Mutual Trust and Confidence - Essay Example

Employment Law Name Institution Date Employment Law Introduction In addressing the idea of mutual trust and confidence in the employment contracts in Australia, it is important to address the laws that relate to the duty that is implied by the law on mutual trust and employment in employment contracts. Examination of this concept has to be done according to the case law and existing working practices. Mutual trust and confidence is a term that every employment contract has in its specifications. In an employment contract, there are other implied terms. These implied terms comprise the concept of compliance between the employer and the employee. It also encompasses the obligation of cooperation between the two and the obligation of fidelity that is influenced by equity principles. The contract is used during employment so as to place the employer and the employee in a position of bargaining. It is this idea that forms the principle of law of contract with benefits that are mutual. The South Australian Supreme Court made a decision in the McDonald v South Australia 1 state case after reviewing the Australian and English law and made a conclusion that employment contracts should have mutual trust and confidence as part of the Australian Law.2 It was further stated that this should be implied in cases at the court. This demonstrates the significance of mutual trust and confidence in employment contracts. This paper will discuss whether the term mutual trust and confidence has been implied in the employment contract in Australia. It will also discuss the influence that the international case law has on the Australian position. Further, it will discuss analyze the advantages and disadvantages for employers and employees of having such a term implied in the employment contract. The debate on whether the concept of mutual trust and confidence in employment contracts has been implied in the Australian law. 3In one of the recent cases in Australia (Barker versus the Common Wealth Bank of Australia)4, the Australian Federal Court found out that there had been a breach of HR policies by the employer and this resulted in a breach of the implied contract term. This resulted in awarding of damages. In England, a term has been implied into the contracts of employment and the employer should not, without proper and reasonable cause, carry itself in a manner that is calculated and could cause serious damage and destruction to the trust and confidence relationship that exists between the employer and employee. The implied term of mutual trust and confidence is an obligation that is included in contract s of employment so as to act as a duty of the employer not to act in a manner that could cause destruction or seriously damage the relationship that exists between the employer and the employee in terms of confidence and trust.5 The origin of this obligation was in England where employers established a practice of mistreating their workers so that the workers could resign from the work voluntarily. 6This was done so as to avoid paying statutory compensation to the workers who were dismissed. This was therefore developed to protect the rights of workers from unfair dismissal. Australia has been adopting this obligation to its laws on employment contracts but its development has not been well implemented. In the case of Mahmud v Bank of Credit and Commerce International SA (1998) AC 20, the decision was handed down by the English House of Lords and it was based on the fact that the force of law required a term to be implied in all the employment contacts and this required that all employees and employers treat each other with mutual trust and confidence.7 In Australia, there is no appellate court that has held this as part of the employment law in Australia. Further, in the case of Russell versus the Roman Catholic Church Trustees (Archdiocese of Sydney) 2007, the New South Wales Supreme Court ruled that mutual trust and confidence was a term that was in the Australian Law. With reference to the Mahmoud case, Mahmoud and Malik based their claim on the fact that the employment contract had an implied term that required them to be treated with mutual trust and confidence. The claimants further asserted that their employers had breached the implied term in the contract for employment and they therefore required that they be compensated for the damages caused. The ruling by the House of Lords on that case held that every contract of employment be regarded to contain an implied term signifying mutual trust and confidence. From this ruling, it is clear that the Australian Law considers the implied term of mutual trust and confidence in the employment contract. The case of Russell vs the church was also reported to contain implied terms in the employment contract. Mr. Russell stated that there were two implied terms in his employment contract. The first implied term required that the church was supposed to act in good faith. The second term was an implied term requiring that there be mutual trust and confidence. The Supreme Court ruled in favour of Russell and demanded that he be compensated. The court purported that in the employment field, the employees are bound to act in mutual trust and confidence and so are the employees. Arup et al (2006) stated that the Australian legislation forbids harsh, unreasonable and unjust dismissals of employees. It was further purported that the duty to ensure trust and confidence was used as a gateway of developing fairness. The term mutual trust and confidence was implied so as to create a gateway that could be used by the law courts when engaging with developments on the relationship of employees. The obligation of mutual trust and confidence has an open texture that allows it to act as an ideal conduit that courts can use to channel their opinions on how relationships of employment should operate.8 This term brings in the human factor into employment relations and promotes the dignity of workers. The development of the concept of implied term of mutual trust and confidence in Australia has been limited as compared to that in the United Kingdom. During the ruling of Johnson’s case, the House of Lords admitted that employment contracts developed interpersonal relationships between the employers and employees and therefore, the breaching of the employment contract by the employer could have substantial effects on the emotional state and self-esteem of the party involved. However, the question of whether the damages should be awarded for by the respondent for breach was left open. Instead, compensation was awarded for distress according to the regime of unfair dismissal. The courts in Australia have therefore not followed the example of Britain where damages are awarded for employers’ capricious conduct during trheir relationship with employees. The Australian courts are tentative in the development of this duty.9 Stewart (2011) stipulated that the legal regulation in Australia has institutions and rules that are similar to those of most developed countries. Most specifically, these regulations resemble those of Britain and other nations with a similar legal and cultural heritage. The employment law is stated to be different because some of the elements were inherited from the system in Britain. Some of the core institutions in Australia are distinctive; especially the processes that are used to solve disputes arising form the workplace. Stewart further stated that the Australian law on employment is complex. One of the reasons for this is because of the unclear and strange division on regulatory authority that exists between the states under the constitution and the Commonwealth. Another reason is the tendency shown by legislators to draft laws that are long and detailed. The legislation on work choices by the Howard government illustrates this since the legislation was even difficult to be understood by the experts of law.10 Carrigan (2009) stated that when implied terms are incorporated into the law, standards will be automatically imported into the contract of employment without paying regard to the will of either party. This state of affairs is different from the traditional wisdom where contracts only contain the terms that parties have agreed on. This means that the employment contract allows terms that are imposed by the courts to reinforce the key features of the workplace law. Some of the standard terms that are imposed on employers include the obligation to pay for work done and the obligation to act with care for the employees’ safety. By imposing standards on the contract, the courts have the authority to decide that the employers have breached the mutual trust and confidence that they owed their employees. This is the reason the Australian courts have taken the implied term of mutual trust and confidence to be in the contracts of employment. Hor and Keats (2009) presented the case of Van Efferen vs CMA Corporation. In this case, the court declined to accept that the obligation of mutual trust and confidence was part of the Australian law. This court stated that the issue was still controversial. In this particular case, there was controversy among the judges since they felt the Federal Court judges used an approach that was more guarded as compared to the approach used by the Court of Appeal in New South Wales, Russell. This Federal court accepted that the obligation of mutual trust and confidence was part of the law in Australia; together with the implied term in all contracts of employment, but stated that it did not extend to termination. This means that it did not limit the right of the employer to dismiss employees without showing cause. The employer still had the right to do this when the circumstances called for the dismissal of the employee.11 The Federal Court in Australia maintained that damages would not be compensated for losses that were non-financial; like disappointment and distress, which breach the contract. It added that there was certainty on the exceptions of such a case; like when an employee suffered psychiatric injury or physical injury, but the concept of claiming a breach of duty of mutual trust and confidence was not a lucrative exercise. In cases where the employee suffered injury from breach of the contract of employment, the awards for damages would be possibly sizeable (Hor and Keats, 2009). Kluwer (2010) purported that no Australian court that exercised the common law authority had awarded damages by basing solely on the breach of duty so as not to terminate mutual trust and confidence. There has to be consideration of other aspects like injury for damages to be awarded. On the basis of the arguments presented, the Australian court is trying to incorporate the implied term of mutual trust and confidence in the contracts for employment.12 However, this has not developed fully like it has in developed countries and where the court considers that a breach has occurred, there is no compensation for damages. For one to be compensated for damages, other factors have to be considered and not the damages caused by the breach of contract by the employer. This means that the employer still has the right to dismiss employees when it feels it needs to. According to Gleeson (2002), the present society s an open society and the legal system of a nation together with its judiciary of the nation have to be subjected to global influence. The initial influence on the Australian law came from the Great Britain. Australia was under the British Empire for over 150 years and this is the reason for the initial influence of the British on its judiciary system. Having obtained the common law that came from England, Australia became part of the global legal community. This community included Canada, New Zealand, Ireland, India and the United States of America. Horrigan (1998) stated that the influence of the international law on the Australian Law has been in the offing for years. This was significant because the world has been taking to globalization of the economy and culture. One notable influence has been the endorsement by parliament of international initiatives using the domestic legislation. Horrigan (1998) further noted that most of the coutrty decisions made, including power cases on external affairs and decisions on free speech, were influenced by the international law. 13The international law was therefore reported to have an increasing influence on Australia. In his research paper, Boreham (2008) suggested that there was uncertainty on the position of the international law in Australia since members of the judiciary in Australia held contrasting views. Referring to the case of Evans v New South Wales,14 it was stated that the court used some elements of the international law in deciding whether the cl 7 regulation limited the rights of Australian citizens to freedom of speech. The court decided that the regulation had its powers but decided that the freedom of speech was still provided for in the domestic law. The court acknowledged that the common law supported the freedom of expression and religious belief. While making the ruling, the court referred to the Universal Declaration of Human Rights and went ahead to quote the International Covenant on Civil and political Rights. While recognizing the freedom of expression and religious belief, the court relied on the international law. Therefore, the international law still has influence on the law in Australia. This influence has been met by anxiety and most people feel that the international law has been seen as an intrusion of the self contained legal system that is carefully bound (Charlesworth et al, 2003, p424). The judges who have acknowledged the significance of the international law to the legal system in Australia have been faced by stern criticism. For instance, the High Court Chief Justice, Murray Gleeson, was upbraided because he discussed the international law while at a conference in the International Bar Association. The Chief Justice had made a speech in which he catalogued various means that the international law on human rights affected the Australian Law.15 The principles of international law do not have superiority over the domestic law. But the anxiety that has been created by the prospect of deploying the international law on the system in Australia only generates exaggerated understandings of the international law system. Although the European Effect had its influence on the United Kingdom, Kirby (2009) noted that the influence on Australia was not as pronounced as it was in the UK. For instance, the United Kingdom enacted the Human Rights Act in 2000 and this saw the ECHR (European Convention for the Protection of Fundamental Rights and Freedoms) incorporated into law. In Australia, there was no comparable instrument of human rights that was embraced at the civic level.16Kirby (2009) further stated that the international customary law has not been clear in Australia. Referring to a case in 1949 between Chow Hung Chin v The King, it was purported that the judicial remarks on the status of the customary international law were few in Australia. Going by this, the influence of international case in Australia has not been so strong. The advantages of having the implied term of mutual trust and confidence in the employment contract cannot be under looked. Rilley (2005) stated that handling of cases has suffered slow development due to the litigation expense in jurisdictions that did not consider use of the implied term of mutual trust and confidence while handling the cases of employer and employee relationships. Having the term of mutual trust and confidence implied in every clause of employment contracts serves to reduce such expenses and makes it easier for courts when carrying out rulings during cases of employee relationships. Rather than use expenses in finding out evidence of further injury than the damage caused by dismissal, courts can only use the clause and make their ruling. 17 The implied term of mutual trust and confidence helps employees by protecting them from unfair dismissal by their employers. The employers have the duty of ensuring that they abide by the contract and they therefore have to protect their employees’ interests. This implies that before any employee is dismissed, all the damages caused have to be compensated by the employer. Bell (2012) stated that by having the implied term of mutual trust and confidence in the employment contract, the relationship between the employer and their employee will be strengthened because they will both work with the security that they have the legal backing of the trust of one another. This will enhance the work environment and subsequently lead to the success of the organization. 18 Additionally, employees will have a sense of security at their places of work because they have the protection o the contract and the agreement in the contract. In cases where the employer has to dismiss the employee, they will have to show cause and provide compensation for the damages caused to the employer. This obligation also forces the employer to stick to the policies that have been set by the organization on employees. For instance, in the case of Mr. Barker v CBA, the judges ruled that there was an implied term of mutual trust and confidence in the employment contract. For this reason, CBA had no reason to dismiss Mr. Barker on the basis of a redundant position. In fact, the court ruled that the CBA had all the time to find for a way to redeploy the employee (Mr. Barker). Therefore, the court decided that by dismissing him, the bank was going against its own policy on employment. This implies that abiding by the obligation of mutual trust and confidence binds the employers to their own policies and this improves the reputation of the employer and the organization. In the case of Mr. Barker and the CBA, the bank was being bound to its policy of redeploying employees whenever there was redundancy of positions at work.19 In addition, the implied term of mutual trust and confidence enhances the practice of fairness at work. Both the employer and the employee act in fairness to each other since they are bound to promoting the trust and confidence that they have on one another. In cases where the employer wants to make changes to its structure, consideration is made on the effect this change will have on the employee and this requires that the employee be considered during the changes. The case of Fair Work Australia v Schweppes Australia Pty Ltd (Schweppes) demonstrated the need for fairness along with defining productivity. In the ruling, it was investigated whether the adjustments made on the structure of production would actually result in more productivity as intended. The final verdict was that the plan by Schweppes did not improve productivity and was unfair to the workers since they had to work extra hours yet the actual productivity would not be reflected. Therefore, the company (employer) was required to be fair to employees and not subject them to extreme working conditions (Corrs Chambers WestGarth, 2012). The disadvantage of the implied term to the employers is that they have to consider employees sin all of their changes. When carrying out changes in the structure of the organization, the employer has to consider the effect that these changes will have on the employees. For instance, when the employer restructures and discovers that there are some positions that are redundant, the employers whose positions are redundant have to be redeployed. In cases where they cannot be redeployed, the employer has to pay for the compensation. Employees have to be informed in time and their compensation given as agreed. This does not imply that employers do not have the power to dismiss employees when they feel it right to dismiss them. However, the employer has to find ways of compensating the employee under such circumstances. Conclusion In view of the cases discussed and the presentations made in the paper, the Australian law has an implied term of mutual trust and confidence. From the rulings made by most of the courts on breach of contracts, they have referred to the contract as having this implied term. However, the courts have not been able to award damages caused by the dismissals that complaining employees received. These courts required that there be an extra injury; either physical or psychological for the award to be given. Further, I consider that the Australian legal system been influenced by the international system of law. While some judges feel that the influence of the international case on the Australian law is positive to the country, there is anxiety over the reality of this significance and the people in Australia feel that their domestic law has been carefully structured and should be left to operate independently. Even so, some judges have seen the positive contribution of this international influence and that is the reason they have used in some of their rulings. The influence of the international law has been made clear to the people and this is the reason for the mixed anxiety among them. It therefore means that the law has been left open to more than one interpretation. References Stewart Andrew, 2011. Stewart's Guide to Employment Law. 3rd Edition. Federation Press, Sydney. Sappideen Carolyn, 2011. Macken's Law of Employment. 7th Edition. Thomson Reuters Limited, Australia. Pearson Drew and Allen Russell, 2008. 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Hor Joydeep and Keats Louise, 2009. Managing Termination of Employment: A Fair Work Act Guide. 2nd Edition. CCH Australia Limited, Australia. Kluwer Walters, 2010. Australian master fair work guide. CCH Australia Ltd, Australia. Gleeson Murray, 2002. Global Influences on the Australian Judiciary. Retrieved on February 28th 2013 from: http://www.hcourt.gov.au/assets/publications/speeches/former- justices/gleesoncj/cj_global.htm. Kirby Michael, 2009. The Common Law and International Law: A Dynamic and Contemporary Dialogue. City University, London. Horrigan Bryan, 1998. Government Law and Policy: Commercial Aspects. Federation Press, Sydney. Boreham Kevin, 2008. International Law as an Influence on the Development of the Common Law: Evans v. State of New South Wales. Public Law Review: Vol. 19, p. 271; ANU College of Law Research Paper No. 09-23. Charlesworth et al, 2003. Deep Anxieties: Australia and the International Legal Order. The Sydney Law Review: Vol. 25, No. 4. 424-464. Rilley Joellen, 2005. Employee Protection at Common Law. Federation Press, Sydney. Bell Mirriam, 2012. Recognising mutual trust and confidence in employment relationships. Retrieved on March 1st 2013 from: http://www.hcamag.com/article/recognising-mutual-trust-and-confidence-in-employment- relationships-143998.aspx. Corrs Chambers WestGarth, 2012. Recent developments: Implied term of trust of confidence, and ‘productivity’ under the Fair Work Act. Retrieved on March 1st 2013 from: www.corrs.com.au/publications/corrs-in-brief/recent-developments-implied-term-of-trust-of- confidence-and-productivity-under-the-fair-work-act/. Read More