NOVEMBER 2008

IN THIS ISSUE

Please Select an Article to Read

• Federal industrial relations changes brought forward
• Employer unlawfully discriminated against a new worker after learning she was pregnant
• Good faith in employment
• Increase in industrial activity

 

Good faith in employment

There are at least 392,850 reasons why employers should be concerned about implied duties in employment.

It is well settled that the law will imply into contracts terms which the parties have not expressly agreed.  Such is the case with contracts of employment.

A decision of the NSW Court of Appeal (Russell v Trustee of the Roman Catholic Church) on 8 September 2008 recognised that there is an implied term of good faith, mutual trust and confidence in an employment contract, however, expressed some doubts about the scope of the doctrine 1.

Mr Russell had complained that St Marys Cathedral breached its duties to him by terminating his contract of employment in consequence of an investigation relating to alleged sexual assault with respect to children.  The Industrial Commission of New South Wales reinstated his employment and compensated Mr Russel for his loss of income. Mr Russell complained to the Supreme Court that even though his employment was reinstated and his lost wages made up, he was entitled to damages inconsequence of the breach of the implied duty of good faith.

This decision is the latest in a series of cases that have considered the extent to which the law will impose obligations upon parties to an employment contract that they have not otherwise expressly agreed.  The content of the duty appears to be an implied term of good faith, which obliges the parties to act only with reasonable and proper cause and not in a manner calculated to destroy or seriously damage the relationship of confidence and trust between the employer and the employee.  As with all obligations in contract, the starting point is that those obligations are mutual.  That is, they are owed by each party to the contract.  In Russell’s case, the Judge at first instant, Mr Justice Rothman considered the content of the duty as obliging each of the employer and employee to act “honestly and reasonably; with prudence, caution and diligence, and with ‘due care to avoid or minimise adverse consequences’ to the other party that are inconsistent with the agreed common purpose and expectation of the parties to the contract” 2.

The competing principle is however that parties to a contract, whilst they may be obliged as a matter of implied law to so conduct themselves, maintain a “capacity to exercise their rights in their own interests” 3.

In Russell’s case the Court of Appeal pondered the scope of the implied duties adopting the recognition “that an employer may act with reasonable and proper cause to pursue its own interest, whether or not they are adverse to the employee and may terminate the employment at any time without cause on giving notice”.  In such circumstances, the Court noted that such a permission would “cast some uncertainty on the scope and extent of the implied duties” 4. 

Whilst the Court of Appeal was prepared to recognise a duty of good faith subsisted, it was not prepared to find on the facts presented by Mr Russell that that duty had been breached and to the extent that any breach of that duty had led to the termination of Mr Russell’s contract of employment, that grievance had been remedied by reinstatement and the making good of lost wages.

Similarly, in the case of McDonald v State of South Australia 5 the Supreme Court of South Australia on 21 May 2008 awarded damages to a South Australian teacher who complained that the common law duty of trust and confidence had been breached when Mr McDonald, a teacher, was obliged to undertake tasks “much different and more onerous” than those for which he was employed.  Mr McDonald claimed to have been overworked, harassed and victimised by the South Australian Department of Education because, in addition to his workload as a teacher, he was obliged to juggle an additional Business Studies teaching load and the management of his school’s computer network, in circumstances where he had no qualification to discharge that task.  Further, when he complained, the evidence suggested that he was demeaned, if not harassed and victimised, it seems in breach of the Department’s own grievance procedures.  He was awarded $392,850.

Historically, the obligations of trust and confidence implied by law have been relied upon by employers seeking to complain that an employee has acted contrary to the obligations.  An employee may have taken advantage of confidential information or acted in conflict with the employer’s interests or had otherwise misbehaved in employment in circumstances where the employment contract itself contained no express provisions outlawing such conduct.  There is a long history in the case law where employers have relied on the implied term to sanction disciplines against employees including termination of employment.  The implied term doctrines have survived the introduction of the so called unfair dismissal jurisdiction afforded to industrial tribunals.  In other words, employers in unfair dismissal (reinstatement) proceedings often rely on the common law duty to justify decisions leading to the termination of an employee’s contract.

As the case law demonstrate, the mutuality principle has been similarly relied upon by employees claiming that the same duty is owed by the employer to the employee. 

There is little doubt that the duty exists even though the most recent cases ponder the question as to the extent of that duty.  Our prediction is these doctrines will develop and not be abandoned.  The duty obliges employers, whilst maintaining an entitlement to exercise the employer’s own rights in its own interests to have proper regard to the competing rights of employees.  The duty obliges the employer to treat the employee with fairness and equity.  A failure to do so may well ground a claim, including a claim for money compensation, based upon a breach of the implied obligations.