Submission 167 Australian Council of Trade Unions Workplace Relations Framework Public inquiry

The common law is not a safety net

Every employment relationship is underwritten by a contract of employment. Aside from certain matters relating to discrimination in hiring decisions⁵⁴⁵ the FW Act has no work to do unless or until a worker has entered into a contract of employment – the contract of employment is the trigger point for the various rights and protections offered by the Act to operate.

Contracts of employment are made between two legal “persons”, one of whom must be a natural person. It can be made between two natural persons but few employers of labour are. At a practical level then, it is a contract between a collective of capital interests and an individual worker. The content of a contract of employment at common law is at large save for the doctrine of illegality, which relevantly regulates little short of criminality and slavery. Its content is made up not only of what it said or written to constitute it, but what the law implies where it is otherwise silent.

Subject to contrary intention evinced in the contract itself, the law implies duties upon parties to a contract of employment. In Australia, these duties, with the exception of the duty of co-operation, are not mutual and fall to the employee perform. A failure to comply with these duties is a breach of contract. They include:

• 
  The duty to obey. This duty requires the employee to obey lawful and reasonable directions from their employer which are within the scope of the employment and not inconsistent with the contract. It is the essential duty which, in practical or economic terms, denies the employee the leverage to “renegotiate” the terms of their employment: they cannot refuse to comply with directions in order to secure better pay or conditions from their employer, without breaching their contract (a matter which could give rise to right in the employer to terminate the contract, depending on the severity of the breach).
  
• 
  The duty to exercise reasonable care and skill. This duty requires employees to be competent in the skills they are hired to utilise. The common law places the burden of initial proficiency upon the employee, requiring them in effect to be ‘job ready’.
  
• 
  The duty of fidelity. This duty requires employees to act in the interests of their employer. It manifests itself in numerous obligations such as to avoid conflict of interests, to not work for another employer in competition with the first employer, to not use the employer’s information or their employment to benefit themselves and to not refrain from conduct which may damage the reputation of their employer. To an extent, the duty therefore requires employees to subordinate their interests to those of their employer, even when they are not actually at work.
  
• 
  The duty of trust and confidence. This obliges employees not to engage in conduct that destroys the confidence between employee and employer. It includes a prohibition on acts that are fundamentally incompatible with employees’ duties under the contract (even if it they are not explicitly prohibited by the contract) and with the maintenance of the relationship between employer and employee.
  

Implied duties upon the employer are generally limited to the duty of cooperation (which, as mentioned above, is mutual) and the duty to take reasonable care for the safety of the employee. By any measure, this is a very one sided dynamic even ignoring the imbalanced power relationships that are at play in the formation or any variation of the contract. The common law does not provide a meaningful safety net for employees. In modern Australia, this in part because the common law does not see itself as fulfilling that role.

This was illustrated recently in significant ligation⁵⁴⁶ concerning whether the common law of Australia recognised that the duty of trust and confidence was a mutual duty which obliged both parties to not, without reasonable and proper cause, conduct themselves in a manner calculated or likely to destroy or seriously damage relationship of trust and confidence between them. The law requires that a term will not be implied in law unless it is “necessary”. The criterion of necessity is a high bar and “is not satisfied by demonstrating the reasonableness of the implied term”⁵⁴⁷ . The judgment in that case makes numerous references to the undesirability of the common law doing what is in the province of the legislature:

“The common law in Australia must evolve within the limits of judicial power and not trespass into the province of legislative action. This Court and, to a lesser extent, intermediate appeal courts have a law-making function. That function can only be exercised as an incident of the adjudication of particular disputes. The first point of reference in its exercise is "the web of established legal principle"[39]. As Brennan J said in Dietrich v The Queen[40]:

"There must be constraints on the exercise of the power, else the courts would cross 'the Rubicon that divides the judicial and the legislative powers'".

A judicial announcement of an obligation of mutual trust and confidence, to be applied as an incident of employment contracts and applicable to employers and employees alike, involves the assumption by courts of a regulatory function defined by reference to a broadly framed normative standard. Broadly framed normative standards are familiar to courts required to apply, in common law or statutory settings, criteria such as "reasonableness", "good faith" and "unconscionability". However, the creation of a new standard of that kind is not a step to be taken lightly.”⁵⁴⁸

“in its intersection with the law of unfair dismissal, the implied term would intrude a common law policy choice of broad and uncertain scope into an area of frequent, detailed and often contentious legislative activity[222]. Commonwealth and State unfair dismissal legislation has produced, and has over time reproduced and adjusted, "a particular and carefully calibrated balancing of the conflicting interests involved namely, between preserving the expectations of employees on the one hand and enabling employers to create jobs and wealth, on the other hand"[223]. Gleeson CJ observed[224]:

"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."

Common law obligations in contract, like common law obligations in tort, ought not to be developed by courts other than in a manner that is sensitive to their interaction with legislation[225]. “⁵⁴⁹

“The history of the development of the term in the United Kingdom is not applicable to Australia. There is a background of approving references to the implied term in decisions of Australian State and federal courts[92]. The strength of those approving references, however, depends upon the analysis underpinning them. In South Australia v McDonald, decided in 2009, the Full Court of the Supreme Court of South Australia observed that, with the exception of two first instance decisions, none of the Australian authorities to that date had "addressed in any detail the basis for the implication of the implied term."[93] In that case, the Full Court concluded that the extensive statutory and regulatory context in which the contract in question operated rendered the implied term unnecessary[94]”⁵⁵⁰

The need for a cautious approach to the implication is underlined by the observation in the fourth edition of Deakin and Morris's Labour Law, that "[i]n its most far-reaching form [the development of the implied term] could be said to mark an extension of the duty of co-operation 'from the restricted obligation not to prevent or hinder the occurrence of an express condition upon which performance of the contract depends to a positive obligation to take all those steps which are necessary to achieve the purposes of the employment relationship ...'."[101] That extension was said to reflect a broader functional view, essentially a tribunal's view, of good industrial relations practice, embracing not only the material conditions of employment such as pay and safety, but also the psychological conditions which are essential to the performance by an employee of his or her part of the bargain[102].

The complex policy considerations encompassed by those views of the implication mark it, in the Australian context, as a matter more appropriate for the legislature than for the courts to determine. It may, of course, be open to legislatures to enshrine the implied term in statutory form and leave it to the courts, according to the processes of the common law, to construe and apply it. It is a different thing for the courts to assume that responsibility for themselves. …..

It depends 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.”⁵⁵¹

Plainly, the common law sees it as the job of the legislature to develop the broad framework of rights, based on fairness and other policy considerations, that are to govern employment relationships. This view is not compatible with the common law acting as a safety net or remedying any omissions or flaws in the existing safety net.