Employment Law - The Implied Term of Mutual Trust and Confidence - Essay Example

The Implied Term of Mutual Trust and Confidence Student’s Name: Instructor’s Name: Course Code: Date of Submission: Introduction In the past few decades many of the Australian courts have continued to wrestle over the idea that parties to the employment relationships have a contractual duty and which is owed to the other party so as to ensure that there is no harm that is being caused to either party. The purpose of this idea is to ensure that mutual trust and confidence is sustained by both parties to the contractual agreement1. In other parts of the world like in the United Kingdom and New Zealand have managed to accept such term clearly depicting that such duty is implied into the employment contracts by the law. While the stand in Australia is not clear, the most recent decision on the case between Barker v Commonwealth Bank of Australia which took place on 3rd September 2012 has opened new way towards mercurial implied law of mutual trust and confidence2. One of the major incidents in the contract of employment is the issue that the employer is always subject to some implied duties and one such term is the mutual trust and confidence which sets an obligation for the employer to ensure that he does not act in away that is likely to jeopardise the mutual relationship that exists between the employer and his employees. Purpose of the discussion The purpose of this essay is to carry out an extensive study to establish if the concept of mutual trust and confidence which is also known as the duty to acting fairly and reasonably is implied in the employment contract in Australia and if by in any way its position currently has been influenced by an international case law and also take a critical view on the advantages and disadvantages of this term both to the employer and employee. The mutual trust and confidence concept Mutual trust and confidence concept has been brought into existence in order to make sure that both parties to the contractual employment do not in any way act in away that is likely to cause harm to the other party without showing proper reason for such an action so as to ensure that a mutual trust and confidence relationship is created between the employer and the employee. For instance, the term is being breached in a situation where the investigations into alleged misconducts takes longer than necessary and allowing more harm to one party3. The proponents of this term also have identified that even though its aimed to ensure that no harm is not caused to either party without a proper reason, there is a an “exclusion zone” especially at the point of dismissal where it does not apply. This case has been well illustrated by Mr Barker who was once the employee of the Commonwealth Bank of Australia (CBA), where he argued that his employer had breached mutual trust and confidence by selecting him as one of the company’s redundancies without any prior effort to redeploy him in another position elsewhere. This is considered against the company policy on redundancy and redeployment as well as retraining. For example, the redeployment policy at CBA is dedicated to all the employees even though it has clause stating that it is “not in any way incorporated as part of any industrial award or contract agreement entered by the bank and also does not in any way form part of the contract of employment with the employee.” However, with the judgement of the court, it was found out that the argument by CBA that the retrenchment of Barker was within the ‘exclusion zone’ which is not affected by the mutual trust and confidence did not hold. While considering, the case to establish if CBA had worked within its redeployment policy, it found out that it did not do so. According to Besanko J., hearing judge: “the bank’s failure to act within a reasonable period, amounted to the breach of its contract policy and redeployment and that it was a serious breach and it amounted to the breach of the implied term of the mutual trust and confidence.” This case that was determined at the Federal courts in Australia, showing the awarding of A$317,500 TO Mr. Barker for the damage that was considered to him by the former employer, CBA. This is after it was established by the court that for sure some damage had been caused unto him by the breach of its redeployment policy4. Even though this policy was set out of the contractual HR manual, the court went further to imply that a term of mutual trust and confidence was in the employment contract and that retrenching Barker was a breach of the contractual terms and which led to the serious breach of its policy. What this meant to the claimant who in this case was Barker stood a firm ground for being compensated for harm that has been caused to him by the employer5. Whilst it was established by the court that the bank’s policies were not the terms of Barker’s employment, it insisted that the implied term of mutual trust and confidence did exist and breach of which could easily cause very serious harm to the relationship that existed between the employer and the employee6. This threshold was reached by breaching one of the bank’s policies and therefore the court held that the bank’s conduct was a breach to the mutual trust and confidence. The court’s decision was informed by the interpretation of three ways the company’s policies could be incorporated into its contract of employment namely the express terms, and its usage and practice within the bank and the implied term of mutual trust and confidence. Mutual trust and confidence term in an Australian context The case between Mr. Barker and his former employer, CBA is among the many examples showing that the term of mutual trust and confidence is implied in the employment contract in Australia. What this means is that in the Australian working context both the employers and employee ought to be very careful with regard to breaching the implied terms7. The determination of the case in favour of Barker, demonstrated how the Federal court perceives the implied terms in the employment contracts. From the case, it was established that the company had breached it is own redeployment policy to suit its restructuring process without paying due regard the impact the same will have to the other party. In Australia, this means that even though many employers may maintain that their internal policies do not affect on the employment contracts, the court still upholds that the term of mutual trust and confidence still hold and is already incorporated in the terms of employment and therefore create a binding legal obligation for the employer. This case also demonstrates that the breach of the term may also be as a result of different actions by the employer which include: failing to communicate adequately to the employees on the available employment policies that are likely to affect them in the course of their duty, inability to engage meaningful ways to deal with apply its internal policies, and the inability to adequately consult with the employees on the available programs with regard to retraining, redeploying and retrenching8. Any conduct by the employer that entails any of these actions is tantamount to breaching the term of mutual trust and confidence between the employer and the employee since it does not pay due regard to the wellbeing of the other party. While deciding on this case, the Australian Federal court maintained irrespective of what kind of employment contract is signed between the employer and the employee, the term still applies and that any action to breach internal policies without proper cause adds to the breach of the employment term. At workplace therefore, it is expected that employers should owner their obligations to the contract by ensuring fair treatment to the employees9. In Australia, the Court maintains that the implied term is likely to be breached when one party to the contract does something that can seriously injure on the relationship of mutual trust and confidence without following the due course. The other case that demonstrates that the term of mutual trust and confidence is implied in the employment contract in Australia is the case involving McDonald v State of South Australia in 2008. This case clearly demonstrates that the court recognises the existence of the implied term of mutual trust and confidence and that any party breaches that, is subject to paying rewards and loss incurred in the process to the affected party. In 21st May 2008, the South Australian Court decided to award damages caused to the employee of the South Australian Department of Education and Children’s services, because of breaching the duty of good faith and mutual trust and confidence. This decision has far reaching implications for all employers throughout Australia. McDonalds who was the plaintiff in this case was appointed as at Brighton Secondary School in 1997 until 2003. McDonald was appointed to teach business studies and economics in the school, was asked to undertake a further task in network management. Later on, his health suffered as a result of undertaking extra role as a network manager. The evidence that was there is that the Department failed to McDonald adequate training on computer networks also was required to work long hours, undermining of his duty and role, harassment and victimization and that McDonald was not interviewed for this position. Because of the prevailing circumstances, McDonald resigned from his position claiming that his options were limited given the working conditions in the school. After resigning, McDonald decided to institute legal proceedings against the department in the South Australia’s Supreme Court alleging that the school had the implied duty to provide safe system workplace, to conduct itself in such away that it does not hurt or destroy the existing mutual trust and confidence in the employment relationship, department had breached the implied term and consequently ending the contract of employment and that he accepted the department’s repudiation by resigning10. While listening and deciding on this case, Justice Anderson agreed and confirmed that the school had breached its duty to provide safe working system and also failed to comply with the implied term of mutual trust and confidence11. While arguing on his Judgement, Justice Anderson said that, by breaching the implied term, it was conclusive that the school had dismissed him since the contract had been breached and therefore McDonald was entitled compensation for all the damage or the loss that that had been incurred by him and that came as a result of the breach of the contract. Finally, Judge Anderson ruled that the school compensate McDonald for the loss that came as a result of earning capacity, future loss for earning capacity and loss long service leave entitlements as well as lost superannuation which totalled to $370,000. What this case means therefore is that, in Australia, the implied term of mutual trust and confidence is very much alive in employment contracts and that each business or organisation is responsible for its actions and decisions which are likely to affect their relationships with the employees failure to which will amount to breaching employment contracts. Further, in Australia such activities as undermining employees’ authority, excluding the employees from job opportunities and harassing and victimizing of employees, are unethical and punishable by the law. International case laws and Australian’s position The current situation in Australia which affirms the existence of the implied term of mutual trust and confidence might have been as a result of various international case laws employment contracts and application of the implied term. One such important case that might have influenced Australia’s position, is the one involving Malik and Mahmud v Bank of Credit and Commerce International (1977). This is a major leading English employment contract law UK labor case that has confirmed that the implied term of mutual trust and confidence does exist in all contracts related to employment. Mr. Malik and Mr. Mahmud both were employees of the Bank of Credit and Commerce International (BCCI). The company went insolvent as a result of massive frauds which involved the engagement terrorists, money-laundering and raft of various criminal activities of global nature. This situation in the company led to the duo to lose their jobs in the company and tried to look for employment elsewhere which never came. The jobs for the two were not forthcoming since they had already worked with a company that had a very bad reputation something that impacted negatively on their credibility12. These happenings prompted the duo to sue their former employer for making them lose their employment prospects and therefore they wanted to get paid for the damage they suffered for working for BCCI. This raised the question on the duty of the company for its employees and that had been broken. Even though there were no express terms in their employment contracts, the two argued there was an implied term in the employment contract that they had entered with the company and that nothing was deemed right to be done as long as it undermined their mutual trust and confidence. While trying to give their judgement on the case, the House of Lords unanimously agreed that the term of mutual trust and confidence should be included in the employment contract as a necessity for enhancing employment relationships between the employers and their employees13. This was a term that had been implied by the law and that can continue to influence on the positions of many countries with regard to the implied term of mutual trust and confidence. According to Lord Stern, the move seemed to be a very sound development in industrial relations and more especially on the employment contracts between the employers and their employees. Lord Stern also went further to applaud that the implied terms are default rules. However, parties have a choice to modify or even exclude them as long as they do not affect the implied obligation of the mutual trust and confidence. This was considered to be a major evolution in the implied term of trust and confidence. What this case reveals is that it is not easy to use the employer’s motives to determine and judge on the employees claims for damages caused as result breach of the implied obligation. If the conduct in the process is not considered objectively, then the damage of the relationship between the employer and the employee could easily lead to the breaching of the implied contract. This case clearly demonstrates that committing of dishonest and fraud practices during the employment duration and after the termination can both be held liable in court since in both cases, the fact remains that the breach of the implied contract has been committed. This case in Australia has been used as the foundation for improving employment relationships by ensuring that the implied term of mutual trust and confidence is applied to14. Advantages of the implied term The inclusion of the implied term of mutual trust and confidence is very fundamental in outlining what is expected of the employer during their period of the employment relationships. This is especially important in stipulating what the roles of the employer are, as well as those of the employee. This can be illustrated in the case of the Laffoy J., as described in the Berber case where it is presented as a reciprocal duty for both parties to the employment contract. Further, the implied term of the mutual trust and confidence is important in imposing duties and responsibilities to each party which include obeying prevailing laws and giving reasonable instructions. As a matter of fact, the implied term of mutual trust and confidence has been very instrumental in helping the employers to deal with issues related to work rule and that are fundamental in preventing industrial actions like rewarding, promotion and fair work conditions which many of the employees can adapt in since in many occasions their grievances are listened to. This can be demonstrated in the case of Secretary of State v ASLEF when it was maintained that must not in any way to try to frustrate the employers’ commercial objectives by trying to execute instructions in unreasonable way. While presiding on the case and giving his judgement in the Supreme Court Berber with regard to the case of Woods v W.M. Car Services (Peterborough) Limited, with reference Browne-Wilkinson J., said that according to the term implied in the contract employment, the employers are not expected in any way, in those activities that are likely to compromise on their relationships with the employees without showing proper cause for that and that the should be reflected by the employees as established in the case of Courtaulds Nothern Textiles v Andrew (1979) IRLR. With this kind of ruling, it is clear that the term implied is important in creating a “two-way street” where the interests are protected by the mutual trust and confidence. On the same line, the implied term is important in making sure that workplace policy is followed and that it’s used as away to creating a guideline on how the involved parties should behave while in the contract. This is important in ensuring that as the employers are working to commercialize and make good returns from their business activities, they are also important in ensuring that the employees are also treated fairly. Further, in the case of the employer, the existence of the term implied mutual trust and confidence is very important in eliminating some of uncertainties that might be there when an employee holds a very senior position and where one has access to very confidential and vital information about the organisation. In this case, mutual trust and confidence is especially important in making sure that the employer is free and satisfied with the employees who are in senior positions in the company. This is particularly important in making sure that important information about the business is not leaked and that it’s kept within the business. Finally, in most cases at workplaces many of the employees do feel undermined, harassed and bullied given the prevailing company policies and practices. However, with the existence of the term implied mutual trust and confidence, the employees are protected from unfair practices such overworking, harassment, underpay, discrimination and redundancy as well as retrenchment. With the implied term however, the company policies are made fair and consistent as part of the employers obligation to ensure fairness at workplace15. Disadvantages of the implied term Despite the good intentions of having the implied term of mutual trust and confidence, it is emerging that this concept has also its shortcomings. First and foremost, since the term addresses the issue of obligations and protection of interests by both parties, it is emerging that complying with this term, it is like a commitment that has been forced and not enacted freely. The weakness with this kind of term therefore, is lack of flexibility since it is not always easy to change or enact changes without affecting the other party. This therefore means, it is always not easy for the employer to change from its traditional practices that were present when the employment contract was signed in order to accommodate the new changes in the business environment and the industry. This is the same case with the employees. Because of the implied terms that come into play when the contract is signed, it becomes absolutely very difficult for the employees to request for new demands. In general, the implied term has its limit as to what should be done and that any deviation must involve both parties. This also leads to the issue of time wasting in making important decisions. Since it is necessary for the employer to involve the employees in important matters like rewarding, working conditions, redeployment, retrenchment, promotions and appraisals as well training and development programs that are there, then it becomes very difficult to make steadfast decisions since enough time will be required by each to do adequate consultations16. Conclusion The term implied mutual trust and concept, is a very important concept in industrial relations in making sure that good employment relationships are maintained between the employers and their employees based on their contracts. However, since this is a law that outlines the obligations of each party to employment contract, it is becoming increasing a debatable idea whether it actually important to allow such policy at workplace and if the court process should be the only remedy to any breach committed to the implied term. With this regard therefore, to my view, it is advisable for the law to allow mediation in some cases to fasten the process and also reduce on the expenses and penalties that are imposed as result of such breaches. References Bolger, M. & Ryan, D. (2007). The mutual duty of fidelity in the contract of employment: Significant recent developments. Irish Employment Law Journal 4(4), 112 Brodie, D. (1996). The Heart of the Matter: Mutual Trust and Confidence. Industrial Law Journal, Vol. 25, No. 2, p. 23-90. Cabrelli, D. (2005). The Implied Duty of Mutual Trust and Confidence: An Emerging Overarching Principle? Industrial Law Journal, Vol. 34, No.4, p. 56-90. Collins, H. (2003). Employment Law. Oxford Clarendon Law Series. Oxford: Oxford University Press. Delany, H. (2006). Employment Injunctions: The Role of Mutual Trust and Confidence 28 Dublin University, Law Journal, 363(26), p. 54-90. Freedland, M. (2003). The Personal Employment Contract. Oxford: Oxford University Press. 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