Insights

In brief - Employer found to have breached implied duty of trust and confidence

The Full Court of the Federal Court of Australia has upheld a decision to award damages to an employee because the employer breached an implied duty of trust and confidence in the employment contract by failing to follow its redeployment procedure, which it notified a long term employee would be implemented upon the termination of his employment.

Employers need to follow their implemented procedures to avoid the risk of claims

The decision of the Full Court of the Federal Court of Australia in Commonwealth Bank of Australia v Barker [2013] FCAFA 83 highlights the importance for employers of complying with the terms of workplace procedures that have been implemented.

Although this decision deals specifically with a redeployment procedure, it could arguably be applied to any workplace procedure that an employer has implemented, including complaint investigation procedures.

Bank rearranges portfolios and makes executive manager redundant

Mr Stephen John Barker was employed by the Commonwealth Bank of Australia (CBA or Bank) as executive manager in the Bank's corporate banking section in Adelaide.

Mr Barker was a long standing employee of 27 years of service with the CBA and he was employed under the terms of a written contract of employment providing four weeks' notice of termination.

Commencing in 2008, the CBA rearranged a number of its portfolios, which resulted in a decision that one of its executive managers would be made redundant.

Mr Barker was selected for redundancy.

On 2 March 2009, Mr Barker was provided with a letter notifying him that his position would be made redundant at the close of business that day. He was further informed in writing and verbally that if he was not redeployed within the Bank, then his employment would terminate effective 2 April 2009. However, the Bank failed to initiate its redeployment process in a timely manner and Mr Barker's termination was extended to 9 April 2009.

Employee claims that the Bank breached its redeployment policy

In 2010 Mr Barker brought proceedings against the CBA for breach of his employment contract and for damages under section 82 of the Trade Practices Act 1974 (Cth), as was then in force.

Mr Barker's claim included a claim that the Bank's redeployment policy was incorporated into his contract of employment, that the Bank breached that policy by failing to inform him of a possible alternative position within the CBA and that he thereby lost that opportunity.

Redeployment policy did not form part of employment contract

The primary Judge found that the redeployment policy was not incorporated into and did not form part of Mr Barker's employment contract.

Justice Besanko found that the CBA's human resources manual contained a provision which expressly excluded the manual from forming a part of Mr Barker's employment contract. It was found that this exclusion extended to the redeployment policy and therefore Justice Besanko held that it did not form part of Mr Barker's employment contract.

Bank found to have breached implied term of trust and confidence

However, Justice Besanko did find an implied term of trust and confidence in Mr Barker's employment contract and further found that the bank breached this implied term by being almost totally inactive in initiating its redeployment policy, as it notified Mr Barker that it would do upon notification of his redundancy, within a reasonable period of notifying Mr Barker of his redundancy.

It was found that the decision of the CBA to make Mr Barker's role redundant was not a breach of the redeployment policy; however, its failure to take timely and meaningful steps to attempt to redeploy him was a breach of the Bank's implied duty.

On 3 September 2012, Mr Barker was awarded damages for the loss of opportunity to be redeployed in the sum of $317,000, based on 25% of future earnings of $1,160,000 along with $110,000 for past earnings, plus the four weeks' notice owed to him.

Bank appeals to the Full Court of the Federal Court of Australia

The CBA appealed to the Full Court. The issues considered included:

  • Whether the primary Judge erred in finding that an implied term of mutual trust and confidence exists.
  • Whether the primary Judge erred in finding that the Appellant, the CBA, had breached the implied term by failing to take steps to redeploy Mr Barker.
  • Whether the primary Judge erred in awarding Mr Barker damages beyond the four week notice provision contained in his employment contract.

Full Court upholds award for damages

In its two to one decision released on 6 August 2013, the majority of the Full Court upheld the damages award, finding that there was an evolving implied duty of trust and confidence in the employment contract and that the Bank breached this duty by failing to follow its redeployment procedure in circumstances where a long term employee had an expectation that it would be followed and where he was notified that it would be initiated upon being notified of his redundancy.

The Full Court recognised for the first time in Australia that a term of trust and confidence will be implied into contracts of employment unless doing so would be inconsistent with the express terms of the employment contract. However, it was noted that the implied duty will be "moulded" depending upon the facts of the case, suggesting an element of uncertainty in terms of its application.

Further, it was highlighted that this implied term cannot be breached by an employer terminating the employment relationship and only relates to an employer's conduct during the employment relationship, requiring an employer to not conduct itself in a manner that is likely to destroy or damage the relationship of trust and confidence between it and one of its employees.

Employers' failure to follow workplace procedures set out in workplace policies may lead to award of damages

This decision highlights that employers must now focus more carefully on the terms of policies to ensure that the procedures contained in the policies are complied with, even if the employment contract contains provisions stating that workplace policies do not have contractual force and do not form part of an employee's employment contract.

An employer's failure to follow a procedure set out in a workplace policy may result in a claim of a breach of the implied term of trust and confidence and may further result in damages being awarded for loss arising from such breach.

At the time of writing of this article, there is still potential for the Bank to seek leave to appeal to the High Court.

This article has been published by Colin Biggers & Paisley for information and education purposes only and is a general summary of the topic(s) presented. This article is not specific legal advice. Please seek your own legal advice for any questions you may have. All information contained in this article is subject to change. Colin Biggers & Paisley cannot be held responsible for any liability whatsoever, or for any loss howsoever arising from any reliance upon the contents of this article.​