Breach of mutual trust and confidence results in significant damages

The Federal Court has this month awarded a Commonwealth Bank of Australia (CBA) employee $315,700 damages for breach of the implied term of mutual trust and confidence between CBA and its employee who was made redundant.

In point was CBA’s redundancy and deployment policies which set out the steps that CBA would take to redeploy staff to suitable alternative positions in the case of redundancy.  Significantly, the policies stated in clear terms that the policies were not part of the terms and conditions of the contract of employment.  The Court accepted that the CBA redundancy policies were not terms of the employment contract.

The dispute did not however end there for CBA.  The Court found after considering the British and Australian case authorities that there is in Australia an implied term of mutual trust and confidence in all employment relationships, unless expressly excluded from the employment relationship.  Having made that finding, the Court found that there was still an expectation by the employee that the CBA would adhere to the terms of the redundancy policy.

The Court then found that CBA had failed to properly apply its redundancy policy and that failure constituted a breach of the implied term of mutual trust and confidence between CBA and the employee.

This decision unless appealed or otherwise clarified by the Courts hereafter, highlights a prospective area of concern for employers who have previously sought to use policies as benchmarks or guidelines rather than enforceable terms of an employment contract.  If employment is now underpinned by the mutual obligation of trust and confidence, employers cannot now fail to give proper application to their policies even if they are not terms and conditions of the employment contract.

Employers may need to review their policies and consider whether no application of a particular policy could breach the implied term which the Court has now found is applicable to the employer/employee relationship in Australia.

Disclaimer – the information contained in this publication does not constitute legal advice and should not be relied upon as such. You should seek legal advice in relation to any particular matter you may have before relying or acting on this information. The Lavan team are here to assist.