Employment Law

No mutual trust and confidence in Australia

Well, not in employment relationships that is.

I must admit I didn’t expect that at all. Over the last few years, there have been a number of lower court decisions in Australia indication a move that, like in NZ where it is fixed in statute, the principle of trust and confidence is implied in every employment relationship. It seemed only logical that, once a respective case would reach the HC, it would be confirmed as a principle. But, although the HC rejected the idea of an implied term of trust and confidence, it left open the possibility that there might be a good-faith obligation implied in all employment contracts. Again, that’s a statutory concept in NZ and not that much different from trust and confidence.

Main points of the judgment are:

  • to imply the term is beyond the legitimate law-making function of the courts and should be left to Parliament;
  • it evolved in the United Kingdom in a very different statutory context, which does not translate into the Australian situation;
  • a fundamental principle is that contractual terms may only be implied in law (into a group of contracts) or in fact (into one specific contract) where this is necessary. A necessary term is one which is justified because it is required for effective performance of all of the contracts in a relevant class, or of all contracts generally. A term will only be necessary where the contract would be ineffective without it. The fact that a term may be reasonable does not mean that it is necessary;
  • the Implied Term has “the potential to act as a Trojan horse in the sense of revealing only after the event the specific prohibitions which it imports into the contract”. It would impose obligations on both employers and employees, and may have wide-ranging effects.

Also, the HC suggested that the implied term could well be present in other employment contracts. It just doesnt apply to ALL employment contracts (and wasnt present in the current case).

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