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The possible future direction of common law employment contracts
The replacement of statutory agreements with common law contracts will provide the parties with more freedom and flexibility, particularly in cases where remuneration is at or above $100,000 a year, because these contracts will only need to adhere to the prescriptive ‘safety net’ of minimum standards. In this way, the impact of the legislative changes may be seen in a definite increase in the use of these contracts.
Not only would it be advantageous to an employer of a worker who is earning at least $100,000 a year not to have to remain aware of all applicable awards in that industry sector, but this type of instrument would also effectively ‘de-unionise’ that category of worker, because if most of the workforce is on individual common law contracts, it would not be worth the union’s while to engage in litigation on behalf of one employee at a time (however, if all of these workers were on AWAs prior to 2010, this situation would have existed prior to 2010 as well).
The reforms that will be implemented by the 2008 legislation will, in all probability, have a significant impact on the content of common law employment contracts. But it is also essential to keep in mind that, apart from these dramatic changes to the legislative regime, the common law position on employment contracts continues to evolve It would seem that all of the doom-ness visited upon Workchoices will now be visited upon anyone on more than $100,000 per year. That either means that the criticism of Workchoices was exaggerated, or they are “only pretending to care”. It is as if this Government will do more to reduce the role of the union movement than the previous one dared to.
Positively, when Governments create vacuums, the Courts fill them. There have been many benchmarks set in recent times by the Federal and State Courts which create protections for the general middle-management-and-above community, which the Government has chosen not to give them by legislation.
Contractual terms
Common law contracts are the means of engagement already for most people – award or non- award. That is because award standards have so completely fallen behind community standards in most occupations over the past two decades (eg, under the State Clerical and Administrative Award, the “executive rate” above which you cease to get overtime is about $38,000). Awards can be completely avoided so long as the common law contract ensures that its clauses are not undercut – a simple task in most cases. With the new legislation, that will not even be necessary for those on $100,000 or more.
If one was advising an employee on more than $100,000, prima facie, that advice would be to get nothing in writing and to sign nothing. That is because if you write down a right, or define it, you automatically limit it to what is written. The idea of “reasonable standards” is thus much abridged by a written contract. It could be said that the best contract is an unwritten one, as in that case the parties necessarily leave it to the courts to determine many of the specifics of the contract.
For everything that is not written, (or verbally ‘express’ – hard to prove when in dispute) the common produces terms which are held to be ‘implied’ into the contract, if not expressly written into the contract.
Implied terms
Historically, the courts have come up with two categories of implied terms: those implied by law for reasons of policy (for example, the requirement that the employer will take reasonable care of the employee’s health and safety while at work is intended to safeguard the working public’s health and safety) and those implied by fact (for example, the custom, practice and usage of many industries requires reasonable notice of termination to be at least four weeks).
In determining whether a term is capable of being implied into an employment contract, the courts have formulated the following conditions:
• The term must be reasonable and equitable
• It must be necessary to give business efficacy to the employment contract
• It must be ‘so obvious that it goes without saying’
• It must be capable of being clearly expressed
• It must not contradict an express term elsewhere in the contract.
In this manner, the common law has discovered many implied terms to exist within the employment contract, conferring definite duties upon the contractual parties – employee duties such as: obeying all reasonable and lawful commands of the employer; disclosing all necessary information to the employer, but not disclosing any confidential business information to others; furthering the employer’s interests, or at least not frustrating the employer’s interests.
And the common law has found some of the employer’s duties to be: providing the employee with prescribed wages and conditions; paying redundancy pay to eligible employees; and advising employees of superannuation and resignation requirements and arrangements. And some implied terms have created mutual duties, which are borne by the employee and the employer. One such mutual duty is the obligation of mutual trust and confidence, which has its origins in the ancient fiduciary duty owed by a servant to their master.
The obligation of mutual trust and confidence
The common law has traditionally viewed this obligation as a duty on the part of employer and employee to refrain from conducting themselves in a manner that is apt to destroy or to seriously damage the relationship of trust and confidence between them. It has been characterised as “a duty, on both employer and employee, to act in the best interests of maintaining trust in the relationship.” An employer may still be able to terminate the employment contract if it is necessary and appropriate to do so; however, it remains necessary for both parties to act with “prudence, caution and diligence”. In other words, the duty is owed to the employment relationship itself rather than to the other contractual party.
At the time of writing (it has been appealed by both sides, and judgment is awaited) the most recent major development in this area was in the matter of Russell v The Trustees of the Roman Catholic Church for the Archdiocese of Sydney & Anor. Russell was Director of Music for the choir of St Mary’s Cathedral in Sydney. He had worked for the Cathedral for many years in various music-related roles. No written contract of employment ever existed, but his role appeared to have evolved as a result of several discussions with the Cardinal. In the course of his employment, Russell was required to be in frequent contact with students of St Mary’s Cathedral school.
Years before, an individual who worked at the Cathedral, presumably being unable to afford to pay rent, was living in the Cathedral Presbytery. The Church considered this to be inappropriate, and so Russell offered to let him stay at a room in his house, which offer the employee accepted.
In 1999 Russell was arrested and charged with sexual misconduct arising from the evidence of former members of the Choir. His flatmate was also arrested. The majority of the allegations were directed at that person, but one was directed at Russell. The other person was convicted of an offence. During this time, Russell stood down from his position as Director of Music. The criminal proceedings against Russell were dismissed. Russell then resumed work.
The Dean of the Cathedral subsequently received a letter from the NSW Ombudsman’s Office giving notice that the Office was going to investigate the handling of and decisions made concerning, “child protection issues associated with Mr Russell’s current employment” among other matters. Soon after the Dean told Russell that the Church was needed to file a report on his case, and so “we have to do an investigation to satisfy this requirement.”
The Church then appointed an investigator to determine whether there were “grounds for concluding, on the balance of probabilities, that the complaint is justified – either in whole or in part?” This ‘complaint’ was in fact the criminal conduct of which he was acquitted. Russell was then invited to attend a meeting concerning the investigation.
Russell had requested further information concerning the investigation several times, but had not received it, and now wrote to express his concern at the lack of information given to him to enable him to prepare for the meeting. He was dismayed that he was not informed of what Church protocols were governing the investigation, whether he would need legal representation, what the past experience of the investigator consisted of, whether the meeting was confidential to any other parties besides the Ombudsman’s Office, and whether minutes would be taken.
The Church responded to some of these queries but was unable to provide further information.
At the meeting, a number of matters relating to the complaints against Russell and his former flat mate were discussed.
Russell later provided written submissions to the Church in which he denied all allegations of assault. He
also submitted that the investigative proceedings were “a denial of natural justice and procedural fairness” because he was not given the opportunity to respond to some of the allegations made against him. When his employment was terminated, he took the matter to the Industrial Relations Commission and was re-instated.
He then brought an action in the Supreme Court, claiming damages being the costs of the whole matter (which had presumably been crippling to a person of modest means) based on an asserted breach of two implied terms in his contract of employment: the duty to act in good faith, and the obligation of mutual trust and confidence.
Rothman J found that Russell was wrongfully terminated by the Church, and that both the duty to act in good faith and the obligation of mutual trust and confidence formed part of Russell’s contract. In analyzing the nature of Russell’s employment which, involving as it did the extensive supervision of young boys on behalf of the Church, required his employer to have considerable “trust and confidence” in him, His Honour found that “if one sought to exclude, expressly, the relationship of trust and confidence, if it were a necessary and essential ingredient of employment, one may still have a contract, but it is unlikely to be a contract of employment.
Without trust and confidence there is no submission and subordination and no right of control. Without trust and confidence there is no contract of employment.” The unjustified termination of Russell’s employment was a breach of the duty of mutual trust and confidence that was an implied term of the employment contract. The Church has also breached the obligation of all employers and employees to act in good faith.
Despite finding that the Church breached both implied duties and had wrongfully terminated the employment, Rothman J held that the breaches occasioned no damage to Russell, and awarded him no amount in damages. The basis of that was the fact of his reinstatement by a tribunal which could not award costs.
Thus, there could be no “loss and damage” arising merely from the enactment of a statutory restriction.
Russell thus stands (pending appeal) as a precedent wherein an unfair and unjustified termination of employment may sound in damages by virtue of the fact that the unfair termination could constitute a breach of the implied duty of trust and confidence. This has opened up a potentially lucrative solution to those employees who now find the opportunity to bring an action for unfair dismissal has been removed.
New Use for Common Law Contracts
Authored by Chris McArdle, Principal at McArdle Legal, Employment Lawyers Sydney
“The Government’s election commitment is that there will be no place in the new workplace relations system for AWAs or any other form of statutory individual employment agreement.”
On 13 February 2008, a bill which became the Rudd Government’s new Workplace Relations Amendment (Transition to Forward with Fairness) Act 2008 was introduced in Parliament. It commenced on 27 March 2008, and along with its companions the Workplace Relations Amendment Regulations 2008 (No. 1) and Workplace Relations Amendment Regulations 2008 (No. 2) which together form a suite of transitional legislation, its purpose is to dismantle, at least to some extent, the changes wrought by Howard’s Work Choices legislation.
This transitional legislation seeks to make several major alterations to the federal industrial relations landscape:
• A modified version of the ‘no-disadvantage test’ is to be re-introduced, in place of the previous government’s ‘fairness test’ – there is no practical difference between the two, but we must accept that it is necessary for the new to appear different to the old;
• It will no longer be possible to unilaterally terminate collective agreements after they have run out – the party wishing to terminate the agreement would now need to apply to the Australian Industrial Relations Commission, who would only terminate the collective agreement if the public interest would not be harmed by doing so. Since that test means: “does not affect anyone else”, we can assume that termination by the AIRC will be virtually automatic unless it is opposed on “flow on” grounds;
• A special ‘award modernisation process’ is to be put in train, to be conducted by the AIRC and to be completed by 1 January 2010. This will have no effect on most people – it will mean that, after much debate things like “gender non-specific terms” will be introduced;
• All awards are to contain a mandatory ‘flexibility clause’ to enable employment arrangements to more closely suit the genuine needs of employers and employees.
• There will be a new statutory ‘safety net’ to consist of ten National Employment Standards, which have not yet been released; and
• One of the most high-profile changes is to forcibly retire the Australian Workplace Agreement and replace all AWAs with Interim Transitional Employment Agreements, (ITEAs), during the transitional period.
AWAs and ITEAs AWAs at their height covered about 5% of the workforce. They have been subject to the “fairness test” since May 2007, which is identical to the “no-disadvantage test” in all discernable respects.
They have thus not been the ogre documents of popular fiction that they are still painted since then. It is odd, therefore, for their removal to be held out to be so significant.
The Coalition’s Industrial Relations
reform.
That is especially so in the light of the policy of the new government to abolish all but the most minimum safety net for any of those rich people earning more than $100,000 per year. Thus, all the unskilled mine workers in WA who were earning $150,000 on AWAs will now have less protection than they previously did – mainly in the area of wrongful dismissal, in the event of which they can now approach the AIRC being “award covered”, but from now on will not be able to, being rich.
ITEAs are re-named AWAs, – so named to appear different. They are “end game” documents, and will all cease to be on the last day of 2009. None could be made after 27 March this year. During parliamentary debate over the Forward with Fairness Bill, Julia Gillard stated: “From the date of proclamation…
the ability of any employer in the country to make an Australian workplace agreement… to rip away an award condition without compensation, will be over – done and dusted.” Puzzling rhetoric, in view of the Fairness Test that Howard introduced in his panic in May 2007. The ALP could not acknowledge that, since they could hardly admit that their key criticism was no more, and the Coalition could not point it out, since they could not admit that their policy was anti social before May 2007. The press could not say anything, because there is no story in emptiness.
Academics could hardly write papers to the effect that it was all about nothing. So, we had and continue to have the Seinfeld debate about Industrial Relations.
Individual common law contracts The solution to the problems of IR seen by the new Government is to remove great chunks of the community from under the umbrella. The AIRC will be replaced by a public service agency that will take up to a year to do anything, and the functions of which will be discharged by the unmotivated led by the unimaginative. Most of the community will be spared this, as most will be excluded, either because they are rich and earning more than $100,000 a year, or cannot wait for the wheels of bureaucratic justice to grind slowly.
The exception is the public sector, the members of which will not be put off at all by the slowness or the passive aggressive unresponsiveness of the “Fair Work Australia” crack team of operatives. That finalises the process that has been evolving for some time – trade unionism is confined to the public service, and is an institution that serves the lowly paid (and preserves their lowly paid status).
Most people will be on their own. The exception is the ’10 National Minimum Standards’ (see following article). The Government has settled on a figure of $100,000 a year as the magic number. The 2008 legislation provides that if an employee, whose ‘guaranteed ordinary earnings’ are less than $100,000 a year, enters into a common law contract with their employer, then that contract must adhere to the 10 national minimum standards and must also allow for, at a minimum, the standards set out in any applicable award. So far so good, for these are long-established legal requirements for common law emp0loyment contracts; you cannot ‘contract out’ of any applicable award provisions, and your contract has to meet minimum award standards whether you like it or not.
However, if a common law contract is going to govern the employment of an employee who earns $100,000 or more per annum, then the only compulsory minimum standard which the contract must meet is that which will be set out in the 10 national minimum standards. To put it simply, those earning, or paying, six-figure salaries can contract out of an award – any relevant award is simply considered not to apply to the employment of that employee.
So, the whole system is now to be only for the bottom rungs. “Middle Australia” (“working families” – the people who elected them) will be largely cut out. It is stated in the amending act’s explanatory memorandum that “the proposed National Employment Standards…will be legislated as part of the Government’s substantive workplace relations reforms”, but we have not yet beenadvised of the final version of these standards. To make an educated estimation of what those 10 minimum standards
will be, it is useful to examine the details of the industrial relations policy which the Labor Party took to the
2007 election. Using the ‘Forward with Fairness” document as a guide, the present indications are that the ten standards would set out required minimum entitlements for:
• Hours of Work
• Parental Leave
• Flexible Work for Parents
• Annual Leave
• Personal, Carers and Compassionate Leave
• Community Service Leave
• Public Holidays
• Information in the Workplace
• Notice of Termination and Redundancy; and
• Long Service Leave.
The only real change in this list is “the right to request flexible working hours”. How “requesting” requires a “right” has not been explained. How it could not have been requested up to now has also not been extensively analysed.