'Uneasy or Accommodating Bedfellows? Common Law and Statute in Employment Regulation' (Sydney Law School Research Paper No. 13/82) by Joellen Riley comments that
In 2005, Professor Phillipa Weeks published an insightful chapter entitled ‘Employment Law – A Test of Coherence Between Statute and Common Law’ in S Corcoran and S Bottomley (eds) Interpreting Statutes. That chapter examined the emergence, development and ultimate emasculation of an implied term of trust and confidence in employment, as a consequence of the interaction of judicial reasoning and legislative intervention. At the time, Professor Weeks bemoaned the ‘dismal state’ of Australian common law, and proposed a solution to the apparent incoherence and doctrinal imperfection in the law. This address will pick up the story where Professor Weeks left off, by considering the influence of developments – judicial and statutory – since publication of this important piece, and will revisit possible solutions in the light of those developments.Riley's 'Siblings But Not Twins: Making Sense of 'Mutual Trust' and 'Good Faith' In Employment Contracts' in (2012) 36 Melbourne University Law Review 521 [PDF] commented
It has become common for employees claiming contractual damages following termination of their employment to plead that the employer has breached ‘an implied term of good faith, trust and confidence’ in the employment relationship. Sometimes two separate implied terms are pleaded: ‘mutual trust and confidence’ on the one hand, and ‘good faith’ on the other. The circumstances in which these claims are made are as various as the causes of misery and grievance in human relationships at work. Sometimes they are pleaded hand in hand with allegations of bullying and harassment; sometimes together with assertions of capricious denial of claimed entitlements (such as performance bonuses, promotions, or contract renewals). Although ‘mutual trust and confidence’ and ‘good faith’ have become commonplace vocabulary in pleadings, there is still considerable confusion and disagreement about the content of these obligations. Some judicial decisions have been sceptical about whether they exist at all.
The aim of this article is to propose a framework for understanding the role that mutual trust and confidence and good faith play in the resolution of employment contract disputes in Australia, in the hope that greater clarity around the concepts may convince the remaining sceptics that these are indeed legitimate employment obligations and they do not open floodgates to unpredictable damages awards. This framework may provide some guidance, and consequently alleviate some confusion, for the benefit not only of future litigants and their advisors, but also of the managers who determine workplace culture, and those who work within their influence.
This framework involves a number of propositions, each of which is expanded later in this article:
1 The two concepts — mutual trust and confidence on the one hand, and good faith on the other — describe closely related but nevertheless distinct obligations arising in an employment relationship, and perform different functions in resolving employment contract disputes.
2 The notion that the employment relationship involves a duty on both employer and employee not to act in a manner calculated or likely to destroy the relationship of trust and confidence between employer and employee has been articulated clearly in the employment contract law of the United Kingdom, and has been accepted or assumed in a sufficient number of cases in Australian jurisdictions to warrant its acceptance into the canon of Australian employment law. This proposition, which I concede is not yet universally accepted by Australian employment law advocates or judges, is explained more fully in Part II. Breach of this obligation (by either employer or employee) constitutes a repudiation of an employment contract justifying an election by the innocent party to terminate the contract. In Australian law, breach of this obligation has not yet sounded in any damages claim independently of any damages flowing from the termination of the employment.
3 Employment contracts, like other contracts which describe long-term (or at least, indefinite) relationships for the mutual benefit of the parties, are to be construed according to the principle that parties to the relationship are committed to perform their obligations in good faith. In this context, good faith is to be understood in the same way as good faith in the performance of other kinds of commercial contract. This proposition — also considered dangerously novel by some judges — is explained in Part III.
4 Both obligations are contractual in nature, meaning that they depend upon an assumption that parties have willingly committed to these obligations in entering into the employment relationship. If the parties to the relationship have expressly limited their obligations to each other, the agreement between the parties prevails over any implied obligation.She concludes -
it is difficult to understand why there has been such judicial reluctance to accept unconditionally the following two propositions:
1 Employers and employees who have acted in a manner calculated or likely to destroy trust and confidence in an employment relationship are to blame for termination of the employment contract if the innocent party elects to terminate.
2 Employment contracts are to be construed on the basis that parties are obliged, and expect, to perform those contracts in good faith.
The first proposition works simply to allow a victimised employee to escape from an intolerable job with the same benefits they would have received if the employer decided to dismiss them. The second simply requires parties to respect the obligations mutually undertaken at the time they entered into their relationship. It does not preclude parties from limiting those obligations by express provision, though it does prevent one party from relying opportunistically on a written document to defeat the terms of the real agreement between the parties. Neither proposition opens any gates to floods of claims alleging rights to perpetual employment, or damages for hurt feelings.
The very fact that counsel representing employers sometimes vigorously argue the absence of any such obligations, even in the face of the most compelling evidence of appalling behaviour and serious harm, is testimony to the unsatisfactory state of the common law in this field. Forthright and unconditional judicial acceptance of these propositions, as limited as they are, may go some way to communicating a message to Australian employers that they do bear a responsibility to promote decent, respectful behaviour in their workplaces. Such responsibilities are not so terribly onerous. A prudent, diligent and cautious employer who paid heed to these principles would ensure that supervisors did not abuse their staff (as occurred in the Naidu case). They would institute fair and reasonable performance review systems (and so avoid the problems arising in Silverbrook Research Pty Ltd v Lindley and McDonald (Trial)); they would prudently investigate any allegations of impropriety against employees before acting precipitately, and they would respectfully follow up repeated complaints from employees (as arose for Nikolich and in McDonald (Trial)). They would certainly not trump up malicious complaints against their staff (as in Eastwood v Magnox Electric plc). They would also ensure that their contract documentation properly reflected the real agreement between the parties. A great deal of personal grief, and an enormous amount of business time, finances and resources, may be saved by the encouragement of a corporate culture that respected obligations of mutual trust, confidence and of good faith. Over time, we might witness a general improvement in Australian workplace culture, to the benefit of employees and employers alike. This is not an appeal for a great leaping legal development. It is nothing more than a plea for a consistent, principled message from case law in this field of law that is so important to the wellbeing of working citizens.
