Trust and confidence – Where does that concept fit into the general employment law and unfair dismissal?
Aitken v CUB Pty Ltd [2016] FWC 2668 (Aitken decision)
In its letter dismissing its employee, the employer concerned in the Aitken decision, described the conduct upon which it relied to justify its dismissal decision ‘as inconsistent with the trust and confidence required in the relationship’. Also in defending the dismissal in unfair dismissal proceedings brought by the dismissed employee in the Fair Work Commission (Commission), one of its contentions was that the dismissal was not unfair because the conduct had that character.
This theme was taken up by Clancy DP in his decision ruling against the dismissed employee. After making findings of fact that the employee had failed on a number of occasions to comply with the employer’s safety procedures and rules including as to not smoking except in designated outside areas, Clancy DP in that part of his decision directed to whether there was a ‘valid reason’ for the dismissal found at [127] that:
the employee had ‘consistently demonstrated the he could not or would not comply with reasonable and fundamental site rules, directions and procedures, particularly those relating to safety, despite warnings he had received along the way’; and
went on immediately to say that he was satisfied ‘that this pattern of conduct was ultimately inconsistent with trust and confidence required for continuing an employment relationship.’
Those features of the Aitken decision make it a good occasion to consider where and how the concept of trust and confidence operates in the general law of employment and, more especially, where it comes in with respect to unfair dismissal cases in the Fair Work Commission (Commission) under Part 3-2 of the FW Act.
Trust and confidence in the general law of employment
In the last two decades or so, in some Australian employment law circles a view took hold that, absent a contrary term, there was a term implied by law in the contract of employment to the effect that unless there was reasonable cause neither the employee or employer would conduct themselves in a manner that was directed at or had the effect or was likely to have the effect of destroying or seriously damaging the relationship of trust and confidence between them and the employer.
The term came to be referred to as the implied term of mutual trust and confidence. Its existence was traced to a decision of the House of Lords in Malik v Bank of Credit and Commerce International SA (In Compulsory Liquidation) in 1997.
After the Malik decision, some decisions of Australian courts and tribunal recognised the existence of an implied trust and confidence term, and in some instances awarded remedies in consequence of its breach.
This mutual trust and confidence implied term was distinguished from and given a content different and from the well-established duty of good faith owed by an employee to their employer regarded as an incident of the employment relationship.
However, in Commonwealth Bank of Australia v Barker [2014] HCA 32, the High Court of Australia pronounced authoritatively on the matter of whether there was a term of mutual trust and confidence implied by law into employment contracts in Australia.
The High Court ruled in Barker that the general law of employment in Australia did not include the mutual trust and confidence implied term, and it should not now be judicially established.
There were three sets of concurring reasons delivered in the case.
In the joint judgment of French CJ, Bell and Keane JJ, the fundamental conclusion expressed was that the proposed implied duty of trust and confidence should not be recognised in the general law of employment in Australia because it was ‘directed, in broad terms, to the relationship between employer and employee rather than to performance of the contract’ (our added emphasis) and that its implication ‘depended upon a view of social conditions and desirable social policy that informs a transformative approach to the contract of employment in law. It should not be accepted as applicable, by the judicial branch of government, to employment contracts in Australia.’
Also in the joint judgment:
it was stated that in common with all terms implied by law, the Court needed to be convinced that the implication of the mutual trust and confidence term was ‘necessary’ in the legal sense;
in that respect, the proposed term would ‘[impose] mutual obligations wider than those which are “necessary”, even allowing for the broad considerations which may inform implications in law’;
it was observed that the asserted term was ‘informed by a view of the employment contract as “relational”, a characteristic of uncertain application in [the context of the case]’; and
as we read it, the view is expressed that what the proposed term would mean in terms of what was required of both employer and employee in any particular case in order to satisfy it would be quite uncertain; in that regard the observation of the dissenting judge in the Full Court (Jessup J) that ‘the proposed implied duty of mutual trust and confidence might apply to conduct by employees which was neither intentional nor negligent and did not breach their implied duty of fidelity, but objectively caused serious disruption to the conduct of their employer’s business’ was endorsed.
The separate reasons of Kiefel J differ in some respects from those in the joint judgment, although a fundamental area of agreement was that the proposed implied term failed the test of necessity applicable to implied terms; the proposed term was neither necessary for the effective operation of employment contracts generally nor necessary for the effective operation of the employee’s employment contract in the case.
Unlike the joint judgment reasons, Kiefel J expressly addressed the role that trust and confidence plays in the general law of employment in Australia. The propositions found in her reasons on that score are:
There is a duty on an employee not to engage in conduct that would be serious enough to have the effect that the employer could not reasonably be expected to have confidence in the employee. That is, conduct on the part of an employee which is incompatible with their (good faith) duty as an employee, involves conflict between his interests and that duty, or is destructive of the necessary confidence between employer and employee is a ground of (summary) dismissal: see Blyth Chemicals Ltd v Bushnell (1933) 49 CLR 66 at 81-82, see also at 72-74; see also Shepherd v Felt and Textiles of Australia Ltd [1931] HCA 21; (1931) 45 CLR 359.
This duty ‘…is not some abstract concept. It refers to conduct, on the part of an employee, which is contrary to the interests of the employer and serious enough to have the effect that the employer could not reasonably be expected to have confidence in the employee. The duty reflects an essential aspect of the relationship between employer and employee. Whilst trust and confidence is maintained, the relationship endures. In that sense, the employee’s duty may be said to be directed to the maintenance of the relationship. Yet the law recognises that, where a point of no confidence is reached, it would be intolerable for the employer to continue with the relationship. In such a circumstance, termination of the employment is justified.’
Gageler J in his separate reasons based his conclusion for rejecting the proposed implied mutual trust and confidence term on the reasoning contained in the judgment of Jessup J in dissent in the Full Court, stressing amongst other things, the uncertainty in the prescriptive content of the proposed term and that its recognition in the general law would disturb the calibrated balance achieved through workplace relations legislation.
While there are several and differing strands of reasoning in the judgments in Barker, and while the role of trust and confidence in the general law (beyond its connection with the rejected implied term of mutual trust and confidence) is really only addressed directly in the judgment of Kiefel J, it may nevertheless be suggested that the basic position in the general law of employment in Australia is that:
There is continuing judicial recognition that, at least generally speaking, an employment relationship rests upon an employer having a level of faith and confidence in the employee which is appropriate to the circumstances of the employment;
A corollary of that is that employee conduct which is incompatible with the survival of that necessary level of trust and confidence is therefore conduct that entitles the employer to dismiss the employee under the general law.
This principle can be expressed in terms that an employee has a legal duty not to act in that way.
These matters are captured in the passage set out above from the judgment of Kiefel J in Barker.
As we see it, all this serves to make the point that in the general law of employment there is no implied contractual term that both employer and employee should not act in a way that destroys or seriously damages the existence of trust and confidence between them.
However, the role that the concept of trust and confidence performs in the general law of employment is to provide the foundation for the recognition of a broad duty owed by employees with respect to their conduct in employment. That duty is not to engage in conduct which is contrary to the interests of the employer and serious enough to have the effect that the employer could not reasonably be expected to have confidence in them, and that breach of that duty, in an almost axiomatic way, entitles an employer to dismiss.
Trust and confidence in unfair dismissal cases
As mentioned above, the employer in Aitken decision justified its dismissal decision in an overall sense on the basis that the employee’s conduct was inconsistent with trust and confidence required in the workplace; and the Deputy President made a positive finding that the proven conduct was of that kind.
But isn’t there a problem with this? Is it not just a way of the employer saying that under the general law of employment, given the nature of employee’s conduct, it had an entitlement to dismiss the employee and of the Commission simply agreeing with that proposition? How is it relevant in an unfair dismissal case under Part 3-2 of the FW Act for an employer to say that and for the Commission to reach a conclusion to that effect?
Those questions might be answered by noticing the following matters:
a. Unfair dismissal cases in the Commission do proceed in a different legal framework to wrongful dismissal cases in a civil court. In an unfair dismissal case, the legislation specifies the circumstances in which the Commission can conclude a person has been unfairly dismissed (thereby opening the door to remedy-as to which see below).
In doing so, the legislation does not explicitly refer to the role of breaches of employment agreement terms or duties in the determination of fairness of a dismissal or indicate that a test of whether a dismissal is unfair is whether the conduct involves a breach of a contractual duty.
Rather, the unfair dismissal legislation:
states that in order to conclude that a dismissal was unfair, the Commission must be satisfied that the dismissal was ‘harsh, unjust or unreasonable’: s.385(b);
specifies the matters which the FWC has to take into account in deciding whether or not it should be satisfied that a dismissal is harsh, unjust or unreasonable: s.387;
However, the matters specified include whether there was a ‘valid reason related to the capacity or conduct of an employee (including its effect on the safety and welfare of other employees)’, and also any other matters the Commission considers relevant to that question: s.387(b)&(h).
As noted in Aitken decision at [68], decisions of the Commission have held that a valid reason is a reason that is ‘sound, defensible or well founded’ and that ‘the reason must be valid in the context of the employee’s capacity or conduct…’.
In this context, it can be persuasively said that the reference to trust and confidence in unfair dismissal cases simply reflects the fact that:
the subject of both the general law of employment and the unfair dismissal provisions in the FW Act is the individual employment relationship and, in the case of the unfair dismissal legislative regime, the termination of that relationship;
because they concern the same relationship, there are necessarily some underlying concepts and working principles common to both, one of which is that it is accepted that the relationship of employment is almost invariably based on the employer being able to have a necessary level of trust and confidence in the employee. (In one sense, this could be said to be one facet of the statement of Gleeson CJ in Brodie v Singleton Shire Council [2001] HCA 29; (2001) 206 CLR 512 at 532 [31]; [2001] HCA 29 referred to approvingly in Barker at [17] and [118] that “Legislation and the common law are not separate and independent sources of law; the one the concern of parliaments, and the other the concern of courts. They exist in a symbiotic relationship.”; and
accordingly, at least insofar as the ‘valid reason’ unfair dismissal factor and probably also ‘other matters that the FWC considers relevant’ unfair dismissal factor, consideration of whether the conduct of an employee is inconsistent with the existence of that necessary trust and confidence can be relevant, and importantly relevant.
On that way of looking at things, a finding by the Commission which accepts the employer’s trust and confidence contention can really be read as a conclusion about the soundness of the reason for dismissal and as indicating that the Commission was satisfied that the employer needed to have confidence in the employee as regards the matters with which the employee’s conduct was concerned, and the employee’s proven conduct seriously damaged or destroyed that confidence.
This is how we think the dismissal reason and contention of the employer in Aitken decision are to be taken and, having regard to the detailed reasoning which proceeds the Commission’s conclusion on valid reason, how the conclusion expressed by Clancy DP at [127] in that case is fairly and reasonably to be construed.
Having said that, as we comment under the heading ‘Reinstatement dimension of trust and confidence’ below, there can also be another reason for an employer, in an appropriate case, to think about trust and confidence aspects when deciding on the scope of evidence and making the argument that a dismissal is not unfair.
Cautions in using trust and confidence in unfair dismissals context
All that said however, it is suggested there are some cautions to be observed in using trust and confidence in an unfair dismissal context.
A contention that an employer has lost trust and confidence in an employee is basically empty unless it is being used in a context where the underlying case is that the employer needs to have confidence in the employee in relation to particular matters to do with the employee’s employment, and the employee’s conduct can be shown to undermine the trust and confidence that the employer reasonably needs to have in the employee in relation to those matters.
Hence, apart from proving the conduct alleged occurred, attention should be given to presenting evidence and argument as to why trust and confidence in the employee with respect to the subject of the conduct is necessary in the context of the particular enterprise/job, and how the employee’s conduct damages that necessary trust and confidence. It is evidence and associated argument of that kind that can get an employer over the line with respect to valid reason and ultimately on fairness as the Aitken decision illustrates.Also, if the notification of the reason for dismissal limits itself to saying that the employer has lost trust and confidence in the employee because of certain conduct in which the employee engaged, and does not go on to indicate in some satisfactory way why there is the need for the employer to have confidence in the employee with respect to the matter concerned and why the conduct seriously undermined that confidence, some other issues can arise:
Firstly, at a general level, that gap may suggest that the employer has not really fully worked out why its dismissal reason is a sound one. In that sense, the ability to express these matters succinctly in the notification of dismissal is not a bad way of testing whether the dismissal is defensible;
Secondly, in a dismissal based on conduct if the notification does not bring those things together, it may be argued that the employee has not been notified (in a substantive sense) of the reason for dismissal (see s.387(b)) and, even more importantly, it could be seized on as evidence supporting a contention that the employee was not have been given a fair opportunity to respond (see s.387(c)). In this respect, a good argument might be made that an employee was not given a fair opportunity to respond if that opportunity goes only to the happening of the conduct but not to how it is to be judged in terms of its ‘quality’.
It should also always be kept in mind that in unfair dismissal applications in the Commission (just as in wrongful dismissal actions in civil courts), in relation to ‘justification’ of a dismissal based on conduct, the focus of the inquiry is on whether the conduct occurred, and then on the character of the proven conduct as the tribunal sees it, and that the tribunal’s view of things may not always coincide with that of the employer.
Finally, an overall observation is that there is no substitute for working through the relevant criteria and requirements relating to what is an unfair dismissal in s.387, and doing that before adopting using short-hand phrases directed at conveying the quality/character of an employee’s conduct. Those phrases are only so good as they can be connected in a relevant way to the unfair dismissal factors specified in s.387.
Reinstatement dimension of trust and confidence
With respect to unfair dismissal, so far this blog has concentrated on the role of trust and confidence as regards the question of whether a dismissal is unfair. However, that is not the whole story for trust and confidence in relation to the Commission’s unfair dismissal jurisdiction.
If the Commission concludes that a dismissal is unfair, the effect of the legislation governing remedy is that the Commission must consider first whether the employee should be reinstated to their employment, and only not order reinstatement where it is satisfied that it is ‘inappropriate’ to do so. (Only when the Commission concludes that it is inappropriate to order reinstatement is the Commission meant to consider whether an order for compensation should be made.)
The Commission Full Bench decision in Nguyen v Vietnamese Community in Australia t/a Vietnamese Community Ethnic School South Australia Chapter [2014] FWCFB 7198 at [27] contains a summary (derived from the decided cases in the unfair dismissal jurisdiction) of the principles relating to the reinstatement question including the role of trust and confidence in the determination of the reinstatement issue as follows:
Whether there has been a loss of trust and confidence is a relevant consideration in determining whether reinstatement is appropriate but while it will often be an important consideration it is not the sole criterion or even a necessary one in determining whether or not to order reinstatement.
Each case must be decided on its own facts, including the nature of the employment concerned. There may be a limited number of circumstances in which any ripple on the surface of the employment relationship will destroy its viability but in most cases the employment relationship is capable of withstanding some friction and doubts.
An allegation that there has been a loss of trust and confidence must be soundly and rationally based and it is important to carefully scrutinise a claim that reinstatement is inappropriate because of a loss of confidence in the employee. The onus of establishing a loss of trust and confidence rests on the party making the assertion.
The reluctance of an employer to shift from a view, despite a tribunal’s assessment that the employee was not guilty of serious wrongdoing or misconduct, does not provide a sound basis to conclude that the relationship of trust and confidence is irreparably damaged or destroyed.
The fact that it may be difficult or embarrassing for an employer to be required to re-employ an employee whom the employer believed to have been guilty of serious wrongdoing or misconduct are not necessarily indicative of a loss of trust and confidence so as to make restoring the employment relationship inappropriate.
In an unfair dismissal case where it is thought there is at least some prospect of that the employee will persuade the Commission that the dismissal was unfair, it is therefore worthwhile in the preparation and presentation of evidence in the case to look ahead to the possible need to address remedy; and if the view is that reinstatement would not be a good outcome, to ask how through the evidence and argument the groundwork can be laid for an argument that despite a finding of unfairness, trust and confidence considerations count against reinstatement.
Author: Bryan Mueller, Head of Litigation BWL
assisted: Angus Mackenzie BWL date: 2016