Employment Law

Mutual trust and confidence – in Australia, again

In November 2012 the Australia Federal Court first held first held that there is an implied term of mutual trust and confidence in all Australian employment contracts. In New Zealand, that concept has long been established since the introduction of the Employment Relations Act 2000, but for Australia, it is all new. In the absence of legislation (at least for now), it is up to the Australian courts to determine the details and scope of such duty.

The Australian Full Federal Court has now recently not only confirmed that the duty (still) exists, but has also awarded a substantial amount of damages to the affected employee ($300k!). It is noteworthy though, that the case involved a redundancy situation and a failure to properly consult by the employer. As such, the high award reflects lost wages and not damages for hurt and humilation. Whats even more interesting is, though, that the Court held that the obligation of mutual trust and confidence can be excluded by an express term in the contract…(!). It remains to be seen whether such an exclusion clause will now become common place in Australia. New Zealand law considers trust and confidence as the foundation of every employment relationship. To exclude it by agreement contradicts that policy. Also, employers are usually in a stronger position to negotiate, so its a bit artificial to assume that such an exclusion would happen by agreement. One could even argue that an employer insisting on such an exclusion clause would already be a breach of the implied term.

It will be very interesting to see how the lower courts will interpret the Full Court’s decision. Maybe there will be a distinction made between more vulnerable employees and employees with more bargaining power (which already exists in the UK for award claims).