Recent developments: Implied term of trust of confidence, and ‘productivity’ under the Fair Work Act

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8 October 2012 | Tracy Caspersz

1. CONTRACT OF EMPLOYMENT - BREACH OF IMPLIED TERM OF MUTUAL TRUST AND CONFIDENCE AND DAMAGES FOR LOST OPPORTUNITY UNDER REDEPLOYMENT POLICY

In Barker v Commonwealth Bank of Australia [2012] FCA 942 (3 September 2012), Justice Besanko of the Federal Court of Australia held that there exists in Australian law an implied term of mutual trust and confidence in a contract of employment. It was determined that a serious breach by an employer of its own redeployment policy amounted to a breach of the implied term, resulting in a substantial award of damages to a dismissed employee.

THE FACTS

CBA undertook a nationwide restructure of its Corporate and Financial Services business unit, resulting in the position of the applicant, Mr Barker, being made redundant. CBA’s policy was to redeploy employees to a suitable position where possible. The bank’s HR Reference Manual provided that the redeployment policy did not ‘form any part of an employee’s contract of employment.’

Mr Barker was informed by letter dated 2 March 2009 that although his position had been made redundant, CBA’s preference was to redeploy him. However, on 9 April 2009, his employment was terminated by reason of redundancy with effect from that date.

THE DECISION

Justice Besanko declined to hold that CBA’s redeployment policy was an express term of Mr Barker’s employment contract, because of the statement in the HR Manual.  

Nonetheless, it was held that CBA failed to take timely and meaningful steps to redeploy Mr Barker in accordance with the redeployment policy, before his employment was terminated. While it was not incumbent on CBA to redeploy Mr Barker, ‘ ... it was incumbent on it to take timely and meaningful steps to comply with its own policy’. CBA committed a serious breach of the policy in not doing so, amounting to a breach of the implied term of mutual trust and confidence. 

Relevant considerations in reaching this conclusion, according to Justice Besanko, were the fact that Mr Barker had been employed by CBA for 27 years; and that he had been required to return certain items to the bank, and had his intranet and email access withdrawn, on the same day that he was advised of his termination.

Justice Besanko awarded Mr Barker damages of $317,500 for loss of the opportunity to be redeployed in accordance with CBA’s redeployment policy.

COMMENTARY

In contrast with some other previous decisions, the decision in Barker supports the proposition that there exists an implied term of mutual trust and confidence in contracts of employment under Australian law, which operates: ‘where a party does not have reasonable and proper cause for his or her conduct and the conduct is likely to destroy or seriously damage the relationship of confidence and trust between employer and employee.’ Justice Besanko was of the view that the term is implied as a matter of law arising out of the relationship of employer and employee, and can only be excluded by an express term in the contract.

In light of the decision in Barker, employers should be careful not to act in a manner that might breach the implied term of mutual trust and confidence without proper cause for doing so. A serious breach by an employer of its own policies, even if they are not expressly incorporated into the contract of employment, might amount to a breach of the implied term and support a claim by the aggrieved employee for significant damages for loss of the opportunity to be treated in accordance with the relevant policy.  Barker emphasises the need for managers to constantly be aware of, and diligently implement, an employer’s policies in all respects.

Justice Besanko’s decision in Barker is now the subject of an appeal to the Full Court of the Federal Court. The state of Australian law regarding the implied term of mutual trust and confidence may be further clarified in the appeal proceedings.

2. WORKPLACE DETERMINATIONS UNDER THE FAIR WORK ACT - THE MEANING OF ‘PRODUCTIVITY’

The recent Full Bench decision in Fair Work Australia v Schweppes Australia Pty Ltd; United Voice – Victoria Branch [2012] FWAFB 7858 (12 September 2012) is significant in that it addressed, for the first time, the meaning of ‘productivity’ in the context of the making of a workplace determination under Part 2-5 of the Fair Work Act 2009 (FW Act).

THE FACTS

Schweppes, in negotiations for a replacement enterprise agreement, proposed new 12-hour shift arrangements including the removal of overtime and reduction of shift loadings. After the termination of protected industrial action in the form of a lengthy lockout by the employer, and the failure by the parties to reach an agreement within the post-industrial action negotiation period, a Full Bench of FWA arbitrated the terms of an industrial action related workplace determination under Part 2-5, Division 3 of the FW Act.

In making the determination, it was incumbent on FWA to take into account (among other factors) ‘how productivity might be improved in the enterprise or enterprises concerned’ (FW Act, s 275(e)). The question arose whether the shift arrangements proposed by Schweppes could properly be regarded as ‘productivity’ improvements.

THE DECISION

The Full Bench (Ross J, Watson SDP and Roe C) held that the notion of ‘productivity’ in this sense, and more generally within the FW Act, refers to the ‘conventional economic meaning of the quantity of output relative to the quantity of inputs.’ It observed that productivity is ‘quite different in concept to the price of output and price of inputs, including the price of labour’. Further: ‘[c]onsiderations of the price of inputs, including the cost of labour, raise separate considerations which relate to business competitiveness and employment costs.’

On that basis, the Full Bench concluded that the shift arrangements proposed by Schweppes did not serve the purpose of improving productivity. According to the Full Bench: ‘Financial gains achieved by having the same labour input - the number of hours worked - produce the same output at less cost because of a reduced wage per hour is not productivity in this conventional sense. A reduction of unit labour costs, achieved under Schweppes’ shift proposal through less overtime and lower shift loadings, does not constitute productivity within that conventional meaning.’

However, the Full Bench determined that economic improvements which might flow to Schweppes from the proposed shift arrangements could be considered when making a workplace determination, for example under s 275(c) and (d) of the FW Act. While concluding that the shift proposals would provide financial and commercial benefits to Schweppes, the Full Bench also found that employees would be adversely affected (e.g. through reductions in earnings). For these reasons, the Full Bench allowed a limited form of the employer’s new shift proposals to be implemented on a trial basis.

The Full Bench also found that the employees’ loss of pay during the lockout was not a relevant factor in determining the wage increase to apply under the determination. Essentially, the Full Bench found (on this point) that Schweppes had simply exercised its rights to take protected industrial action in the course of bargaining under the FW Act.

COMMENTARY

Although it concerned a workplace determination specifically, given that such instruments effectively stand in place of an enterprise agreement, the Full Bench’s decision in Schweppes is potentially significant in relation to a number of aspects of the FW Act that deal with enterprise agreements. For instance, an object of Part 2-4 of the legislation is: ‘ ...  to provide a simple, flexible and fair framework that enables collective bargaining in good faith (particularly at the enterprise level) for agreements that deliver productivity benefits.’  Schweppes makes it arguable that the ‘productivity benefits’ envisaged by this object are increases in the number of outputs for the number of labour hours inputted to produce those outputs, and not the costs of those outputs or inputs. 

Hence, for instance, when presented with a log of claims for a proposed agreement, employers might now consider whether it contains any productivity benefits in the sense described in Schweppes. A claim that is simply for increases in wages and allowances would not be for an agreement that delivers productivity benefits.  Similarly, when considering how to counter an application for a protected action ballot order (PABO) or a majority support determination (MSD), employers might consider whether the proposed agreement contains any such productivity benefits. If not, then it could be argued that there is no proposed ‘enterprise agreement’ within the meaning of the FW Act, and therefore no basis upon which a PABO or MSD could be made. A similar argument could be mounted in opposition to the approval of an agreement by FWA. However, these arguments have not yet been tested in any proceedings.

The Full Bench’s decision in Schweppes, like that of another Full Bench in TWU v QantasAirways Ltd; QCatering Ltd [2012] FWAFB 6612, also confirms that there may be some benefits for an employer in adopting a strategy to secure arbitration of terms and conditions of employment under Part 2-5 of the FW Act – particularly where unions oppose key workplace flexibility measures and/or agreement negotiations become protracted.

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Tracy Caspersz

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