Mutual Trust and Confidence in Employment Contract in Australia - Case Study Example

Mutual Trust and Confidence in Employment Contract in Australia Introduction The concept of mutual trust and confidence in employment agreements has been in existence for a long time. The question of whether the term, which is also known as the duty to act fairly and reasonably, is implied in the employment contracts in Australia has received mixed reactions. Although in English case law the term was confirmed to be part and parcel of all employment contracts, the matter remained unsettled in Australia. This state of affairs, however, changed following a series of decisions in several cases over the course of time. One common decision was in Barker v Commonwealth Bank of Australia,1 in which it was confirmed that the term of mutual trust and confidence is implied in all employment contracts in Australia. This decision, together with the others in earlier cases, has confirmed that the term of mutual trust and confidence is connoted in all work contracts in Australia. In this essay, the role of international case law in influencing Australia to move to this position is discussed. This is followed by a critical examination of the impact of the finding that employment contracts in Australia bear the implied term of confidence and trust. This is done in relation to the effect that the position has on both employers and employees in Australia. Whether the term of mutual trust and confidence is implied in employment contracts in Australia The question of whether the term of mutual trust and confidence, also known as the duty to act fairly and reasonably, is implied in work agreements in Australia can be answered by examining several cases involving the issue and the pattern of judgments that have been issued in Australian courts. In general, the concept of mutual trust and confidence in employment contracts means that there is mutual trust and confidence that subsists in the relationship between the employer and the employee.2 Whereas the employer is required to exercise control and responsibility for overall command, the employee is expected to offer loyal and obedient service to the employer in return. The implication of this concept is that an employee may have the right to sue for damages and other legal remedies when this trust is breached by the employer. This occurs in cases in which the employee is capable of proving that the conduct of the employer was damaging to the mutual trust and confidence that is essential for the existence of the employment relationship between the two parties.3 In general, the courts of law in Australia have assumed that there exists an obligation not to breach the mutual trust and confidence that exists between the employee and the employer in an employment relationship. This has been done in cases in which an employer seeks to validate summary discharge of an employee or in instances where an employer seeks to resist an application for reinstatement by a dismissed employee. For instance, in Blyth Chemicals Ltd v Bushnell,4 the court held that the conduct of an employer which is damaging to the mutual confidence and trust between the employee and the employee is the basis for sacking. This means that since the employer had contravened the term of mutual trust that is implied in the employment contract, the employee had a right to terminate the contract. This was similar in Concut Pty Ltd v Worrell,5 in which the concept of mutual trust and confidence was pointed out as a necessary component of managing employment relationships. This was similar to the verdict reached in Burazin v Blacktown City Guardian Pty Ltd,6 in which the decision of the court implied acceptance of the presence of implied terms of trust and confidence in employment agreements in Australia. Although in the previous cases the courts merely accepted the existence of the term of confidence and trust as being implied in employment contracts and the obligation of both parties not to breach it, Australian courts in other cases have not only reaffirmed this decision but also gone ahead to find that the expression of trust and has been breached by the actions of the employer. In McDonald v State of South Australia,7 the matter before the court was to determine whether mutual trust and confidence had been breached in the process of managing the performance of McDonald, who was a teacher. In this case, the court not only affirmed the existence of the concept of trust and confidence as being implied in the employment agreement between the teacher and the state but also found that the terms had been breached in the process. It can be seen that the process of recognising the principle that both parties to an employment contract have an obligation not to damage the mutual confidence and trust established in their relationship in Australian legislation has been affected by changes in the legislative framework in the country. Earlier, Australian law, which did not have legal antidotes for unjust dismissal of employees, made it difficult for ordinary workers to seek such remedies in court.8 Many employees had to depend on the provisions for unfair dismissal as provided by the common law. Since common law provisions entail defrayment of wages for a limited period of time, the litigation costs associated with a claim of unfair dismissal could not be justified by the remedies provided by common law. However, with the development of statutory provisions for protection against unfair dismissal, cases involving the issue led to decisions that workers had been constructively discharged, and were therefore entitled to statutory compensation for unfair dismissal.9 Many of the lawsuits in which Australian courts have acknowledged the existence of mutual trust and the responsibility on both the employer and employee not to breach this trust have been based on statutory claims of unfair dismissal. For example, in Russell v The Trustees of the Roman Catholic Church of the Archdiocese of Sydney,10 the court accepted the existence of the implied term of mutual trust and confidence in the employment agreement between the plaintiff and the defendant. It was therefore stated that the employees had a right to fair procedures under the common law prior to their dismissal. It is noted that in this case, the court observed that although it had not yet been confirmed by the Australian appellate courts, the principle of implied terms of mutual trust and confidence did exist and operated in employment contracts.11 This trend was maintained in other proceedings such as Yousif v Commonwealth Bank of Australia12 and in Downe v Sydney West Area Health Service.13 From the foregoing, it can be seen that from the decisions reached in a number of different cases, the term of mutual trust and confidence is indeed meant in the employment agreements in Australia. In practice, Australian case law has established that if the implied term of confidence and trust is breached by an employer, a worker may choose to terminate the contract and seek statutory damages for the breach. The influence of international case law on Australian position There are several ways in which the recognition of the existence of the term of mutual confidence and trust as being implied in employment contracts had been influenced by international case law. In essence, establishment of case laws based on recognition of mutual trust and confidence in employment relationships in Australia has followed the steps of the process in other countries, notably the United Kingdom. Recognition of this principle in employment contracts in the United Kingdom developed as a means of acknowledging that employment relationships are made up of fundamental values and the corresponding need to protect the values using implied terms in contracts.14 This was reaffirmed in several court decisions. For instance, in Malik v Bank of Credit and Commerce International,15 the matter before the UK House of Lords was to decide whether a contravention of the responsibility not to damage mutual trust and confidence could result into damages. In this case, it was stated that an employer could not act in a manner that is apt to annihilate the relationship of trust and confidence with the employee. What this implies is that an action by the employer that breaches mutual trust and confidence with the employee can be used as a basis for damages as long as it is established that the breach resulted into a loss on the part of the employee during employment. This means that in managing employment relationships, the employer is required to maintain a balance between running the business and protecting the interests of the employee against exploitation. The judgement made by the House of Lords in the United Kingdom had several implications on the way other courts of law interpreted cases involving an infringement of the mutual trust and confidence between an employer and employee. For instance, in Clark v Nomura,16 the court relied on the obligation on employers not to breach mutual trust and confidence between them and the employees to decide on the matter of whether an employer is obliged to exercise discretions connected to performance pay and wage rises in a rational manner. In this case, in which the plaintiff had had his employment terminated with a three-month notice, the court found that he was entitled to a bonus. This was similar in Clark v Bet Plc,17 in which it was held that the employer had a contractual obligation to review and provide an annual upward adjustment of salary by the service contract of the employee. What this means is that the decision in Malik v Bank of Credit and Commerce International emphasised the concept that employment contracts entails both economic considerations and personal relations between the employer and the employee. These are the values which the courts sought to protect using implied terms in employment contracts. Although it can be seen that the trend towards recognition of implied terms of mutual confidence and trust as existing in employment contracts in Australia has been influenced by developments in international case law, particularly in the United Kingdom, it should be pointed out that there is a fundamental difference in the way the concept has been treated in Australian law and English law. In English law, if the mutual trust between the employer and employee is destroyed, the courts have interpreted it to mean that the entire contract has been terminated and, as a result, seek to apportion blame for its termination. This is different from the practice in Australia in which the courts have made a distinction between the employment agreement and the employment relationship.18 As a result, although the relationship between the employer and employee may be destroyed by a breach of the mutual contract between the two parties, the employment contract remains in force until steps are taken towards its termination19. Advantages and disadvantages for employers and employees of implied term of trust and confidence in employment contracts in Australia Having the term of mutual trust and confidence implied in the employment agreement presents several advantages and disadvantages for both employers and employees. These implications arise from different consequences and issues that both parties are presented with following the application of this term in employment contracts in Australia. One advantage of the implication of the existence of mutual trust and confidence in employment contracts in Australia is with regard to casual employees. With the application of the law, casual employees whom the court finds not to be so are entitled to all legal benefits and protections that are available to permanent employees at termination.20 This was illustrated in Williams v Macmahon Mining Services Pty Ltd,21 in which the court found that in spite of the fact that an employee had signed a contract with an employee which expressly described his/her contract as casual, the employee was not. The decision of the court was based on the fact that the work of the employee was performed in accordance with a plan that is stable and well prepared, apart from the fact that the employee was not free to refuse work on the basis of having other engagements. As such, the court decided that the employee was not employed on a causal basis, and was therefore entitled to a yearly leave.22 Also, recognition of the existence of the term of mutual trust and confidence as an implied term in employment contracts in Australia is an advantage to employees in that they are protected from unfair and summary dismissals. This provides a chance for seeking legal redress when alternative dispute resolution mechanisms have failed.23 Although the requirement not to breach confidence and trust in the mutual relationship does not mean that the employer is restrained from dismissing employees, the fact that the court can award damages in cases where the process has breached terms of mutual trust and confidence means that employees are protected from unfair treatment by their employers. Conclusion In conclusion, it can be seen that the term of trust and confidence is connoted in all work agreements in Australia. Although the concept of mutual obligation for both the employer and employee in an employment relationship has been in existence for a long time, court decisions in several cases involving issues to do with claims of unfair dismissal have confirmed that indeed both the employer and the employee are obliged not to violate the term of mutual trust and confidence that is implied in every employment agreement. In establishing this decision, Australian courts have been influenced by international case law, most notably, decisions of courts in the United Kingdom which have been based on applying the remedies provided by common law in cases involving unfair treatment of employees at the place of work. From the decisions made in early cases, courts in Australia have established a precedent in which statutory provisions are used to protect employees from actions that are deemed to violate the term of mutual confidence and trust between them and their employers. In such cases, courts have awarded damages and other statutory benefits when it has been found that the actions of the employer breached the implied term. There are several advantages that arise from the recognition of implied term of trust and confidence in employment contracts in Australia. All these arise from the implications that the decisions of the courts have on both employees and employers. For instance, casual employees may successfully be granted all benefits associated with permanent employees in cases where the court finds that the term has been breached. For this to happen, the court has to establish first that the employees are not on contract terms, in spite of the fact that their employment contracts may indicate so. References Barker v Commonwealth Bank of Australia [2012] FCA 942 Blyth Chemicals Ltd v Bushnell [1933] HCA 8 Burazin v Blacktown City Guardian Pty Ltd [1996] ALR 142 Brodie, D. (2010). Enterprise liability and the common law. Cambridge: Cambridge University Press. Clark v Bet Plc [1997] IRLR 348 Clark V Nomura International Plc [2000] IRLR 766 Concut Pty Ltd v Worrell [2000] HCA 64 Downe v Sydney West Area Health Service [2008] NSWSC 159 Forsyth, Anthony (2008). Australian regulation of economic dismissals: before, during and after work choices, Sydney Law Review 30 (506): 506 – 536. Accessed 26 March 2014 from, http://sydney.edu.au/law/slr/slr30_3/Forsyth.pdf Hor, J. & Keats, L. (2008). Managing termination of employment: a fair work act guide. Sydney: CCH Australia Limited. International Labour Organization. (2010). Application of international labour standards: report of the committee of experts on the application of conventions and recommendations. Geneva: International Labour Organization. Leow, J., Murphy, S. & Hooper, G. (2011). Australian master superannuation guide. Sydney: CCH Australia Limited. Malik v Bank of Credit and Commerce International [1998] AC 40 McCallum, R. (2011). McCallum’s top workplace relations cases: labour laws and the employment relationship as defined by case law. Sydney: CCH Australia Limited. McDonald v State of South Australia [2008] SASC 134 Perkins v Grace Worldwide (Australia) Pty Ltd [1997] 72 IR 186 Riley, J. (2005). Contracting for work/family balance. In, Murray, J. (ed) Work, family and the law (pp. 182 – 201). Annandale: The Federation Press. Russell v The Trustees of the Roman Catholic Church of the Archdiocese of Sydney [2008] NSWLR 72 Stewart, A. (2013). Stewart’s Guide to Employment Law. Sydney: The Federation Press. Thomson v Orica Australia Pty Ltd [2002] 116 IR 186 Van Gramberg, B. (2006). Managing workplace conflict: alternative dispute resolution in Australia. Sydney: The Federation Press. Vischer v Giuddice [2009] CLR 361 Williams v Macmahon Mining Services Pty Ltd [2010] FCA 1321 Yousif v Commonwealth Bank of Australia [2009] FCA 656 Read More