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18 October 2012 Breach of an employer's duty of mutual trust and confidence

By Richard Ottley, Partner and Laura Sowden, Solicitor


In brief

In Barker v Commonwealth Bank of Australia [2012] FCA 942 the Federal Court determined that a policy dealing with redeployment, was of sufficient stature as to render a breach of it, a breach of the employer's duty of mutual trust and confidence.


Background

Mr Barker had been employed by the Commonwealth Bank of Australia (CBA) and through a series of events was made redundant by CBA. Mr Barker contended that CBA did not follow its policies in regard to its selection of him for redundancy and did not comply with its redeployment policy. In not following such policies Mr Barker argued CBA had breached the employment contract.

From late 2008 to early 2009 a segmentation process was undertaken at CBA which resulted in a rearrangement of portfolios which meant that one of the executive managers would be made redundant. Mr Barker was selected because although his work was satisfactory it was not perceived to be as good as another employee. Mr Barker had achieved a "Meets Expectations" in his performance review while the other employee had achieved an "Exceeds Expectations". Following the redundancy, CBA's redeployment policy was triggered to attempt to redeploy Mr Barker elsewhere within CBA.

Decision

The redeployment policy was rendered ineffective because, as Justice Besanko noted, Mr Barker an employee of CBA for 27 years, was advised his position was redundant and asked to leave CBA and return any CBA items on the same day. Mr Barker's email access was also immediately withdrawn. As a result, the attempts of the redeployment team to contact Mr Barker using his work details were ineffective.

A document titled HR Reference Manual stated that the manual did not form part of any employment contract for an employee. The intention to be inferred from these words was that the redeployment policy could not therefore be implied as a term of Mr Barker's employment contract. Justice Besanko held that the words in question were decisive on the topic in the absence of any countervailing factor, and therefore determined that the redeployment policy was not a contractual term.

Justice Besanko accepted the proposition that an implied term of mutual trust and confidence exists in an employment context and concluded there was an implied term of mutual trust and confidence in the contract of employment between Mr Barker and CBA. His Honour then concluded a breach of the redeployment policy constituted a breach of that implied term of mutual trust and confidence. This was notwithstanding his finding that the redeployment policy itself, did not constitute a contractual term in the context of this case.

Making Mr Barker redundant was not a breach of the redeployment policy.  However, CBA did breach its redeployment policy in not taking any timely or meaningful steps to attempt to redeploy Mr Barker. That is, there had been a three week delay between Mr Barker's redundancy and when the redeployment team contacted him. Justice Besanko concluded:

The Bank's almost total inactivity within a reasonable period means that its breach of its redeployment policy was a serious breach and that it was in breach of the implied term of mutual trust and confidence.i

The fact that Mr Barker's solicitors were threatening legal action did not relieve CBA of its obligations under the redeployment policy.

His Honour awarded damages for loss of an opportunity to have been redeployed on the basis that Mr Barkers chances of redeployment were not so insubstantial they should be ignored. On this basis Mr Barker was entitled to damages of $317,500 based on 25% of future earnings of $1,160,000 and $110,000 for past earnings (namely four weeks' notice owed to Mr Barker).

NOTE: the decision and orders were made on 3 September 2012 and may be subject to an appeal.

Conclusion

Whether or not a policy will be regarded by the courts as a contractual term is to be determined, amongst other things, by reference to the employment contract, the relevant policies, evidence as to the role of the policies, and whether they are aspirational or promissory in nature.  

The common law duty that:

an employer must not without reasonable or proper cause conduct itself in a manner likely to destroy or seriously damage the relationship of confidence and trust between the employer and employee,ii

may be implied into an employment contract. A failure to follow a workplace policy even if it is not found to constitute a contractual term may still constitute  a breach of that duty of mutual confidence and trust.

A policy which categorically states it is not part of the employment contract creates a stronger position for an employer who seeks to exclude policies from being implied into their employees' contracts of employment. Employers must be careful not to send mixed messages about the role of policies.

Employers must also be vigilant in applying their policies in a timely and appropriate manner in order to help prevent employee complaints. In the Barker case closely adhering to workplace policies may have influenced whether or not legal proceedings were commenced against the employer.

4 October 2012


Barker v Commonwealth Bank of Australia [2012] FCA 942 at [352].
ii Barker v Commonwealth of Australia [2012] FCA 942 at [323], referring to Malik v Bank of Credit and Commerce International SA (in liq.) [1998] AC 20.

Richard Ottley, Partner  |  Phone: +61 2 9233 5544  |  Email: rbo@swaab.com.au

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This article is not legal advice and the views and comments are of a general nature only. This article is not to be relied upon in substitution for detailed legal advice.

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