Commonwealth Bank of Australia v Barker - Case Study Example

CASE NOTE: COMMONWEALTH BANK OF AUSTRALIA v BARKER I INTRODUCTION Commonwealth Bank of Australia v Barker1 highlighted the issue of whether an implied term of mutual trust and confidence existed in all employment contracts under Australian common law relating to employment. Although the High Court held that there was no question as to the legality of implied terms due to their necessity to give contracts business efficacy,2 their honours noted that the implied term of mutual trust and confidence was only recognized under the UK’s statutory law which would not be blindly incorporated into Australian Common Law.3 The decision in the High Court put to rest the highly controversial issue if the implied term of mutual trust and confidence was generally applicable to all employment contracts in Australia or not. II Facts and Claims of the Case Stephen Barker was in employment with the Commonwealth Bank of Australia from November 1981 until he was sacked for being redundant of redundancy on April 9 2009. Immediately prior to his termination, Mr Barker held the role of Executive Manager of the Commonwealth Bank of Australia’s Adelaide Corporate Banking, Institutional and Business Services under a written agreement signed and operating since July 1, 2004. Under the contract, there was a provision that provided for the compensation of Mr Barker in the event that he became redundant and the Bank was unable to redeploy him to an alternative position within the bank or its subsidiaries and related bodies. The basis of Mr Barker’s redundancy was informed by the Bank’s decision to carry out a restructuring of its Corporate Financial Services department across the country. Mr Barker’s claims in proceedings in the Federal Court included failure by the Bank to execute his termination in a bona fide manner as outlined in its redeployment policy, which fundamentally denoted break of the implicit term of mutual trust and confidence which the court rightly dismissed. Additionally, Mr Barker claimed that the Bank’s Redundancy, Redeployment, Retrenchment and Outplacement Policy constituted his employment contract which the primary judge rightly dismissed.4 This is because unlike in James v The Royal Bank of Scotland5where the New South Wales Supreme Court ruled that a company policy was incorporated into the employment contract, the Commonwealth Bank of Australia’s Redundancy, Redeployment, Retrenchment and Outplacement Policy was not incorporated into Mr Barker’s employment contract. The High Court ruled that the Federal Court’s opinion that Mr Barker’s claim that the Bank had conducted itself unreasonably and without any proper cause, thereby damaging their employment relationship was essentially a breach of the implicit term of mutual trust and confidence was in error. As such, the High Court overturned the Federal Court’s ruling under appeal by the Bank on the grounds that an implied term in law, for mutual trust and confidence would not be applied generally to all employment contracts, a matter that the High Court held. III Origin of the Term of Mutual Trust and Confidence in Employment Contracts Notably, the issue of the existence of an implied term of mutual trust and confidence in employment contract has its origins in the UK under the statutory protection against unfair constructive dismissal. In Courtauld’s Northern Textiles Ltd v Andrew,6 the court held that employers were not allowed to conduct themselves in a way that meant to or probably would result in the impairment of the relationship of confidence and mutual trust with their employees without a reasonable and proper ground to do so.7 This protection encompassed circumstances where employees resigned due to ‘inappropriate’ conduct by their employers. This position was reiterated in Malik v Bank of Credit and Commerce International.8 The importance of implying the term of mutual trust and confidence in employment contracts is well elaborated in Woods v. WM Car Services (Peterborough) Ltd.9 In this case, the judge explained that without implying the term of mutual trust and confidence, there was the danger that employers would conduct themselves unfairly to the detriment of their employees who would have no remedy under the claim of unfair dismissal.10 The implication of these cases was that all employment contracts in the UK were considered as containing an implied term of confidence and mutual trust where there was no express provision to the contrary.11 Although there has been recognition of the concept of constructive dismissal in employment contracts in Australia, such has been done without any recourse to an implied term of confidence and mutual trust. Furthermore, the law in relation to employment relationships in Australia differs from that in the UK by reason that the implied term of mutual trust and confidence is recognized in the UK by a statutory regime whose development was underpinned by consideration of constructive dismissal.12 As such, recognition of the implied term of mutual trust and confidence in UK employment contracts was not to be taken as determinative for its incorporation into Australian common law. As a consequence, although the term has been adverted to in prior cases in Australia,13 such acknowledgement was inadequate to warrant general recognition in all employment contracts in Australia. Cases such as Dye v Commonwealth Securities Ltd,14 although not conclusive on the matter points to the existence of a contest which the High Court has effectively winnows out in Barker. IV Necessity as a Basis of Implied Employment Contract Terms Among the things taken into account by the High Court in Commonwealth Bank of Australia V Barker was whether or not the implicit term of mutual trust and confidence in employment contracts was necessary in giving contracts their business efficacy. In Byrne v Australian Airlines15 Justice McHugh and Gummow were of the opinion that it was important that a distinction be made whether a given implied contract term was necessary or merely reasonable. This was referred to as the ‘necessity’ test wherein Justices McHugh and Gummow expounded that an employment term would only be implied in circumstances where doing so was considered as a necessity.16 For instance, where implying certain contractual terms was meant to ensure that the rights conferred upon either party to the contract were neither rendered worthless nor undermined is considered a necessity.17 In addition, where implying certain contractual terms was meant to prevented depriving or devaluing the contract its substance, then the necessity test is passed.18 The Judiciary’s Law Making Powers According to the High Court, there was a need for the Judiciary to tread with care in matters of the law making functions assigned and expected of it.19 This is because although the courts are expected to make laws, such a function should be incidental to its adjudication functions rather than its primary role lest it usurps the legislative powers that are a preserve of other law-making bodies such as parliament.20 In this regard, the High Court’s opinion that creating an obligation on the part of employers to observe an implied term of mutual trust and confidence is essentially plausible as it clearly demarcates the functions of the Judiciary and the Legislature. Another issue that arose based on the judiciary’s law making function in relation to this case was the desire to avoid adding further complexity to the seemingly already uncertain nature of the implicit term of mutual trust and confidence in employment agreements.21 For instance Judge Gageler J’s reiteration of Jessup J’s reference of the uncertain nature of the implicit term of mutual trust and confidence as a ‘Trojan Horse’ is a clear justification to this basis of reasoning for the reasoning in this case.22 V Terms Implied in Law and Terms Implied In Fact Mason J’s argument that implications of contract terms in law are general and broad to allow consideration for application to all contractual relationships was markedly appropriate in sustaining the Bank’s appeal. Moreover, his argument that an implied term in law is not to be construed as a necessity to give contractual terms their business efficacy is not only desirable but merits recognition in this case. This is because implied terms in law may not necessarily refer to what was intended by the contract or what the contract basically means. Besides, Gageler J’s opinion that the Full Court of the Federal Court erred in their reference to the implied duty to cooperate as providing an alternative approach regards the application of the implicit term of mutual trust and confidence is valid. As such, the Court argued that though with an historical basis on the implied duty of cooperation, the implied duty of mutual trust and confidence cannot be substituted for each other.23 This is due to the reason that unlike the implied duty to cooperate that can be applied generally and meets the necessity test in Bryne, the implied duty of mutual trust and cooperation does neither meet the test of necessity nor exist generally in all employment contracts.24 VI Technicalities in Barker Although not expressly stated, it can be implied from the conclusion in Barker that the appellant succeeded in its appeal on an issue of technicality in addition to other considerations. For instance, the Judges noted that it was Barker’s reliance on the implied term of mutual trust and confidence rather than clause 8 of his employment contract that to create an obligation on the Bank to redeploy him that underpinned the success of the appeal.25 Moreover, the judges noted that the appeal succeeded based on the fact that Mr Barker in earlier proceedings had not shown that the implied term of mutual trust and confidence was necessary to give efficacy to his contractual employment relationship with the Bank. VII The Implication of the Outcome of the Appeal The consequences of the High Court’s verdict in the Commonwealth Bank of Australia’s appeal of Barker are novel and broad. The fundamental implication of the High Court’s decision in Commonwealth Bank of Australia v Barker was that the implicit term of mutual trust and confidence would not be generally said to exist in all employment contracts in Australia. This is what might have informed the recent case in State of New South Wales v Shaw26 where the Court of Appeal was of the opinion that such an implied term had not been breached because of the annulment of probationary appointments of two teachers. Secondly, it does imply that many employees whose contractual employment relationships are terminated may not succeed in bringing actions for breach of the implied term of mutual trust and confidence. Rather, they may succeed in bringing actions against their employers for issues such as unfair dismissal, constructive dismissal and breach of express employment contact terms. This is based on the High Court’s argument that although the implied term of mutual trust and confidence is reasonable, it does not pass the test of necessity when considered in relation to employment contracts. Moreover, this is informed by the fact that the implied term is broad and thus has the potential to bring a lot of uncertainty and contention between the legislature and the Judiciary. This is particularly in light of the fact that there are both Commonwealth and State legislations in the area of employment relationships with the objective of balancing both the interests of employers and employees alike. Thirdly, the High Court’s decision in this case point to the fact although Australian Courts have the responsibility to make laws, they are doing so with caution so as not to usurp the legislature’s functions. Moreover, it has become apparent that the Australian Judiciary is taking precautions to avoid making judgements that may have complex policy implications as well as capable of introducing unwanted uncertainty in the discharge of justice. Finally, the decision in this case implies that relying on implied terms in law as being a necessity in contractual relationships may not succeed under the test of necessity. This is informed by the High Court’s argument that contractual terms implied in law are merely incidental unlike contractual terms implied in fact that are regarded as necessary to give efficacy to business relationships. Bibliography A Articles/Books/Reports Australian Government Solicitor, Implied term of mutual trust and confidence in employment contracts: what does it mean for Commonwealth agencies? (28 September 2012)< http://www.ags.gov.au/publications/express-law/el166.pdf> Chandran, Ravi, ‘Fate of trust and confidence in employment contracts’ (2015) 27 SAcLJ . B Cases Byrne v Australian Airlines Ltd (1995) 185 CLR 410 Commonwealth Bank of Australia v. Barker (2014) HCA 32 Courtaulds Northern Textiles Ltd v. Andrew (1979) IRLR 84 Dye v Commonwealth Securities Ltd [2012] FCA 242 James v The Royal Bank of Scotland [2015] NSWSC 243 Malik v Bank of Credit and Commerce International SA (1998) AC 20 Russell v The Trustees of the Roman Catholic Church for the Archdiocese of Sydney (2008) 72 NSWLR 559 Russell v The Trustees of the Roman Catholic Church for the Archdiocese of Sydney (2008) NSWCA 217 State of New South Wales v Shaw [2015] NSWCA 97 Woods v WM Car Services (Peterborough) Ltd (1981) ICR 666, (1981) IRLR 347 Read More