The Implied Term in Australia
236 The implied term, and whether it forms part of contracts of employment in Australia, has never been considered by the High Court. However, on two occasions, reference to the term - direct or indirect - has found its way into High Court judgments concerned with other matters. The first was Concut Pty Ltd v Worrell (2000) 176 ALR 693 ("Concut"), the substantial question in which was whether the employment of an employee had been terminated when he and his employer executed a new service agreement. During the course of the original agreement, on the view of the facts upheld in the High Court, the employee had engaged in conduct inconsistent with his duty of fidelity to the employer. In a paragraph which referred to Blyth Chemicals Ltd v Bushnell (1933) 49 CLR 66, Gleeson CJ, Gaudron and Gummow JJ cited the statement by Lord Esher MR in Pearce v Foster (1886) 17 QBD 536, 539 that it was a rule of law that "where a person has entered into the position of servant, if he does anything incompatible with the due or faithful discharge of his duty to his master, the latter has a right to dismiss him" (176 ALR at 700 [25]). In a footnote to that reference, their Honours cited Sterling Engineering Co Ltd v Patchett [1955] AC 534, 543-544 and Lister v Romford Ice and Cold Storage Co Ltd [1957] AC 555, 575-576, adding "cf Scally v Southern Health and Social Services Board [1992] 1 AC 294 at 306-307 …; Malik v Bank of Credit and Commerce International SA (in liq) [1998] AC 20 at 34-35, 45-46 …." The latter references were, of course, to so much of the reasons of Lords Nicholls and Steyn in Malik as dealt with the implied term.
237 The other occasion upon which the implied term was mentioned by Justices of the High Court was Koehler v Cerebos (Aust) Ltd (2005) 222 CLR 44 ("Koehler"). In that case, the employee alleged that the nature and quantity of the duties which she had been asked to perform had given rise to a psychiatric injury, and that the employer should be responsible in damages. Those claims were rejected, as was the proposition, said to be based on the decision of the English Court of Appeal in Sutherland v Hatton [2002] 2 All ER 1, that, where an employee claimed damages from an employer for negligently inflicted psychiatric injury, the only question which needed to be considered was whether harm of that kind to that employee was reasonably foreseeable. In rejecting that proposition, McHugh, Gummow, Hayne and Heydon JJ said (222 CLR at 54-55 [24]):
But neither the particular issues identified in Hatton nor the question from which they stem (was this kind of harm to this particular employee reasonably foreseeable?) should be treated as a comprehensive statement of relevant and applicable considerations. As Lord Rodger of Earlsferry pointed out in his speech in the House of Lords in the appeal in one of the cases considered in Sutherland v Hatton, Barber v Somerset County Council [2004] 1 WLR 1089 at 1101 [35]; [2004] 2 All ER 385 at 398), it is only when the contractual position between the parties (including the implied duty of trust and confidence between them) "is explored fully along with the relevant statutory framework" that it would be possible to give appropriate content to the duty of reasonable care upon which an employee claiming damages for negligent infliction of psychiatric injury at work would seek to rely.
The parenthetical reference to "the implied duty of trust and confidence between them" in this passage was said by the primary Judge in the present case to amount to an assumption by their Honours that the implied term existed as such.
238 The House of Lords judgment to which their Honours referred in Koehler, Barber v Somerset County Council [2004] 1 WLR 1089 ("Barber"), was likewise concerned with an employer's duty of care in the context of the prospect of an employee suffering psychiatric injury. In the passage to which their Honours referred, Lord Rodger said ([2004] 1 WLR at 1101 [35]):
When the contractual position, including the implied duty of trust and confidence, is explored fully along with the relevant statutory framework, your Lordships may be able to give appropriate content to the duty of reasonable care upon which employees, such as Mr Barber, seek to rely. But the interrelationship of any such tortious duty with the parties' duties under the contract of employment has not been examined in any depth in the cases to which we were referred and was not analysed in this appeal. For that reason I would not wish to express any view on the content of the council's duty of care in this case.
That is to say, the expression used parenthetically by their Honours in Koehler had in fact been part of the reasons of Lord Rodger. It is perhaps unsurprising that his Lordship would have included that passage - almost by way of aside though it was - in the light of what had become, by 2004, the position in England with respect to the implied term. Standing as a reference to the words of Lord Rodger as they were, I do not think that the reasons of their Honours in Koehler convey an assumption (the correctness of which had, on any view, not been investigated in Koehler) that the implied term was part of Australian law. For the sake of completeness, I would also note that the speech of Lord Rodger in Barber, though concurring, did not stand as the majority reasons of their Lordships.
239 So far as the submissions of the parties in the present appeal, and such researches as I have been able to undertake, reveal, the implied term has come under observation in an intermediate appellate court in Australia on 11 occasions, namely: Burazin v Blacktown City Guardian Pty Ltd (1996) 142 ALR 144 ("Burazin"); Perkins v Grace Worldwide (Aust) Pty Ltd (1997) 72 IR 186 ("Perkins"); Blood Transfusion Service of the Australian Red Cross v Raffoul [1998] FCA 1497 ("Raffoul"); Hollingsworth v Commissioner of Police (1999) 47 NSWLR 151 ("Hollingsworth"); Easling v Mahoney Insurance Brokers (2001) 78 SASR 489 ("Easling"); State of New South Wales v Paige (2002) 60 NSWLR 371 ("Paige"); Irving v Kleinman [2005] NSWCA 116 ("Irving"); Delooze v Healey [2007] WASCA 157 ("Delooze"); Russell v Roman Catholic Church, Sydney (2008) 72 NSWLR 559 ("Russell"); State of South Australia v McDonald (2009) 104 SASR 344 ("McDonald"); and Shaw v State of New South Wales [2012] NSWCA 102 ("Shaw"). However, on no occasion has it been held, in the sense of amounting to part of the ratio decidendi, that the implied term is, or is not, a feature of contract of employment law in Australia.
240 Burazin was a judgment of the Full Court of the Industrial Relations Court of Australia in which it was held that the distressing and humiliating treatment to which an employee had been subjected in association with, and directly preceding, her dismissal was compensable under s 170EE(2) of the Industrial Relations Act 1988 (Cth) ("IR Act"), consequently the Workplace Relations Act 1996 (Cth) ("WR Act"). The employee had also claimed that that treatment had constituted conduct by the employer in breach of the implied term. It should be noted that the Full Court came to the question after the judgment of the English Court of Appeal in Malik (sub nom Mahmud v Bank of Credit and Commerce International SA [1996] ICR 406) but before the judgment of the House of Lords in the same case.
241 The Full Court agreed with the trial Judge that there was "ample English authority for the implication of the suggested term", referring in this regard to Roberts, Woods (at first instance and, on appeal), Bliss, United Bank v Akhtar [1989] IRLR 507 and Malik in the Court of Appeal. But their Honours in the Full Court continued (142 ALR at 151):
However, none of these decisions supports the view that damages are available for breach of the implied term. In each of the three Employment Appeal Tribunal cases [Roberts, Woods and Akhtar] the implied term was used by the employee as a basis for a successful submission that the employer had constructively terminated the employee's employment. In each case, the employer's conduct was held to have undermined the employment relationship so fundamentally as to amount to a repudiation of the employment contract, which the employee accepted by resigning. Damages for breach of contract, as such, were not sought.
The Full Court noted that damages had been sought in the two cases which went to the Court of Appeal, Bliss and Malik. In each instance, it had been held that the rule in Addis stood in the way of an award of damages. In relation to Bliss, the Full Court opined (142 ALR at 152) that it was "difficult to see why [the implied term] should not be regarded as a term designed 'to provide peace of mind or freedom from distress', just as much as the contracts in the holiday cases". Neither, it may be gathered from the terms of their Honours' reasons, was the Full Court greatly impressed by the Court of Appeal's linking of the facts of Malik with the rule in Addis, in circumstances where "the claimed breach was not in connection with the termination of the employment contract but in relation to actions during its subsistence" (142 ALR at 153).
242 In Burazin itself, the Full Court upheld the submissions that the implied term existed in the contract of employment which was before it, and that it had been breached in the circumstances of the case. However, their Honours continued (142 ALR at 153-154):
Two issues have to be addressed in determining whether damages are recoverable for distress caused by a breach of the implied term: whether the breach is one capable of giving rise to a liability for damages, as distinct from founding a right to repudiate the contract; and, if so, whether the damages are limited by the rule in Addis.
As it seems to us, there ought to be little doubt about the answer to the second question. Having regard to the purpose of the implied term, it is difficult to dispute that distress is a natural and probable effect of a breach. So if damages are an available remedy, Addis ought not apply. But we have a doubt about the first question. Although it might seem strange to concede the existence of an implied contractual term but deny its capacity to give rise to liability in damages, it must be remembered that the term is intended to bolster an ongoing relationship. To permit an action for damages during the currency of the employment relationship, it might be argued, would be antithetical to the reason for implying the term; the action itself would presumably cause a further deterioration in the relationship. That argument would not apply in a case like Malik, where the relationship had already come to an end. But in some such cases, the implied term will have played its part in enabling the employee to improve his or her legal position by placing responsibility for the termination on the employer.
However, the Full Court ultimately did not decide any of the questions which arose on the contract of employment. Because of their conclusion that the dismissed employee was entitled to statutory compensation sufficient to cover her claimed loss and damage (including for distress and humiliation), their Honours left "open" the common law issue which had been argued in the case (142 ALR at 154).
243 Perkins was also a judgment of the Full Court of the Industrial Relations Court of Australia which involved s 170EE(2) of the IR Act (consequently the WR Act). The trial Judge had held that reinstatement of the dismissed employee was impractical, largely because the employee had been a senior one and the manager to whom he reported continued to hold a reasonable belief that the allegations in respect of which he had been dismissed were true. His Honour accepted the manager's evidence that he had "lost all confidence" in the employee (72 IR at 187). The Full Court upheld the employee's appeal against the trial Judge's refusal to reinstate. The case was not concerned with the implied term as such, but in the course of their reasons the Full Court observed that "[t]rust and confidence is a necessary ingredient in any employment relationship" (72 IR at 191). That was said to be the reason why "the law imports into employment contracts an implied promise by the employer not to damage or destroy the relationship of trust and confidence between the parties, without reasonable cause", for which Burazin was given as authority (72 IR at 191).
244 Raffoul, a judgment of the Full Court, was an appeal from a judgment of a single Judge of the court in which it had been held that the termination of the employee's employment had been in breach of s 170DE(1) of the IR Act, in that there had not been a "valid reason" for the termination. The Full Court set out a passage from the primary Judge's reasons in which reference was made to the implied term, but the term itself made no contribution to the Full Court's conclusion that the appeal should be dismissed.
245 Hollingsworth was a judgment of the New South Wales Industrial Relations Commission in Court Session in which it was held that the dismissal of a trainee police officer for having omitted to disclose certain antecedents on her application for employment was, in the circumstances, harsh, unreasonable or unjust. The statutory remedies to which she was entitled included an order for her reinstatement. In the course of a lengthy judgment, Wright and Hungerford JJ, having observed that it was common ground before them that contracts of employment did not fall within the class of contracts that required utmost good faith, continued (47 NSWLR at 190):
Nevertheless, it is timely to observe that an implied term of great importance in the employment relationship once established is that employers will not, without reasonable and proper cause, conduct themselves in a manner calculated or likely to destroy or seriously damage the relationship of confidence and trust between employer and employee; employees have a corresponding duty to act with fidelity and good faith: see Courtaulds Northern Textiles Ltd v Andrew [1979] IRLR 84, Woods v W M Car Services (Peterborough) Ltd [1981] ICR 666 at 670-672 and Robinson v Crompton Parkinson Ltd [1978] ICR 401 at 402 as applied in this jurisdiction in Day v Lumley Life Ltd (Hungerford J, 31 March 1999, unreported).
Save for being the subject of that timely observation, the implied term formed no part of their Honours' reasons.
246 Easling was a constructive dismissal case. By a majority, the Full Court of the Supreme Court of South Australia held that the conduct of the employer towards the employee (which involved a change in duties) was not repudiatory. Dissenting on that question, Olsson J noted (78 SASR at 514 [99]) referred to his own judgment in Blaikie v SA Superannuation Board (1996) 65 SASR 85 and to the implied term in the context of what was sufficient to give rise to a constructive dismissal. His Honour said:
Suffice to reiterate that the notion of constructive dismissal implies the existence of conduct on the part of an employer which is plainly inimical to a continuance of a contract of employment according to its express or implied terms. The authorities establish the concept that there is implied in a contract of employment a term that the employer will not, without reasonable and proper cause, conduct itself in a manner calculated or likely to destroy or seriously damage the relationship of confidence and trust between employer and employee. An intention to repudiate need not be proved. Rather, it is a matter of objectively looking at the employer's conduct as a whole and determining whether its effect, judged reasonably and sensibly, is such that the employee cannot be expected to put up with it.
247 Paige was a tort case, the nature and result of which are sufficiently indicated in the following passage from the headnote of the report:
The duty of care of an employer to provide a safe system of work cannot be extended to encompass the provision of a safe system of investigation and decision making with respect to procedures for discipline and termination of employment under the Teaching Services Act 1980 and the Teaching Services (Education Teaching Service) Regulation 1994 so as to avoid psychiatric injury. Issues of compatibility with other duties of care and of coherence with employment law and administrative law preclude such a development.
An aspect of what was there described as "coherence with employment law" was how the duty of care for which the employee in the case contended would lie alongside conventional terms in contracts of employment and the statutory regulation of dismissals in Australia.
248 In reasons with which Mason P and Giles JA relevantly agreed, Spigelman CJ referred to Johnson, which had recently been decided by the House of Lords. His Honour identified (60 NSWLR at 397 [141]-[143]) three matters that "render[ed] the imposition of … the … implied term an inappropriate judicial step", namely, "the creation of specialist tribunals as part of the United Kingdom's legal system to hear and determine unfair dismissal cases … [t]he limitation of the class of applicants who could bring an action … [and the] limitation on the size of the award that [could] be made under the legislation." His Honour examined the Australian State and Federal legislated systems for relief against unfair dismissals (to use a generic term that was not universally adopted in this country) and concluded (60 NSWLR at 400 [154]):
The area of unfair dismissals is heavily regulated in both the State and Commonwealth contexts. It represents a particular and carefully calibrated balancing of the conflicting interests involved namely, between preserving the expectations of employees on the one hand and enabling employers to create jobs and wealth, on the other hand. The arguments and factors accepted in Johnson v Unisys are directly applicable to the legislation examined above and the same conclusion, namely a refusal to expand the duty of care in negligence to provide an alternative cause of action for unfair dismissals, should be the result.
249 Irving was a judgment of the New South Wales Court of Appeal in which the primary Judge's refusal to strike out a pleading invoking the implied term was upheld. Hodgson JA, with whose reasons Ipp and Tobias JJA agreed, held ([2005] NSWCA at [27]) that -
… Eastwood and Hollingsworth are sufficient to show that a pleading alleging an implied term that the employer will not, without reasonable and proper cause, conduct itself in a manner likely to destroy or seriously damage the relationship of trust between employer and employee, should not be struck out or summarily dismissed.
250 Delooze was not an employment case at all. It was a case in which a student in a yoga-teaching class had been summarily dismissed from the class because of his behaviour. The contract between the student and the teacher dealt with exclusion from classes, but not in terms that would have justified the action taken by the teacher. In a judgment with which Steytler P agreed, Wheeler JA noted ([2007] WASCA at [32]) the duty which bound an employee to render faithful service, and not to do anything which was inconsistent with the continuance of confidence between the employer and the employee and the duty by which employers were bound under the implied term, and applied the latter by analogy to the contract between the teacher and the student. With respect to the implied term, her Honour referred to the judgment of Olsson J in Easling and to that of Allsop J (as he then was) in Thomson v Orica Australia Pty Ltd (2002) 116 IR 186 ("Thomson"). Technically, however, her Honour relied upon the principles in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 ("BP Refinery") for the implication which she favoured.
251 Russell was a judgment of the New South Wales Court of Appeal, on appeal from the judgment of Rothman J reported at 69 NSWLR 198. It is convenient to say something first about the case at first instance. It involved a claim by a dismissed employee for common law damages after he had taken "unfair dismissal" proceedings in the Industrial Relations Commission of New South Wales. He was successful in those proceedings, and secured an order for reinstatement. He was reinstated in his employment accordingly, and received the pay he had lost during the period of his exclusion from that employment. In his common law case, he claimed damages for the matters identified in his affidavit as follows (69 NSWLR at 213-214 [67]):
My dismissal from my employment and the events relating thereto including the proceedings in the Industrial Relations Commission were very upsetting and distressing to me. My dismissal attracted a considerable degree of media attention and I was extremely distressed, embarrassed and humiliated by the conduct of the Defendants in respect of the events leading up to and my dismissal from my employment. Such distress, embarrassment, and humiliation has continued to be experienced by me throughout the Industrial Relations Commission proceedings which I found to be extremely difficult indeed. I further say that the Industrial Relations Commission proceedings were conducted in such a way that virtually every issue raised by me was the subject of strict proof and the said proceedings became quite protracted and to put it bluntly, in my respectful opinion, bitter.
He also sought to recover the costs of the proceedings in the Commission.
252 Notwithstanding the terms of the employee's affidavit, Rothman J made it clear that the conduct complained of, and said to be in breach of the implied term, was not the dismissal as such, but the employer's investigation of the employee's conduct, the result of which was the dismissal of the employee (69 NSWLR at 233 [142]). Thus, although his Honour noted the "coherence" reasoning of Spigelman CJ in Paige (69 NSWLR at 232-233 [139]-[140]), he apparently did not consider that it stood in the way of the relief which the employee sought.
253 Although he identified some "issues [which] await[ed] definitive clarification by an appellate court" (69 NSWLR at 232 [134]), Rothman J held that the implied term was imported into contracts of employment by the common law in Australia. In so doing, his Honour relied upon the English authorities (down to and including Johnson), on Thomson and on the High Court judgment in Concut. It is less clear, with respect, whether there was any aspect of the employer's conduct which his Honour held to have been in breach of the term. But perhaps that was a moot point, since his Honour rejected the employee's claim for damages substantially on the ground that, had the employer complied with the implied term in the conduct of the investigation which led to the employee's dismissal, there was nothing in the evidence to suggest that the outcome of the investigation would have been any different (69 NSWLR at 237 [167]).
254 In the Court of Appeal, the employee challenged Rothman J's conclusion that he was not entitled to damages. Further, and importantly for present purposes, the respondent employer put in a notice of contention, by which it challenged Rothman J's conclusion that the implied term was part of the employee's contract of employment. Each member of the Court of Appeal assumed, but did not decide, that there was such a term. Basten JA, with whose reasons Giles and Campbell JJA agreed, referred (72 NSWLR 567 [32]) to the speech of Lord Nicholls in Eastwood, which had by then been decided by the House of Lords. His Honour said (72 NSWLR 567 [33]):
Recognising that an employer may act with reasonable and proper cause to pursue its own interests, whether or not they are adverse to those of the employee, and may terminate the employment at any time without cause on giving notice, casts some uncertainty on the scope and extent of the implied duties. In Australia, they have enjoyed more limited recognition than in the UK and have usually been called in aid to identify the kind of conduct of an employer sufficient to constitute "constructive dismissal", which the employee can treat as a repudiation of the contract of employment ….
and referred to Easling, Thomson, Martech International Pty Ltd v Energy World Corporation Ltd (2007) 248 ALR 353, Hem v Cant (2007) 159 IR 113 ("Hem") and Delooze. Referring to Burazin, Basten JA added (72 NSWLR 568 [34]) that it was -
… unclear to what extent the breach of such a term may permit relief by way of damages, consistently with the principle in Addis v Gramophone Co Ltd [1909] AC 488, precluding damages for the manner of a wrongful dismissal and the distress thereby occasioned to the employee, except in the limited circumstances identified in Baltic Shipping Company v Dillon (1993) 176 CLR 344 ….
Basten JA did, however, move on to the question whether the employee's appeal against Rothman J's refusal to award damages should be upheld, and in so doing appears to have left open the direct question raised by the employer's notice of contention.
255 With respect to the claim for damages by way of loss of reputation and injury to feelings in consequence of the breach of the implied term (assuming there to be one), Basten JA said (72 NSWLR 574-575 [63]-[64]):
To uphold a claim to damages because of steps taken by an employer leading up to a dismissal, has three consequences which require consideration. The first is that, because the loss will almost inevitably flow from the termination of employment, rather than the manner in which the decision to terminate was made, the effect will be to sidestep the rule in Addis and hence authorities (including Baltic Shipping) upholding the rule as the law in this country. Secondly, as recognised by the House of Lords in Eastwood, such a course is likely to be inconsistent with the statutory remedies for unfair dismissal, a principle applied by this Court in State of New South Wales v Paige (2002) 60 NSWLR 371 at 395 [133]-[154], albeit in the context of a proposed duty of care in tort. Thirdly, as also noted in Eastwood, the provision of damages for breach of such an implied term otherwise than in relation to termination of employment, creates significant anomalies, for example, by creating a right to recover in the less serious case of suspension of employment, but not in the case of dismissal: see Eastwood at 528 [30]-[33].
In this country, the continued adherence to Addis supports the avoidance of any variation in principle which would have anomalous consequences. Indeed, the creation of such a consequence suggests that any development of the common law having that effect is itself inconsistent with the statutory scheme with respect to unfair dismissals. Just as the legislature has limited the quantum of relief which may be obtained in a case of unfair dismissal, so it may equally be said that the legislature has limited the basis of relief to unfair dismissal, rather than providing a more general remedy for the unfair administration of an employment contract.
It followed, his Honour said (72 NSWLR 575 [65]), that, "even assuming success in relation to the existence of the implied term and breach thereof, there was no basis for an award in the present case of general damages for distress, humiliation, injury to feelings or loss of 'reputation'."
256 McDonald was a judgment of the Full Court of the Supreme Court of South Australia upholding the appeal of the employer from an award of damages in a breach of contract case brought by a former employee who had ended his employment as a teacher by informing the employer that "I dismiss myself". As might be gathered from the tenor of that message, the employee's case was effectively one of constructive dismissal, the Full Court summarising it as follows (104 SASR at 349 [6]):
Mr McDonald's claim rested mainly on an assertion that the Minister had persistently refused to comply with three provisions of the contract of employment, thereby entitling Mr McDonald to treat the contract as at an end. The provisions are an implied term requiring the Minister to take reasonable care for Mr McDonald's health and safety, and in particular to take reasonable care to provide a safe place and system of work; an implied term that the Minister would not act "in a manner likely to damage or destroy the relationship of mutual trust and confidence between the parties as employer and employee", and a further implied term that the Minister would exercise his powers in relation to Mr McDonald fairly and reasonably ….
The Full Court referred to the English authorities on the implied term, and to the Australian authorities in which the term had been "either endorsed or acknowledged", including, but extending beyond, those mentioned above in these reasons (104 SASR at 384-390 [212]-[233]). Their Honours rounded off their discussion of the subject in the following terms (104 SASR at 389-390 [231]-[233]):
The development of the implied term can be seen as consistent with the contemporary view of the employment relationship as involving elements of common interest and partnership, rather than of conflict and subordination. [Here citing B.W. Napier, "Judicial Attitudes Towards the Employment Relationship - Some Recent Developments" (1977) 6 ILJ 1 at 17]
It is plain that the duties which may be required of an employer under the implied term of mutual trust and confidence, or perhaps the conduct from which an employer should refrain, are still being developed. This seems inevitable given the open ended nature of the way in which the duty is expressed. In England, the implied term of mutual trust and confidence has evolved into a duty by employers to treat their employees fairly. [Here citing Eastwood [2005] 1 AC 503 at 523 [11]] Basten JA appeared to approve of this evolution in Russell ((2008) 72 NSWLR 559). But other authorities have resisted the notion that the implied term connotes an obligation which is closely related to that of fairness, namely, an obligation by employers to treat employees reasonably. [Here citing Clark v Nomura International Plc [2000] IRLR 766; Roberts [1980] IRLR 347.]
It may be that the better view is that the implied term operates in a variety of circumstances within an employment relationship to restrain abuses of an employer's power. This purpose of the term is suggested by the authors of Macken's Law of Employment [Sappideen et al, "Macken's Law of Employment" (6th ed 2009) Law Book Co at [5.70]:
Whilst the duty may add little to the obligations of the employee, its importance lies in the extent of obligations it imposes on the employer. It provides a means by which "a balance [is] struck between an employer's interest in managing his business as he sees fit and the employee's interest in not being unfairly and improperly exploited". In a climate of reduced collective bargaining, it protects the vulnerable employee by imposing limits on the managerial prerogative.
257 In part because the employee in McDonald was self-represented and resolution of the question whether contracts of employment generally in Australia contained the implied term "would require a closer analysis of the basis of the term, the nature, scope and effect of the term, and of the interrelationship of the term with other established terms and conditions of employment relationships" (104 SASR at 390 [234]) than the Full Court had attempted in its reasons, their Honours did not seek to resolve that question, but answered only the question whether the employee's own contract contained the term. They held that it did not, because the statutory and regulatory framework which governed the relationship between the employer (the State) and the employee (a government employed teacher) made the implication of any such term unnecessary (104 SASR at 398 [270]).
258 Shaw was a judgment of a 5-member Court of Appeal in New South Wales allowing an appeal from a District Court judgment in which certain paragraphs of the plaintiff's Statement of Claim had been struck out. The appellants had been employed on probation under the Teaching Service Act 1980 (NSW), but their appointments as such were annulled. Their case was that, some months before the annulment, certain conduct for which the employer was responsible was in breach of the implied term and, therefore, amounted to a repudiation of their contracts. They said that they accepted the repudiation by leaving the school where they had been working. The District Court had, it seems, taken the view that the employees' claims for damages could not, in the light of Johnson and the observations of Spigelman CJ in Paige, succeed. The Court of Appeal approached the matter on the basis that a "high degree of certainty" was required to attend a conclusion that allegations should be struck out of a Statement of Claim, referring in this respect to Agar v Hyde (2000) 201 CLR 552, 575-576 [57]. In the light of the English and Australian cases which had either upheld the existence of the implied term or left the question open, there could be no such certainty that the implied term was not, at the general level, part of Australian law.
259 At the specific level, the employer's case was that, if it were part of Australian law, the implied term was excluded from the employees' contracts because of the detailed regulatory code to which they were subject, very much in the way found by the Full Court of South Australia in McDonald. However, the employees, as probationers, had had their employment annulled, and did not have available to them the range of regulatory mechanisms to challenge their involuntary separations which would have been available to permanent employers in like circumstances. Giving a judgment with which the other members of the court agreed, Barrett JA said ([2012] NSWCA 102 at [59]-[60]:
Certain protective incidents favourable to employees that formed part of the regime applicable to other teachers thus did not apply to the appellants as probationary employees. The denial of the favourable incidents means one of two things: that effect must simply be given in an unqualified way to a statutory intention that their employer may treat persons of the relevant kind in a way that is, by comparison, disadvantageous; or that the absence of the protective incidents in relation to those persons leaves, in those respects, a gap in the statutory coverage that allows potential scope for the operation of the implied term of mutual trust and confidence.
The correctness of the latter approach rather than the former is, in my opinion, arguable with sufficient cogency to establish the triable quality of the proposition that the implied term forms part of the appellants' contracts. There is a plausible basis for arguing that the gap in the statutory coverage in relation to probationary teachers is of the kind that caused Layton J to conclude in Lennon v South Australia [[2010] SASC 272] that the implied term applied. All-embracing statutory substitutes of the kind on which the decision in Johnson turned are arguably absent.
Having considered the employer's reliance upon the rule in Addis, Barrett JA concluded that the relevant paragraphs in the Statement of Claim ought not to have been struck out.
260 There have been many more instances of the implied term falling under observation in first instance judgments in Australia, but, aside from situations of constructive dismissal, only once were damages awarded for a breach of the term. It is neither necessary nor appropriate to visit the reasons of the courts concerned in all of these judgments, but the following ones encompass all to which we were referred by counsel in the present case (save those which went on appeal in the cases to which I have already referred), and then some: Blaikie v South Australian Superannuation Board (1995) 65 SASR 85 ("Blaikie"); Carrigan v Darwin City Council [1997] IRCA 101 ("Carrigan"); Jager v Australian National Hotels Pty Ltd (1998) 7 Tas R 437 ("Jager"); Daw v Flinton Pty Ltd (1998) 85 IR 1 ("Daw"); Thomson; Morris v Hanley (2003) 173 FLR 83 ("Morris"); Heptonstall v Gaskin (No 2) (2005) 138 IR 103 ("Heptonstall"); Hem; McDonald v Parnell Laboratories (Aust) Pty Ltd (2007) 168 IR 375 ("Parnell Laboratories"); Downe v Sydney West Area Health Service (No 2) (2008) 71 NSWLR 633 ("Downe"); Quinn v Gray (2009) 184 IR 279 ("Quinn"); Van Efferen v CMA Corporation Ltd (2009) 183 IR 319 ("Van Efferen"); Lennon v State of South Australia [2010] SASC 272 ("Lennon"); Rogan-Gardiner v Woolworths Ltd (No 2) [2010] WASC 290 ("Rogan-Gardiner"); Wright v Groves [2011] QSC 66 ("Wright"); Gillies v Downer EDI Ltd (2011) 218 IR 1 ("Gillies"); Dye v Commonwealth Securities Ltd [2012] FCA 242 ("Dye"); Visscher v Teekay Shipping (Australia) Pty Ltd (No 4) [2012] FCA 1247 ("Visscher").
261 Blaikie appears to have been the first occasion on which the implied term came under notice in a superior court in Australia. That was a case of constructive dismissal. A very senior public servant had, following a change of State government, signed a form of resignation, the result of which was that he was not entitled to benefits from his superannuation scheme which would apply in the case of someone who had been dismissed. Olsson J held that, because of the pressure that the public servant was under to resign, it was a case of constructive dismissal. His Honour noted (65 SASR at 104-105) the approach which had been taken to a situation of this kind in Auckland Shop Employees Union v Woolworths (NZ) Ltd [1985] 2 NZLR 372, in which context Woods was referred to. However, although mention is made of the implied term, the focus of Olsson J's concern was on the principles by reference to which a court should recognise whether a constructive dismissal had taken place. The term itself was given no substantial attention.
262 The former employee whose circumstances came before von Doussa J in Carrigan had suffered an injury at her workplace which led to an extended period of partial, and at times total, incapacity. Although ultimately the employee had resigned, this occurred only after failures by the employer, as his Honour held, to observe its rehabilitation obligations under the applicable occupational health and safety legislation and, to some extent, to pay the wages to which the employee was on any view entitled. His Honour took the view that the employer's conduct "demonstrated a plain case of the employer acting in a manner likely to destroy or seriously damage the relationship of confidence and trust between employer and employee". There had been, therefore, a termination of employment at the initiative of the employer, and the former employee was entitled to compensation under s 170EE(2) of the IR Act. In reaching his conclusion, von Doussa J referred to Burazin, to Bliss, to Woods, and to Malik in the Court of Appeal.
263 In Jager, Slicer J was prepared to accept, for the purposes of his judgment, that the implied term had been recognised in Australia (his Honour then having the benefit of the Full Court judgment in Burazin), but he held (7 Tas R at 457) that there was "no evidence that the defendant engaged in conduct likely to undermine trust and confidence". His Honour's judgment was later reversed on appeal for reasons which had nothing to do with the implied term: Australian National Hotels Pty Ltd v Jager (2000) 9 Tas R 153.
264 Daw was another case under what had been, at the time of the events to which it related, s 170EA of the IR Act. The question was whether the employees concerned, who had resigned from their employment, had been constructively dismissed because it seems that management had discussed with them the question whether they wanted to continue in employment. Von Doussa J proceeded on the basis that the implied term was part of the relevant contracts of employment, and said (85 IR at 4) that the question to be addressed was: "was the employer's conduct such that the employees could not be expected to put up with it?" (borrowing from Browne-Wilkinson VC in Woods). On the facts of the case, this question had to be answered in the negative. There had not, therefore, been a constructive dismissal.
265 Thomson was a judgment of single Judge of the Federal Court upholding the case of an employee who was, on her return from maternity leave, placed into a position "of significantly lower status by reference to her proposed tasks, duties and responsibilities" (116 IR at 223 [136]) than that of the position which she had occupied before going on leave. Allsop J held that this was a breach of the employer's own maternity leave policy and of the implied term. For the proposition that such a term was implied into the employee's contract of employment, his Honour relied on Burazin, and the English cases cited in it, upon Daw (85 IR at 3), and upon the judgments of Olsson J in Blaikie (65 SASR at 102-106) and in Easling (78 SASR at 514, [99]). The significance of the implied term having been breached by the employer was that the employee had been constructively dismissed: indeed, in Allsop J's treatment of the matter (116 IR at 224-225 [141]-[148]), his Honour's focus was on the contribution which a breach of the implied term made to the conclusion, which he reached, that the employee had been constructively dismissed. The only declaration which his Honour relevantly made related to the dismissal of the employee (see 116 IR at 231). His Honour's judgment did not deal with the question of the availability of damages.
266 Morris was a case in the Supreme Court of New South Wales in which breach of fiduciary duty was alleged. The plaintiff appears to have relied on the implied term, but did not make a claim under her contract of employment. Accordingly, she could not succeed on the implied term. In the course of his reasons, Hamilton J accepted (173 FLR at 106 [48]) that the implied term had "of late years been recognised by the law", but continued:
As to the degree to which damages are available as a remedy for breach of the obligation not to damage the relationship of trust and confidence, the extent of this remains elusive in England. It was further discussed by the House of Lords in Johnson v Unisys Ltd [2001] 2 WLR 1076 … but without any conclusion material to the present case. The judgment of the Full Court of the Industrial Relations Court [in Burazin] … makes it plain that it is not clearly established that it gives rise to damages in Australia ….
The case was decided between the House of Lords' judgments in Johnson and Eastwood, and without reference to the Court of Appeal judgment in Paige, which had been handed down about 12 months previously.
267 Heptonstall was also a case in the Supreme Court of New South Wales, the question this time being whether the plaintiff should be given leave to amend to introduce a pleading based on the implied term. Applying what was, in effect, the reverse of the test in General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125, Hoeben J allowed the amendment. His Honour did, however, have "reservations" about the term (138 IR at 116 [30]), expressing them in the following terms (the context for which was that the plaintiff was a teacher whose employment was, to an extent, governed by statute) (138 IR at 116 [29]):
The strongest argument on behalf of the third defendant is whether an implied "trust and confidence" term can operate in the context of the Teaching Services Act and the investigatory steps required to be carried out pursuant to that Act. On one approach the very carrying out of those investigatory steps involves a breach of the suggested implied term. Of equal force is the submission that the coherence of the law of employment both in relation to tort, wrongful dismissal and administrative law as it presently stands could be significantly undermined by the operation of an implied "trust and confidence" term in the contract of employment.
His Honour also said (183 IR at 116 [31]):
I am also mindful that the amendment does raise not only a novel question of law but an important one in that it relates to employment contracts generally. The strong support for the existence of a "trust and confidence" implied term in contracts of employment by the highest court of the United Kingdom has to be given due weight. Whether such an implied term forms part of the law of Australia is a decision which should be made by an appellate court not by a judge at first instance on an interlocutory application. To better enable an appellate court to consider the question it is best that the matter go to trial so that findings of fact can be made. An appellate decision on the question would thus be made on real, as distinct from assumed or hypothetical facts.
268 Hem was a judgment of a single Judge of this court allowing the claim of a former employee of a company under administration. Finkelstein J found that the former employee had been constructively dismissed when, without justification, he was accused of being a thief. His Honour relied on Easling and upon Thomson, but his discussion of those cases did not go beyond what was necessary to uphold the former employee's constructive dismissal claim.
269 Parnell Laboratories was a judgment of a single Judge of this court in a case which included allegations of wrongful dismissal and contravention of Commonwealth anti-discrimination legislation. One of the allegations on the contract was that the implied term had been breached. Buchanan J did not need to determine the latter aspect. However, his Honour did express some reservations about the implication of such a term. His Honour said (168 IR at 399 [84]):
Cases such as Blyth Chemicals and Shepherd accept a "tacit condition" of faithful service. However they do not imply, in my view, a term or condition requiring the maintenance of mutual trust and confidence, breach of which gives rise to some free standing claim for damages or some other remedy. A failure by an employee to faithfully discharge duties provides grounds for termination of the contract. No doubt a failure by an employer to faithfully observe its own obligations under a contract would justify resignation by an employee, if necessary without notice, although in most cases this will be of much less practical significance than the right of an employer to terminate.
After giving attention to some of the Australian authorities in the area, Buchanan J expressed a certain disquiet as to how the implied term might, after many years of lying dormant, now be seen to satisfy the tests for implication in BP Refinery.
270 The plaintiff in Morton v Transport Appeal Board (No 1) (2007) 168 IR 403 had a case on the contract as well as an application to quash a decision of an appeal board which had dismissed his appeal from a decision of his employer to dismiss him on account of circumstances which had involved a physical altercation between him and another employee. The plaintiff succeeded on the latter aspect of his case, but failed on the contractual aspect. Berman AJ did, however, find that the implied term was part of the plaintiff's contract of employment, relying in this regard upon the first instance judgment of Rothman J in Russell. I would note, however, that the employer accepted, indeed submitted, that the implied term was part of the contract.
271 Downe involved the purported suspension of the plaintiff from performance of duty as Director of the Neonatal Intensive Care Unit at Nepean Hospital in Penrith. Rothman J held that that act had been in breach of the plaintiff's contract of employment. His Honour held that the suspension of the plaintiff had been in breach of the plaintiff's contract of employment on a number of bases, and that the applicable legislation did not give the employer the right to suspend the plaintiff without a provision authorising it in the contract. Relying on Burazin, Perkins and Morton, upon his own first instance judgment in Russell, upon the first instance judgment which went to the South Australian Full Court as McDonald and upon Taske v Occupational & Medical Innovations Ltd (2007) 167 IR 298, his Honour held that the plaintiff's contract did include the implied term. However, I do not find, in his Honour's lengthy reasons, any conclusion that the conduct of the employer had been in breach of such a term.
272 Quinn was a judgment of a single Judge of the Supreme Court of Victoria refusing applications for leave to appeal from an arbitrator's interim award pursuant to s 38 of the Commercial Arbitration Act 1984 (Vic). I mention it because, as we were informed by senior counsel for the respondent, it appears to have been the only occasion in Australia upon which damages have actually been awarded (although not by the court) in respect of a breach of the implied term, other than for conduct which amounted to a repudiation of the relevant contract of employment. The arbitration concerned the circumstances of the defendant who had been dismissed from her employment with insufficient notice. An aspect of the award, it seems, relied upon the implied term. The arbitrator had found that the employer had breached the implied term by failing to advise the defendant that the outcome of an inquiry which had been undertaken in relation to her conduct could result in the termination of her employment, and by failing to afford the defendant an opportunity to respond to all of the material which the employer had received. On the application for leave, Byrne J held (184 IR at 282-283 [13]) that there was "abundant authority to support" the existence of the implied term, referring to Perkins and to the judgment of the Court of Appeal of New South Wales in Russell. His Honour emphasised that he was bound by s 38(5) of the Commercial Arbitration Act 1984 (Vic) to grant leave only if he was satisfied that there was a "manifest error of law on the face of the award". In relation to the existence of the implied term as such, it seems that the two authorities referred to were regarded as amply sufficient to preclude him from being so satisfied.
273 In Van Efferen, one of the grounds upon which the applicant challenged the legality of the termination of his employment was that it had been done in breach of the implied term, which was alleged to have been part of his contract of employment. Tracey J upheld the applicant's claim, and awarded damages, on other grounds, but his Honour proceeded to make some "short observations" (183 IR at 337 [80]) on the applicant's case to the extent that it relied on the implied term. His Honour said (183 IR at 337 [82]) that the Court of Appeal judgment in Russell "went no further than holding that such terms may be implied in contracts of employment", and that, had it been necessary, he would have applied the remarks of Buchanan J in Parnell Laboratories, notwithstanding that they were obiter.
274 Lennon was a judgment of Layton J in the Supreme Court of South Australia dismissing an action by a former employee whose claims included that she had been constructively dismissed and that the employer had breached the implied term. Her Honour noted ([2010] SASC 272 at [168]) that there had been "considerable debate in Australia" as to whether the term should be implied and, although there were a number of first instance cases in which the term had been adopted, "the views of Courts of Appeal have been somewhat ambivalent". However, her Honour had the benefit of the Full Court judgment in McDonald and of the survey of the authorities contained in it. This enabled her Honour to conclude ([2010] SASC 272 at [177]) that "there is ample authority to support that a term of mutual trust and confidence can be implied into employment contracts at law". But her Honour found that there had, on the facts of the case, been no conduct in breach of the term.
275 Rogan-Gardiner involved allegations that an employee whose position had been abolished, as part of an organisational restructuring, while she was on maternity leave, and who lost her job as a result, had been the victim of conduct in breach of the implied term. Having reviewed a number of the authorities down to the time of the judgment, Hall J said ([2010] WASC 290 at [125]):
In my view, the following principles can be distilled from the cases I have referred to:
1. an employment contract will generally include an implied term that an employer will not, without reasonable and proper cause, act in a manner calculated or likely to cause serious damage to the relationship of trust and confidence between it and its employee;
2. such a term applies to conduct during the currency of the employment;
3. the term does not apply to dismissal or the manner of dismissal;
4. where an employee claims for loss on the basis of an alleged breach of the good faith term it will be necessary to prove that such loss was caused by conduct of the employer which preceded, and was independent of, any subsequent dismissal.
Given that the dismissal of the plaintiff from her employment as such could not be the subject of the implied term, his Honour turned to consider whether the employer's conduct leading up to the dismissal, largely, it seems, related to attempts to find another position that might be suitable for the plaintiff, had been in breach of the term. His Honour found the employer's conduct to have been "explicable and adequately justified" ([2010] WASC 290 at [139]), and that there had been, therefore, no breach of the term.
276 Wright concerned the coach of a team in a national basketball competition whose contract of employment had some time to run. The licensee of the franchise, who employed the coach, encountered financial difficulties and asked the coach to accept a reduction in pay. The coach made that request public, and gave interviews to the media about the situation. The team did cease to play in the competition, and the coach's contract was cut short by some time. As part of his defence to an action by the coach for damages, the employer alleged that the media interviews had amounted to a breach of the implied term. The case therefore had the unusual (indeed, so far as I know, unique) feature of involving an allegation by the employer that the employee had breached the implied term. Ultimately, Peter Lyons J, in the Supreme Court of Queensland, held that the coach had had "reasonable cause" for the interviews which he gave, which was sufficient to reject the employer's allegation. In the course of his discussion of the law, however, his Honour concluded ([2011] QSC 66 at [53]) that "this area of the law in Australia is unsettled".
277 In Gillies, Rothman J held that the implied term was part of the contract of employment with which the case was concerned, but rejected the plaintiff's claim under the term because the employer's relevant conduct was "conduct in effecting the termination of his employment and cannot be qualified by the implied duty not to destroy or to damage seriously the relationship of trust and confidence" (218 IR 1 at 43, [201]).
278 The applicant's case in Dye involved, to a substantial extent, allegations of sexual harassment. Those allegations were rejected by Buchanan J, who held also ([2012] FCA 242 at [600]) that the applicant's invocation of the implied term as a basis for an alternative cause of action could not succeed on the facts. In the course of a brief discussion of the jurisprudence which had developed in Australia with respect to the implied term, and specifically with reference to the Full Court judgment in McDonald, his Honour confirmed the reservations which he had expressed in Parnell Laboratories ([2012] FCA 242 at [611]). His Honour said:
I remain of the view, in light of the reluctance of the Full Court to rule against the argument that the term does not exist in Australian law, that it is not correct to imply such a term generally into contracts of employment. The outcome in that case illustrates that there will be cases where that is not appropriate. In any event, it would always be necessary for the term to be given practical and effective content.
279 Visscher was an instance of constructive dismissal by demotion. It concerned an employee who had been contracted to serve as chief officer of a vessel and who was later required to serve as second mate. In considering whether this amounted to a constructive dismissal, Katzmann J referred to Western Excavating, to Easling, and to Thomson. However, her Honour focused on the demotion as such - relying in that regard upon the factual similarity of the case with Thomson - rather than basing her conclusion that there had been a constructive dismissal on broader concepts of trust and confidence.
280 Summarising with respect to the Australian position, it is apparent that the question whether the implied term is part of the law of contracts of employment in Australia has never been answered in the affirmative by an Australian appellate court in the sense of being part of the ratio decidendi. With respect, I do not think we are now bound to do so by reason of the fragmentary references which were made to the term in the two High Court cases mentioned at paras 236-237 above. Of the judgments of the intermediate appellate courts discussed above, in three the term was referred to, but it played no real role in the determination of the issues at hand (Perkins, Raffoul and Hollingsworth), in two the existence of the term was recognised only to the extent of holding that the plaintiff had a case that could reasonably be argued (Irving and Shaw), one was not an employment case (Delooze), and one involved the recognition of the implied term in a dissenting judgment only (Easling). That leaves Burazin, Paige, Russell and McDonald. In Paige and Russell, although (as in the other cases) the question did not have to be directly determined, there was an unmistakeable note of caution in the terms in which the implied term was discussed. Their Honours seemed to be of the view that it was not at all obvious that the term existed as part of employment law in Australia.
281 Indeed, it is the absence of any ready consensus as to the existence of the implied term in Australia that is most striking in the appellate authorities to which I have referred. At that level it has, I gather, often been regarded as unsatisfactory to dispose of the question merely by proclaiming that "there is ample authority". As my survey of the first instance cases above should illustrate, proclamations of this kind eventually become self-sustaining. If one drills down into the body of authority which is sometimes described as "ample", one finds that the judgment of the Full Court in Burazin has played a significant part, directly or indirectly, in the conclusions of later courts which did provide an affirmative answer to the above question. Infrequently, with respect, does one find recognition of the circumstances of Burazin that, first, it was decided before the House of Lords gave judgment in Malik, secondly, it was there considered that the breach of the implied term would not sustain a claim for damages in an ongoing employment situation and, thirdly - and most importantly -what their Honours said about the implied term was not part of the ratio decidendi of the case.
282 Like Buchanan J in Dye, I take the view, with respect, that the judgment of the Full Court of South Australia in McDonald provides "a perceptive analysis of the origins and legal foundation for the suggested implication" ([2012] FCA 242 at [606]). What I attempt to do in my reasons which follow is to take up the invitation to undertake the "closer analysis" which their Honours implicitly proffered at para 234 of their reasons.