• No Implied Term of Mutual Trust and Confidence in Probationary Contracts
  • May 15, 2015 | Author: Adam Salter
  • Law Firm: Jones Day - Sydney, New South Wales Office
  • In State of New South Wales v Shaw [2015] NSWCA 97, the Court of Appeal overturned a decision of the District Court of New South Wales in which it implied a term of mutual trust and confidence in the probationary contracts of two Aboriginal teachers.

    The decision came on the back of a succession of proceedings in which the respondents, Mr Shaw and Ms Salt (the "Respondents"), sought damages or compensation following the annulment of their probationary appointments. After bringing unsuccessful claims in the Industrial Relations Commission, before the Anti-Discrimination Board and in the Administrative Decisions Appeal Tribunal, the District Court handed down judgment in their favour.

    The District Court found that the school principal, on behalf of the State of New South Wales (deemed to be their employer under the Teaching Services Act 1980 (NSW)) (the "State"), had seriously breached the implied term by informally handing Ms Salt an envelope containing a "petition" signed by the teachers of the school complaining of intimidatory and unprofessional conduct by the Respondents, and other "critical and damaging" material. The primary judge found that the Respondents were humiliated by the incident but awarded no damages.

    After the decision of the High Court in Commonwealth Bank of Australia v Barker held that as a matter of law, there is no implied duty of mutual trust and confidence in all employment contracts, the State of New South Wales appealed the District Court decision. The Respondents insisted that due to the probationary nature of their employment contracts, the State was required to "support and nurture" the Respondents who had been "invited" to develop their teaching skills, and therefore as a matter of necessity a term of mutual trust and confidence is implied in their contracts, as distinct from Barker.

    The court considered that this would produce disconformities between the content of contracts for teachers with/without a probationary period, an anomalous result. Further, the statutory regime applying to members of the teaching service gives the State the power to annul appointment at any time, including for reasons divorced from teachers' performance (such as economic reasons), thereby denying the implication of a term of mutual trust and confidence.

    Ultimately the court decided against the implication of the term as the probationary character did not provide a meaningful point of distinction from the conclusion reached in Barker. Emphasising that terms should be implied only with caution, especially concerning a broad-ranging class of contracts, the Court held that the respondents' contracts would not be "deprived of its substance, seriously undermined or drastically devalued" if a term of mutual trust and confidence was not implied.

    The respondents did not raise a separate allegation of an implied duty of good faith, instead insisting it had been subsumed by the pleaded term of mutual trust and confidence. Regardless, the Court noted that if good faith had been pleaded as a stand-alone implied duty, the Court would have found that it was not implied. Had either term been implied, the Court held that the impugned conduct would not have been a breach regardless.