General Employment: Legal update on the implied duty of good faith and confidence

handshakeA recent decision of the Western Australian Supreme Court has examined the application of the  implied term of good faith and trust and confidence in employment contracts. Justice Stephen Hall reviewed the Australian and English authorities and confirmed that the cases establish:

  • An employment contract will generally include an implied term of good faith and confidence;
  • Such a term applies to conduct during the currency of the employment, but does not apply to dismissal or the manner of dismissal; and
  • An employee claiming damages for a loss associated with a breach of the term must prove that the loss was caused by conduct of the employer which preceded,  and was independent of, the dismissal itself.

The case involved a Perth based Woolworths  executive who had been with the company for eight years and was on a salary of well over $100,000. The executive had been advised in April 2002 that her job would be abolished as part of a restructure of the company’s financial services division. She then applied for but failed to secure an interview for the national financial controller role. In July 2002, with her future role still uncertain, she informed the company that she was pregnant and in September 2002 she went on 12 months maternity leave.

During her maternity leave the company offered the executive positions as either a corporate auditor or zone business analyst in Perth. The employee rejected both offers arguing that neither position were equal in status to her previous position. When she returned to work in September 2003 the company provided her with a computer and an office however allocated no work to her. The HR manager contacted her on the morning of her return to offer her both position of work however the employee rejected both again. Two weeks later the company wrote to her informing her that as she had rejected the jobs her employment had with Woolworths had ceased.

The executive claimed in an action brought in the WA Supreme Court that the company had breached its implied term of good faith and confidence in her employment contract. She said that she had suffered stress, anxiety and chronic depression as a result of the company’s conduct. She also claimed that the company had breached its implied duty to give her reasonable notice and pay redundancy

Woolworths argued that the employee has repudiated the contract by refusing to accept alternative jobs and therefore was not required to pay her notice.

Justice Hall said, applying the law on the implied term, that the executive had to establish that the conduct of the company which breached the implied term of good faith must be found to have occurred prior to the termination. He found that the fact that she was not offered the financial controller role was did not show bad faith as the executive was too junior.

Justice Hall fount that the alternative roles offered to her, while not “precisely equivalent” to her previous role were roles that she had experience and skill to perform and were not made in breach of a duty of good faith. Justice Hall found that Woolworths had not breached the implied duty of good faith, and further, even if it had, he found that the company had not caused her depressive illness. He accepted psychiatric evidence that the employee had a narcisstic personality that made her vulnerable to depression.  Also significant was the fact that she had failed to inform the psychiatrist  of her preexisitng stress related condition.