Recognising mutual trust and confidence in employment relationships

by Miriam Bell25 Sep 2012

Recognising mutual trust and confidence in employment relationshipsMutual trust and confidence are implied by law in Australian employment relationships, a recent Federal Court decision has held, and that means employers will need to be careful of breaching those implied terms.

Last week, in Barker v Commonwealth Bank of Australia, the Federal Court’s Justice Besanko found the CBA had failed to follow its internal redeployment policy when an employee’s position was made redundant. The CBA argued the policy had stated that it was not to be incorporated as a term and condition of employment and, therefore, did not create binding legal obligations on the CBA.

However, the judge found that the CBA’s conduct in the case involved a breach of its redeployment policy because:

  • There had been a significant lack of communication by the CBA in relation to the employee’s redeployment opportunities;
  • The CBA had failed to engage in any meaningful way in the redeployment process; and
  • The CBA had not consulted with the employee about retraining and no redeployment plan had been developed or implemented.

Justice Besanko held that there was a term of mutual trust and confidence implied by law in Australian employment relationships, and that a serious breach of company policy without good cause would breach the implied term, Nick Ruskin from DLA Piper wrote in a summary of the decision. According to the judge, the implied term was breached when one when one party to the contract did something likely to “destroy or seriously damage the relationship of trust and confidence without proper cause”, he said.

The decision has the following implications for Australian employers, Ruskin said:


  • Unless further clarification is given by the courts, employers which fail to follow policies, because they believe they operate as guides only, must now be on notice.
  • While parties could expressly exclude the implied term of mutual trust and confidence from the contract itself, most employers and employees don’t want to start the employment relationship doubting the other's intentions. Trust and confidence are an important element in any relationship.
  • Employers should apply discretion to company policies according to the situation at hand – and without resorting either to excluding the term of mutual trust and confidence from the relationship entirely or adopting policies so loosely drafted that it would be impossible for the employer to be in breach of the policy. It would be preferable for employers to state in the contract and in policies whether the policies apply and what level of staff, such as executive members of staff, are excluded from the policy.
  • Employers should review their policies and carefully consider whether they may be exposed to claims of breach of mutual trust and confidence if or when the policies are not followed.


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