The Principles of Contract Law - Essay Example

Employment Law Name Instructor: Tutor: Date: 1.0 Introduction Among the implied terms that exist within a contract of employment are the terms of mutual trust and confidence, also known as the duty to act fairly and reasonably. The main rule behind implied terms, mutual trust and confidence included, is creation of common agreement between the employee and his or her employer, co-operation function between them and fidelity responsibilities which are defined in totality by equity principles (Tobin and Vipond, 2013). Employment contract has significant roles to play to the employer and the employee. This is because it serves to bind both parties into a common accord allowing each party an opportunity to bargain his or her position (Kidd 2013). Contract of employment must be made according to the principles of contract law that provides mutual beneficial things to the employee and his or her employer. The mutual trust and confidence term should be implied to employment contracts because they are believed to promote positive relations (Salter and Day, 2013). The purpose of this essay is to comprehensively analyze whether or not mutual trust and confidence term is implied in the employment contract in Australia. It also describes the influence that various international case laws have had on the Australian position, as far as implication of the mutual trust and confidence term in employment contract is concerned. This is followed by a critical analysis of the advantages and disadvantages for employers and employees of having the term of mutual trust and confidence implied in the employment contract. The essay ends in a conclusion highlighting a number of conducts that may result into a violation of the mutual trust and confidence term in employment contracts. 2.0 Mutual trust and confidence (also known as the duty to act fairly and reasonably) and the employment contract in Australia.  The final decision for the term of mutual trust and confidence to be implied in employment contracts has been made by the Full Federal Court of Australia and other Australian Courts such as the Supreme Courts (Salter and Day, 2013). However, it is only the Australian High Court that has never recognized the mutual trust and confidence term being implied in employment contract (Kidd 2013). This occurs after a ruling made on a case between the Commonweal Bank of Australia and one of its managers, Mr. Barker. In this case, the Full Federal Court of Australia accused the Commonwealth Bank of Australia of breaching the mutual trust and confidence term by failing to maximally execute Mr. Barker’s redeployment opportunities, few days before termination of his employment that has existed for the past twenty years. The Full Federal Court of Australia recognizes the importance of the mutual trust and confidence term being implied to employment contracts, thereby awarding damages to the employee (Salter and Day, 2013). This is an indication that the mutual trust and confidence term is implied in the employment contract of Australia. The term of mutual trust and confidence implied in the employment contract of Australia prevents the employer from conducting himself in a manner that is likely to cause serious damage to the levels of trust and confidence existing between himself or herself and his or her employee (Tobin and Vipond, 2013). For example, failure to notify an employee prior to redeployment is considered as a breach of employment contract according to the mutual trust and confidence term requirements. In Australia, an employment contract contemplating the possibility of redeployment as an alternative to job termination compels the employer to consult with the employee before taking any job relocation actions. According to the Full Federal Court of Australia, this must happen even if the employment contract under reference does not include anything to do with redeployment policy. In the case concerning the Common Wealth Bank and Mr. Barker, the bank was charged with a breach of the mutual trust and confidence term implied in the Australian employment contract by failing to notify Mr, Barker before redeploying him (Pill and Howard, 2012). Otherwise, he would have considered going for other employment option that would have been presented to him via this notification. The mutual trust and confidence term is also upheld in Australian employment contracts taking interest of the duration that the employment has taken, the size of the employer and the component clauses stated in the employment contract. Australian employers continue to imply the mutual trust and confidence term in their employment contracts to date and they are vividly aware of the legal implications of any avoidance. Any infringement of the term will result into the employee seeking damages for the employment contract. This is normally allowed by the Australian courts because any abrupt dismissals are believed to negatively impact on the employee especially if the dismissal process was oppressive (Tobin and Vipond, 2013). Considering the level of mental stress that may arise, the mutual trust and confidence term is implied in the Australian employment contract to distinguish it from other contracts. It is a requirement by law that compensation is set to help regulate the manner in which employment contracts are brought to an end. This happens because the employer agrees during contract signing that it will not, at all costs; conduct itself in a manner that is likely to seriously tear down the relationship of trust and confidence between himself or herself and his or her employee. A part form the Full Federal Court of Australia, other Australian courts that consider the term of mutual trust and confidence being implied in employment contracts include; the Court of Appeal, the Full Court of the Industrial Relations Court of Australia in Perkins and the Supreme Courts. 3.0 The influence that the international case law has had on the Australian position The international case law has had several influences on the Australian position considering the court’s decision to include the mutual trust and confidence term in contracts of employment. Most of these international cases originate from England where most industries pay attention to the mutual trust and confidence term implied in the employment contract. For instance, the England case of Southern Foundries (1926) Ltd versus Shirlaw support that the term of mutual trust and confidence should be implied in employment contracts. In his statement, MacKinnon LJ argues that the officious bystander test can be used to make a decision as to whether or not; the implied term should be inserted into the employment contract. This test requires that the employer and his or her employee must arrive into an agreement concerning how dismissals are expected to be carried out before they can sign the contract (Kidd 2013). The principles and nature of the contract therefore form the basis of viewing the application of the mutual trust and confidence term implied in employment contracts. The Full Federal Court of Australia is comfortable with the usage of this term in employment contracts because the clauses contained in the contact clearly bear these principles which define the nature of the contract (Pill and Howard, 2012). Another international case law that has had an influence on Australian position is the case of The Moorcock that also occurred in England. In this case, Bowen LJ commands that an implied term must not be present in a contract for it to be considered functional. Rather, its intention can be presumed from the contract definition making it applicable the moment a contract has been signed (Salter and Day, 2013). This means that a mutual trust and confidence term must not be present in an employment contract for it to be considered fully functional. Instead, it is presumed to be present the moment a contract for employment is constructed. Considering the case between the Commonwealth Bank of Australia and Mr. Barker, the Australian Court emphasizes that the employer must notify the employee prior to job redeployment even if the employment contract under reference does not include anything to do with redeployment policy. This is particularly when the contract of employment contemplates the possibility of redeployment as an alternative to dismissal (Kidd 2013). Denying the employer an opportunity to consider taking another job, according to The Moorcock case, is considered a breach of employment contract and ignorance of the duty to act fairly and reasonably. Australia also derives its position from the England case of the Union Manufacturing Co. (Ramsbottom) Ltd and Reigate. Scrutton LJ, the precider over the case states that the mutual trust and confidence term is viewed as an important component of an employment contract because it promotes efficacy and success of the agreement. He argues that the nature of the implied term must not be desired by either of the parties to be applicable, but it is used because it is important for the smooth running of a business. The Full Federal Court of Australia derives its position from this England case believing that the employer must not be pleased by the requirements of the mutual trust and confidence term used in employment contracts for it to be able to work and attract legal implications. This is why the court orders the Commonwealth Bank of Australia to pay Mr. Barker $ 335,623 following the damage caused by the redeployment (Kidd 2013). The defined damages must also be paid, whether the employer is willing t do so or not. The tight position taken by Australia to use the mutual trust and confidence term in contracts of employment has helped many employers to exercise fair handling to their employees and this has facilitated efficient working relationship (Salter and Day, 2013). In a similar context, the international case of Sibson and TGWU versus Courtaulds Northern Spinning Ltd has served to greatly influence the Australian position. Slade LJ in this case argues that the court must not be satisfied that the employer and employee made conditional agreements on the implied term when signing the contract, before any ruling can be made. So long as the employment contract has bound the two parties with the mutual trust and confidence term, the employer must be ready to bear the consequences of any infringement of this term. The Full Federal Court of Australia relies upon Slade LJ’S arguments to make legal decisions by calling upon the employer to pay damages in case the employment contract is broken (Tobin and Vipond, 2013). The extent of influence that the international law cases have had on Australia’s position has been witnessed in various occasions. The borrowed ideas on the mutual trust and confidence term implied in contract of employment have helped Australian organizations to construct employment contracts that bind the employer and his or her employee. This has helped to increase the level of corporation and understanding that exists between these two parties (Salter and Day, 2013). 4.0 The advantages and disadvantages for employers and employees of having mutual trust and confidence implied in the employment contract. 4.1 Advantages The nature of the mutual trust and confidence term implied in contracts of employment is identified to legally bind the employer and his or her employee. These two parties have a duty not to do anything that may seriously destroy or damage the strength of association of confidence and trust that exists between them (Salter and Day, 2013). Mutual trust and confidence is therefore a very important term in employment contracts. This importance is attributed to a number of reasons expressed in a manner that benefits both the employer and the employee. Generally, the term of mutual trust and confidence promotes a happy working and performance levels to be realized between the employee and his employer (Salter and Day, 2013). It serves to control behaviours of both the employer and the employee since its absence may permit both parties to satisfy personal interests in their actions while working together (Tobin and Vipond, 2013). The mutual trust and confidence term implied in contracts of employment is important because it helps the employer to protect business to a larger extent. This term ensures that the employer operates in accordance with the employment contract and to policies governing workplace (Kidd 2013). In addition, it controls the manner in which employers respond to any questions directed to them. In this context, the mutual trust and confidence term implied in contracts of employment enables the employer to ensure that all grievance and disciplinary matters are examined and appropriate response given in a fair manner with regard to the rule of natural justice. This is an act that highly benefits employees as they are to receive quick responses from their employers concerning any matter affecting them at their place of work (Tobin and Vipond, 2013). Another advantage is that, the mutual trust and confidence term compels employers to seek to realize maximum openness and honesty within their organizations with great emphasis being laid on trust (Kidd 2013). Existence of openness and honesty between employers and their employees helps to ensure efficiency and effectivity at the workplace due to a positive working environment caused. The employee benefits from fair treatment from his reliable employer. The legal implications accompanying infringement of the requirement of this term enables the employer to take legal advice when faces with any matter related to employee contentious situations (Tobin and Vipond, 2013). Implication of the term on employment contract serves as a protection tool for the employee. The employee obtains a ground through which he or she can claim constructive dismissal and get the necessary solution in case of a breach of the term (Kidd 2013). The employer is also able to recover any compensation made to the employee when he or she was not supposed to have done so. The term of mutual trust and confidence term implied on employment contract provides a scheme through which the employee can rely on following any dismissal by the employer. 4.2 Disadvantages The disadvantages of implied mutual trust and confidence on employment contracts mainly focus on the damages accompanied by any breach of the term. This makes employers to become more disadvantaged than employees (Tobin and Vipond, 2013). Employers are greatly exposed to damages for breaches of the mutual trust and confidence term implied in contract of employment (Pill and Howard, 2012). The term of mutual trust and confidence term implied in employment contract allows for recovery of damages only if there is any damage suffered by the employee (Tobin and Vipond, 2013). Otherwise, it cannot be used by the employee to main any claims in the courts. 5.0 Conclusion Mutual trust and confidence term is worth being implied in every contract of employment considering its legal and professional importance. The employer and the employee must be aware of the conducts that are likely to result into infringement of the contract. Some of these conducts include, allowing an employee to face sexual harassment from fellow workmates, subjecting an employee to serious verbal abuse and seriously undermining the authority of a manager. Others include; intentionally discriminating against an employee, accusing a worker of dishonesty without cause, failure to properly investigate employee complaints. Consequently, an employment contract is designed to be a pillar that allows for mutually beneficial occurrences between the employer and the employee. References Kidd, E 2013, ‘Australia: Implied Term of Trust and Confidence is a Part of Australian Law – Federal Court Confirms in Decision on Employment Contracts’, Australian Corporate Lawyers Association, pp. 1-2 Pill, S & Howard, L 2012, ‘Mutual Trust and Confidence in Employment Contracts: Has the Door to Damages Been Thrust Open? Clayton Utz Insights, Jun. 07, p. 1-2 Salter, A & Day, J 2013, Implied Term of Mutual Trust and Confidence Accepted by the Full Federal Court of Australia, Sydney, New South Wales Office Tobin, A & Vipond, A 2013, HG Alert: Implied Term of Mutual Trust and Confidence Held to be Part of All Australian Employment Contracts, Melbourne University, Australia. Read More