Contract law Essay Example

  • Category:
    Law
  • Document type:
    Essay
  • Level:
    Undergraduate
  • Page:
    2
  • Words:
    1171

IMPLICATION OF A TERM IS AN EXERCISE IN INTERPRETATION

I INTRODUCTION

The implication of a term in employment contracts has to be considered as an exercise in necessity rather than reasonableness.

The following discussion proves this contention.

This work deals with an analysis of the ruling in Commonwealth Bank of Australia v Barker, with a special focus on the interpretation of terms in an employment contract. The court opined, in this case that the implied terms of mutual trust and confidence satisfy the term of necessity implied by the law into employment contracts.

The High Court of Australia determined the presence of an implied term in a contract of employment in Commonwealth Bank of Australia v Barker.1 This Court ruled that the implied term of mutual trust and confidence should satisfy the test of necessity for the terms implied by law.2 Such action would be beyond the purview of the courts. The High Court of Australia emphasized that it was the task of the legislature to undertake this action, due to the intricate policy considerations that would come into play, upon resorting to such action.3

As such, employment relationships have undergone a steady evolution, which has caused employment contracts to incorporate several implied terms. These terms are subject to the specific conditions of a particular contract and the applicable statutes. As such, the employer is under an implied duty to provide his employees with a safe system of work. In addition, the employer has to furnish reasonable notice of termination of contract, with the exception of termination of contract for breach.4

In addition, an employee is under an implied duty of fidelity to his employer. This requires him to abstain from conduct that hinders the faithful discharge of his obligations, or from action that damages the essential confidence between an employer and his employee. It could be surmised that such duty emerges from the employee’s fiduciary duty towards his employer.5 In Mackay v Dick, the court held that in an employment contract, the employee was under a duty to cooperate with the employer.6

Moreover, in Scally v Southern Health & Social Services Board the court examined the employer and employee relationship.7 The ruling in this case was indicative of the changes taking place in the law pertaining to the obligations of employers. In this case, a specific alteration was made to the regulations governing a scheme of statutory superannuation. This change enabled the employees who were inclined to join the scheme late to procure added years of pension entitlement. However, this entitlement was available for a limited period. Thereafter, it was provided on significantly less favourable terms.8

The issue identified by the court was whether there was an implication under the law. The implication being whether the employer had to adopt reasonable measures to bring the existence of the contingent right to the notice of his employees. It was further stated that the entitlement of the employees to the pension would be devoid of contractual effect, till such time as it was brought to their notice. This rendered it indispensable for the employer to render efficacious the benefit that it intended to confer upon his employees.9 Moreover, the court declared that the criterion for the implication was necessity and not just reasonableness.

The failure of the employer to inform his redundant employee regarding possible redeployment, was held by the Full Federal Court to be a breach of implied duty. From the legal perspective it is possible to excluded implied duties by including express terms in the contract of employment. However, this could prove to be counterproductive while negotiating with job applicants and employees. As such, it is necessary for employers to include the implied terms of confidence and mutual trust in their dealing with employees. This decision served to enhance the entitlement of employees to fair and reasonable treatment. The dangers associated with failed communication between business units and individuals, vis-à-vis organisations, was brought to the fore by this ruling.10

The decision in this case demonstrated the growing tendency to increase the protection of employees. Under exceptional circumstances, employers could ignore the implied duty of mutual trust and confidence. All the same, by conceding that a certain standard of fairness had to be adopted in their dealings with employees, employers could bring about a significant reduction in legal actions initiated by their disgruntled employees.11

Moreover, in Malik and Mahmud v Bank of Credit and Commerce International SA, Malik and Mahmud sued the defendant bank for their inability secure employment, after working for the latter. The defendant bank had become insolvent, due to having engaged in large-scale fraud and other serious criminal activities.12 Their Lordships held that the employment relation included the term of mutual trust and confidence. This term differs from a term that is essential for providing a contract with business efficiency, which emphasises upon the form of the contract and its unique and express terms.

II CONCLUSION

The ruling in Commonwealth Bank of Australia v Barker stated that the implied terms of mutual trust and confidence complied with the test of necessity for the terms that were implied by law. As such, it can be surmised that the courts intend to safeguard the rights of an employee while interpreting the terms in an employment contract.

BIBLIOGRAPHY

  1. Articles/Books/Reports

Blackburn, John, ‘No trust or confidence — what about good faith?’ (2015) 42(2) Brief 32

Golding, Gabrielle, ‘High court rules out mutual trust and confidence in Australian employment contracts: Commonwealth Bank of Australia v Barker [2014] HCA 32’ (2014) 36(10) Bulletin (Law Society of South Australia) 12

Stapleton, Giles, ‘New implied term of mutual trust and confidence’ (2013) 65(11) Keeping Good Companies 683

Thai, Pauline, ‘Necessity, coherence and mutual trust and confidence: Commonwealth bank of Australia v barker’ (2014) 27(4) Commercial Law Quarterly: The Journal of the Commercial Law Association of Australia 11

Commonwealth Bank of Australia v Barker [2014] HCA 32

Mackay v Dick (1861) 6 App Cas 251

Malik and Mahmud v Bank of Credit and Commerce International SA [1997] UKHL 23

Scally v Southern Health & Social Services Board [1992] 1 AC 294

1Commonwealth Bank of Australia v Barker [2014] HCA 32.

2 Pauline Thai, ‘Necessity, coherence and mutual trust and confidence: Commonwealth bank of Australia v barker’ (2014) 27(4) Commercial Law Quarterly: The Journal of the Commercial Law Association of Australia 11, 11.

3 Gabrielle Golding, ‘High court rules out mutual trust and confidence in Australian employment contracts: Commonwealth Bank of Australia v Barker [2014] HCA 32’ (2014) 36(10) Bulletin (Law Society of South Australia) 12, 12.

6Mackay v Dick (1861) 6 App Cas 251.

7Scally v Southern Health & Social Services Board [1992] 1 AC 294.

8Commonwealth Bank of Australia v Barker [2014] HCA 32.

9 John Blackburn, ‘No trust or confidence — what about good faith?’ (2015) 42(2) Brief 32, 35.

10 Giles Stapleton, ‘New implied term of mutual trust and confidence’ (2013) 65(11) Keeping Good Companies 683, 683.

11Ibid 686.

12Malik and Mahmud v Bank of Credit and Commerce International SA [1997] UKHL 23.