What is An Employer’s Implied Duty of Mutual Trust and Confidence?  

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Table of Contents

• What Was the Implied Duty of Mutual Trust and Confidence?
• Previous Exceptions
• The High Court’s Decision
• What Are the Implications of the Court’s Decision? 
• Key Takeaways
• Frequently Asked Questions

As an employer, you have obligations to your workers that extend beyond what you have included in their employment contracts. This is because you cannot confine the employer-employee relationship to neatly drafted contractual clauses. As such, the law imposes implied duties on employers. One such duty that the law previously imposed was the implied duty of mutual trust and confidence. This duty was multifaceted, containing a range of responsibilities that the prudent employer must be aware of lest they fall into trouble. However, there is no longer an implied duty of mutual trust in employment contracts in Australia. This article will explain the implied duty of mutual trust and confidence and where it still applies today. 

What Was the Implied Duty of Mutual Trust and Confidence?

At its core, the implied duty of mutual trust and confidence held that as an employer, you should not do anything calculated or likely to destroy the relationship between you and your employees. The duty was broad enough to encompass both active intention and negligence on your behalf. In this respect, the duty was onerous because you could breach it by being careless.

Some of the more prominent examples that involved the implied duty of mutual trust and confidence include: 

• intentionally mistreating an employee in the hopes they will quit;
• failing to take care of your employee’s health and safety;
• establishing business policies and procedures to the detriment of your staff;
• sexually harassing your employees; 
• bullying and giving your employees excessive workloads;
• relocating employees inconsistently and unjustly;
• giving an employee unjustifiable warnings concerning their work performance; and
• running a business in a dishonest and corrupt manner, resulting in the employees being unable to find subsequent work.

Previous Exceptions

As wide-spanning as the implied duty of mutual trust and confidence was, there were three significant limitations or situations where the rule had no application.

Firstly, the rule did not apply to dismissal. This meant that the law did not require you to act in a manner that promoted mutual trust and confidence when terminating an employee’s engagement.

Secondly, you could not breach the duty in circumstances where the employer-employee relationship had already suffered an irreparable breakdown. That is to say, the duty could not apply where no more relationship exists to protect.

Lastly, your actions were permissible if you breached the duty but did so on reasonable grounds or with proper cause. That is to say, the law did not require you to disregard your legitimate interests, especially when doing so would be highly unreasonable or dangerous. For example, you could suspend an employee without affording them the suspension procedure under the contract of employment in circumstances where the suspended employee’s actions placed others at risk.

The High Court’s Decision

In 2014, the High Court found no implied duty of mutual trust in employment contracts in Australia. In this case, the Commonwealth Bank of Australia made a senior-role employee, Mr Barker, redundant when the business underwent a corporate restructure. His employment contract contained a provision entitling him to a redundancy payment if he could not be deployed with the company. After not being deployed, Mr Barker argued that the Bank had failed to make reasonable attempts to redeploy him. 

On appeal, the High Court found that there is no implied duty of mutual trust or confidence in employment contracts since having this implied term would place an onerous obligation on employers. This meant that the Commonwealth Bank of Australia was not implicitly obligated to take action to prevent the destruction of the relationship between them and Mr Barker as their employee. 

What Are the Implications of the Court’s Decision? 

This decision is vital for employers, as there was a lot of confusion about the nature of this implied duty and where it was applied. It is important to note that as an employer, you will not be liable to pay damages where an employee alleges that you breached a mutual duty of trust and confidence. 

However, it is essential to note that this judgment does not change your obligation to: 

• act in good faith towards your employees; or 
• execute the terms of your employment contracts with employees correctly. 

Nevertheless, the High Court considered that Parliament could further determine this matter. Hence, this duty can apply in the future. 

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Key Takeaways

As an employer, you have obligations to your workers that extend beyond what you include in your employment contracts. Previously, this included an implied duty of mutual trust and confidence. However, this implied duty no longer exists. Some key things to note about the High Court’s 2014 decision include:

• there is no implied duty of mutual trust or confidence in employment contracts since this implied term placed an onerous obligation on employers; and
• you must still act in good faith towards employees and correctly execute the terms of their employment contracts.

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