Employment Contracts: If it's not written it may not be in

MAJOR HIGH COURT DECISION ON EMPLOYMENT CONTRACTS

IF IT’S NOT WRITTEN IT MAY NOT BE IN.

Contracts of employment can be oral, written, implied by law or be a combination of all three.

A written employment contract does not necessarily contain all the terms that govern the employment relationship as some terms may be implied by law. 

The law that implies them can be either legislation or law that has developed through court decisions, which is known as common law.

An example of a term that could be implied by legislation is one against theft.  As it is illegal to steal, it is implied into employments contracts (unless they state so explicitly) that employees not steal from their employers.

Breach of such an implied term routinely leads to an employer terminating the contract and summarily dismissing the employee.

The difficulty with implied terms is where the common law is relied upon.

Some terms can be “in” whilst others are “not in”.

One implied term recently ruled “not in” was an implied term of mutual trust and confidence.

Such a term means that neither employers nor employees will do anything, without reasonable cause, to destroy or seriously damage the relationship of trust and confidence that exists between them.

Mr Barker was a long time employee of the Commonwealth Bank of Australia, who when he was not redeployed within the bank was made redundant. He contested whether the bank had implemented its redeployment policy correctly and said the that bank’s failure to do so breached, amongst other things, an implied term in his employment contract of mutual trust and confidence.

The trial judge agreed adopting legal reasoning developed from  cases in the United Kingdom  and awarded Mr Barker $300,000.00 as damages: Barker v CBA [2012] FCA 942.

On the bank’s appeal to the Full Court of the Federal Court, Mr Barker held on to his money by a two – one majority: CBA v Barker [2013] FCAFC 83.

On the bank’s further appeal to the High Court, Mr Barker was not so lucky: CBA v Barker [2014] HCA 32. There the five judges relying on slightly different lines of reasoning decided that there was no implied term of mutual trust and confidence in Australian common law so that it could form part of an employment contract.

The result was that Mr Barker was left with an amount for four weeks’ pay in lieu of notice: a substantial reduction on the damages first awarded to him.

The general legal principle around implying terms into contracts is that they must be necessary so as to give business efficacy to the contract.

The lesson to take from the Barker cases is that implying terms from common law into an employment contract, regardless of the parties’ intentions as expressed by the written agreement between them, will be increasingly more difficult.  

Nevett Ford’s workplace relationsteam can advise on all aspects of employment law.