salary was approximately $150,000 per annum.The High Court ordered the Bank to pay Mr Barker $11,692.31, being 4 weeks pay. $11,692.31 ÷ 4 × 52 = $150,000. Mr Barker claimed that the Bank acted in breach of its own policies and in so doing breached his contract of employment because (1) the policies were incorporated into his contract or (2) of an implied term of mutual trust and confidence. Mr Barker also claimed the Commonwealth Bank engaged in misleading and deceptive conduct.
Legal background In Australia the employment relationship involves a degree of trust and confidence, particularly for a corporate employer that can only act through its employees. An employer may summarily dismiss an employee who destroys that trust and confidence. at p 81 per Dixon J An employer may seek to entice or motivate its employees in the expectation of receiving a bonus payment or promises of fair treatment. Statute,For example the National Employment Standards under the Fair Work Act 2009 (Cth). regulation and industrial awards may provide the “means by which employees may be protected from abuses of power by the employer, and provides means of redress to employees who are aggrieved by some conduct of the employer” In some instances however the availability of redress may be less certain, for example a bonus payment made be left to the discretion of the employer, or the promises of fair treatment may be contained solely in policies of the employer.. The employee trusts that the employer will deliver on that expectation or promise. The question arising in Mr Barker's case was whether the expectation or promise in the Bank's policies were legally enforceable.
Remedies for wrongful dismissal in Australia Underlying Mr Barker's claim is that the Commonwealth Bank was wrong to dismiss him in breach of its policies. There are numerous difficulties facing an employee who believes they were wrongfully dismissed. At common law the employee had no right to be given a reason for the dismissal.. If the employer dismissed an employee without notice, a court would scrutinise whether the employee's conduct justified summary dismissal.North v Television Corp Ltd (1976) 11 ALR 599 at p. 609 per Smithers and Evatt JJ Even if the contract does not specify a period of notice, a term is implied that either party could bring the contract of employment to an end by giving a reasonable period of notice.
Even if a former employee could establish that they were wrongfully dismissed, there were three further impediments to the available remedies: An ex-employee could not recover damages for breach of contract in respect of injured feelings and loss of employment prospects arising from the harsh and humiliating manner of the dismissal or for any loss sustained because the fact of dismissal itself might make it more difficult to obtain alternative employment.. A court would not normally order specific performance of a contract of employment nor grant an injunction that would effectively amount to specific performance. Whitwood Chemical Co v Hardman 2 Ch 416. The measure of damages for wrongful dismissal is generally limited by an assumption that the employer would otherwise have dismissed with notice. at p. 32 per Sheppard & Heerey JJ.Stewart, Andrew "Damages for Wrongful Dismissal and the Problem of Contingencies" (1993) 6 Australian Journal of Labour Law 50 at 56.
Employees and their representatives have sought to overcome these impediments in a number of ways: by inserting into awards a provision that "Termination of employment by an employer shall not be harsh, unjust or unreasonable". The High Court held that a breach of such an award term did not give rise to damages.. by statutory unfair dismissal proceedings in industrial tribunals.Most recently by an individual applying under section 385 of the Fair Work Act 2009 (Cth) however historically this involved a union filing a dispute on behalf of the dismissed employee, see for example s 5 of the Industrial Arbitration Act (1901) NSW and . While a finding that a dismissal was unfair may result in reinstatement,Section 391 Fair Work Act 2009. compensation is limited to 6 months pay,Section 392 Fair Work Act 2009. and employees are excluded from claiming in some circumstances, such as where the dismissal was a genuine redundancy or the former employee was not covered by an award and exceeded the high income threshold.Mr Barker was excluded from claiming unfair dismissal, because it was a redundancy and his salary exceeded the then remuneration limit for non-award covered employees of $106,400. by proceedings in a state industrial tribunal claiming the contract was unfair.For example s88F of the Industrial Arbitration Act 1940 (NSW) introduced in 1959. The unfair contract jurisdiction was largely eliminated as part of the WorkChoices legislation.Section 16 While numerous changes were made as a result of the 2007 election of the Australian Labor Party, those changes did not include reviving the unfair contract jurisdiction. See section 26 of the Fair Work Act 2009. by the creative use of implied terms, notably the obligation of mutual trust and confidence, relying on the English authority Malik v Bank of Credit and Commerce International SA. by claiming that the employer engaged in misleading or deceptive conduct in relation to bonus payments the duration of employment or that the employer would adhere to its policies.
Mutual trust and confidence in Australia Whether there is an implied contractual duty of mutual trust and confidence had been controversial, at per Hoeben J and considered but not settled in various decisions of Australian courts including: Burazin v Blacktown City Guardian Pty Ltd where the Full Court of the Industrial Relations Court of Australia held that there was ample English authority for the implication of the suggested term, however damages were not available for a breach of the implied term.Burazin v Blacktown City Guardian Pty Ltd IRCA 371; (1996) 142 ALR 144. Walker v Citigroup Global Markets Australia Pty Ltd where Kenny J in the Federal Court held that under the common law, no duty of good faith is implied into employment contracts. McDonald v Parnell Laboratories (Aust) Pty Limited where Buchanan J in the Federal Court doubted the existence of an implied term of mutual trust and confidence. at -. Russell v Roman Catholic Church, Sydney where the NSW Court of Appeal held that assuming the Church owed its employee an implied contractual obligation not to damage mutual trust and confidence, the Church had not breached such an implied term. State of South Australia v McDonald where the Full Court of the Supreme Court of SA held that even if there was generally an implied term of mutual trust and confidence, it was displaced by statute, regulation and industrial award which provided “a variety of means by which employees may be protected from abuses of power by the employer, and provides means of redress to employees who are aggrieved by some conduct of the employer”.. The High Court refused a grant of special leave from that decision . Shaw v State of New South Wales where the NSW Court of Appeal held that a claim that a term of mutual trust and confidence was implied into their contracts of employment was not untenable or groundless. Despite the limited scope of the issue, the Court considered not only the implied term of mutual trust and confidence but also the standing of "Addis v Gramophone Co Ltd. In doing so, the Court traveled far afield, considering decisions from England, Canada, New Zealand, the Fiji Islands, Hong Kong, Samoa, Trinidad & Tobago and Papua New Guinea.
Relational contract theory The Commonwealth Bank's argument was that it was not bound to follow its own policies. The HR Reference Manual stated "The manual is not in any way incorporated as part of any industrial award or agreement entered into by the Bank, nor does it form any part of an employee’s contract of employment".
This raises the question why does an employer ever do more than it is legally obliged to do ? One theory seeking to explain this behaviour is that employment is an example of a relational contract, based upon a relationship of trust between the parties. The explicit terms of the contract are just an outline as there are implicit terms and understandings which determine the behaviour of the parties. The High Court has long held there is a distinction between the employment relationship and the contract of employment.
The Full Court of the Supreme Court of South Australia described the development of the implied term as being "consistent with the contemporary view of the employment relationship as involving elements of common interest and partnership, rather than of conflict and subordination."
The decisions in the Federal Court The trial was heard in the Federal Court of Australia. Besanko J held that there was an implied term of mutual trust and confidence in the contract which operated only where a party did not have reasonable and proper cause for his conduct and the conduct was likely to destroy or seriously damage the relationship of trust and confidence, applying the decision in Malik v Bank of Credit and Commerce International SA. The Bank had committed a serious breach of its policies and that was a breach of the implied term. The Court dismissed Mr Barker's claims that the policies were incorporated into his contract and that the Bank had engaged in misleading or deceptive conduct. The court awarded damages assessed at $317,500, based upon discounted past and future economic loss.
The decision of the Full Court of the Federal Court The Bank appealed to a Full Court of the Federal Court. per Jacobson and Lander JJ, Jessup J dissenting. Mr Barker cross-appealed against the assessment of damages. The Full Court, by a majority (Jacobson and Lander JJ, Jessup J dissenting) dismissed the appeal, holding that there was an implied term of mutual trust and confidence, as found in Malik v Bank of Credit and Commerce International SA. Jacobson & Lander JJ disagreed with the trial judge that the term of mutual trust and confidence required the Bank to comply with its policies, instead finding that mutual trust and confidence required the Bank to take positive steps to consult with Mr Barker about alternative positions and to give him the opportunity to apply for them. The failure of the Commonwealth Bank to do so was a breach of the implied term.
Jessup J dissented on the basis that the implied term did not form part of the common law of Australia and that even if the implied term existed, the Commonwealth Bank's failure to comply with its own policies did not amount to a breach.