King & Wood Mallesons

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Mutual trust and confidence — Full Federal Court reshapes the implied duty

A majority of the Full Federal Court of Australia has held that there is a term of mutual trust and confidence implied into all Australian employment contracts.

An employee was awarded damages in excess of A$300,000 (£177,000) for a breach of the implied term of mutual trust and confidence (Term). The employee was made redundant and was subsequently terminated when he could not be redeployed. During the attempted redeployment process, the employer failed to take active steps to communicate with the employee. As a result, no contact was made with the employee for an unreasonable period of time. This constituted a breach of the Term.

In a 2-1 decision, the court held that the Term is necessarily implied into all Australian employment contracts due to the nature of the relationship between employer and employee, but can be excluded by a contrary express term…

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