In a judgment handed down recently, the Supreme Court of Appeal in New South Wales left unsettled the question of whether parties to an employment relationship were required to deal fairly with each other. In doing so, the Supreme Court of Appeal has failed to take an important opportunity to update the law to ensure that the legal regulation of employment recognises the centrality of employment in a modern person’s life.

The law has always recognised that an employee owes a duty of good faith to an employer. This duty is implied as an incident of the law into every single employment relationship. Where an employee acts in breach of this duty, say for example by being dishonest to an employer, the employee may be liable for damages.

The Courts in Australia have been much more reticent about implying a reverse obligation on the employer. Although the English Courts have long recognised that an employer owes a duty of good faith to an employee (known as a duty of trust and confidence), the Australian Courts have been much more ambivalent about the existence of this duty.

In a recent case, Russell v The Trustees of the Roman Catholic Church for the Archdiocese of Sydney [2008] NSWCA 217, the Court of Appeal had to decide whether the conduct of the Church in investigating allegations of sexual misconduct by an employee with 27 years of service breached the employer’s duty of trust and confidence. The Court at first instance found that the manner in which the investigation was conducted had breached this duty, but that the particular breach did not sound in damages. On appeal, the Court of Appeal was more equivocal about the existence of this duty. The Court of Appeal stated that, even if this duty existed, it had not been breached by the Church.

The employer-employee relationship is an unusual contractual relationship in that it requires both parties to act in a manner that minimises self-interest to ensure the longevity of the relationship. It is important that the law recognises this and protects parties when this has not occurred. The High Court is yet to make a pronouncement on whether a duty of trust and confidence exists, so it will be interesting to see whether the High Court will remedy the short-sightedness of the NSW Supreme Court of Appeal when the opportunity arises.

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