Implied terms and conditions in employment contracts

An enormous amount of litigation in Australian courts includes cases in which a party to a contract seeks to rely upon the benefit of an implied term or condition, that is to say a term or condition which is not expressly deal with by the contract.

The same principles which apply to the circumstances in which the common law of Australia will permit the implication of such terms applies to employment contracts.

Employment contracts may be oral or written, or partly oral and partly written, and may include the express terms which have been agreed upon (orally or in writing) plus those terms and conditions which are to be implied. The following extract from a recent decision of the Federal Circuit Court sets out the common law principles which Australian courts will use to determine whether there is room for the implication of a term or condition of a contract, and is so what it might be.

This may assume very considerable importance in future cases in the Federal Circuit Court given a recent decision in which a Federal Circuit Court judge has held that the court has jurisdiction to deal with certain denied contractual benefit cases (see https://fairworklegaladvice.com.au/recovering-employment-entitlements-federal-circuit-court/)

‘The test for the implication of a contractual term was set out by the Privy Council in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 283:

… for a term to be implied, the following conditions (which may overlap) must be satisfied:  (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that “it goes without saying”; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.

That test was adopted by the High Court in Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 at 605–606 per Mason J, Gibbs and Stephen JJ agreeing at 599, Aickin J agreeing at 615.

In Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 346-347, Mason J compared the implication of a term with rectification, saying:

The implication of a term is to be compared, and at the same time contrasted, with rectification of the contract.  In each case the problem is caused by a deficiency in the expression of the consensual agreement.  A term which should have been included has been omitted.  The difference is that with rectification the term which has been omitted and should have been included was actually agreed upon; with implication the term is one which it is presumed that the parties would have agreed upon had they turned their minds to it – it is not a term that they have actually agreed upon.  Thus, in the case of the implied term the deficiency in the expression of the consensual agreement is caused by the failure of the parties to direct their minds to a particular eventuality and to make explicit provision for it.  Rectification ensures that the contract gives effect to the parties’ actual intention; the implication of a term is designed to give effect to the parties’ presumed intention.

The basis on which the courts act in implying a term was expressed by MacKinnon LJ in Shirlaw v. Southern Foundries (1926) Ltd. in terms that have been universally accepted:  “Prima facie that which in any contract is left to be implied and need not be expressed is something so obvious that it goes without saying … ” (reference omitted)

Implied term against unpaid extra duties

It will have been noted that one of the criteria for the implication of contractual terms identified in BP Refinery (Westernport) is that the term which it is argued should be implied does not contradict any of the contract’s express term. Dr Anning sought the implication of a term to the effect that the University would not require her to perform duties and responsibilities for any role in addition to the role of Dean without reasonable compensation. However, the Dean Contract relevantly provided expressly as follows:

  1. YOUR DUTIES

5.1    In performing your duties, you will:

(b)          perform the duties reasonably assigned to you from time to time by the University;

  1. HOURS OF WORK

6.1          Your ordinary hours of work are 35 hours per week in accordance with the UWS Academic Staff Agreement, averaged over a 12-month period, plus all reasonable additional hours as required, without additional remuneration.  If you are asked to work additional hours, you will let the University know as soon as possible if for any reason you are unable to work those additional hours.

6.2          Unless otherwise required, your ordinary hours of work will be between 7.00 am and 6.00 pm Monday to Friday.  If required, ordinary and additional hours may be worked at any other times or days, including public holidays, without additional remuneration.  If you are asked to work on a public holiday, you will let the University know as soon as possible if for any reason you are unable to work on that day.

The term for which Dr Anning contends would contradict the express cls.5 and 6 were it to be included in the contract.  That is enough for the Court to find that it is not to be implied into the Dean Contract.

Implied term requiring resources

The next of the terms which Dr Anning alleged was to be included in the Dean Contract by implication was to the effect that the University would provide her with all the resources reasonably necessary for her to perform her duties and responsibilities.  Relevantly, BP Refinery (Westernport) states that before a term may be included in a contract by implication, the term must be so obvious that “it goes without saying”. The proposed term does not satisfy that criterion.

The evidence of Ms Hawkins and Professor Krause indicates that decisions regarding the funds allocated to the University’s teaching units were made by the University’s finance committee which, I infer, had organisation-wide responsibilities and had to address demands for funding which were greater than available resources.  The proposed term would tend to remove some financial authority from the finance committee and place it with the dean of a small teaching unit of the University with the purpose of supporting the work of that unit alone.  The proposed term would restrict the capacity of the University to manage its limited resources for the benefit of all its stakeholders.  I am not persuaded that such a term was so obviously part of the parties’ agreement that its absence from the express terms of the Dean Contract can be explained on the basis that it went without saying.  I find that it should not be part of the contract.

Implied term requiring good faith

The third of the terms which Dr Anning alleged was implied in the Dean Contract was one which required the University to exercise its rights under the Dean Contract in good faith, reasonably and for the purpose of achieving the objects of the contract.

An obligation of good faith is not to be “implied indiscriminately into all commercial contracts”:  Specialist Diagnostic Services Pty Ltd v Healthscope Ltd (2012) 41 VR 1 at 20 [86], although one may be implied if it meets the test for implication of terms set out in BP Refinery (Westernport):  Specialist Diagnostic Services v Healthscope at 20 [90]; CGU Workers Compensation (NSW) Ltd v Garcia (2007) 69 NSWLR 680 at 704-705 [133]-[136]. It would seem that such a term is likely to be implied if, without it, the performance of the contract according to its express terms would deny one party much of the benefit or many of the rights for which they contracted: CGU v Garcia at 705 [136]; Specialist Diagnostic Services v Healthscope at 20 [87]-[89]; Burger King Corporation v Hungry Jack’s Pty Ltd (2001) 69 NSWLR 558 at 572 [177].

However, this is not such a case.  Dr Anning was paid her salary throughout her tenure as Dean and, except when suspended during the period of investigation, performed in that role and, as a consequence, was not denied much of the benefits or rights for which she had contracted.  That is not to say that everything was as Dr Anning might have wished it to be but she has not shown that her complaints were not capable of being addressed under the ordinary law of contract.  In such circumstances the implication of a term imposing an obligation of good faith was not necessary to give business efficacy to the contract and the implication will not be made.

Similar considerations apply to the implication of a term requiring reasonableness in the operation of the contract.  As used here, the nebulous concept of reasonableness seems to be good faith sailing under other colours but, even if not, no basis for its implication as a term of the Dean Contract has been identified.  It is far from clear how the business efficacy of the contract would be enhanced by its presence or why its absence from the express terms of the contract was because it was so obvious it went without saying.

The final contention was that there was to be implied into the Dean Contract a term to the effect that the University had to exercise its rights under it for the purpose of achieving the objects of the contract.  Those objects were not identified but, in any event, it is not necessary, in order to give business efficacy to a contract, to imply into it a term whose purpose is only to reiterate the promises of performance which are inherent in that contract.

Workload and express term

The first part of Dr Anning’s allegations that the University breached the Dean Contract because of issues related to her workload also alleged the existence and breach of an express term regarding her hours of work.  Dr Anning alleged that by requiring her to perform Additional Duties and by requiring her to work in excess of her contracted hours, the University breached the Dean Contract’s express term that her ordinary hours of work would be Monday to Friday, between 7am and 6pm, 35 hours per week, plus reasonable additional hours as required.

The relevant terms of the Dean Contract were quoted earlier in the context of the first alleged implied term.

Given that the Dean Contract provided for Dr Anning to work “ordinary hours” plus such reasonable additional, unpaid, hours as might be required, the implication of the allegation is that at various times Dr Anning had had to work, beyond her ordinary hours, hours which were not reasonable and for which she was wrongfully not paid.  As noted earlier, Dr Anning has not adduced evidence that the University required her to work such hours or even of the hours she worked more generally.  Nor did the evidence indicate that, if Dr Anning did work additional hours which were not reasonable, that that work had been required, in the sense of necessary, and that it had been necessary for her to devote that time to that work.  As noted earlier, it seems likely that Dr Anning’s difficulties partly arose from her managerial approach.

In light of the state of the evidence, I am not persuaded that Dr Anning did work hours, beyond her ordinary hours, which were unreasonable or, if she did, that such work was required, either because it was necessary or because the University had directed her to do it.

Code of conduct, safe place of work and obligation to act in good faith

Dr Anning alleged that by requiring her to perform the Additional Duties and work excess hours, by requiring her to report to the University’s executive instead of to the Vice-Chancellor, and by reducing the funding of the Badanami Centre – in circumstances where other deans and schools where not similarly required, expected or affected – the University breached the following terms of the Dean Contract:

  1. a)5.2, being the University’s Code of Conduct which was incorporated into the contract;
  2. b)the implied term that the University would provide Dr Anning with a safe place of work; and
  3. c)the implied term that the University would perform its obligations and exercise its rights under the Dean Contract in good faith, reasonably, and for the purpose of achieving the objects of the contract.

For the following reasons, none of those allegations has been made out.

Implied terms – safe place of work and obligation to act in good faith

I have already found that the Dean Contract did not include the implied good faith term for which Dr Anning has contended.

The allegation that the Dean Contract contained an implied safe workplace term was pleaded in the further amended points of claim as follows:

  1. It was an implied term of the Dean Contract that:

(d)          The Respondent provide the Applicant with a safe place of work …

This allegation was not particularised but in para.28(d) of her affidavit in chief Dr Anning expanded on this contention saying in relation to the alleged term that:

The Respondent was aware of their responsibility and compliance with their won [sic] policies; state and federal law; in this case the Work Health and Safety Act 2011; …

She went on in that paragraph to refer to an email from Ms Tout to “Managers and Supervisors” dated 21 January 2014 in which the following was relevantly said:

Dear Managers and Supervisors,

All staff have a responsibility to ensure that reasonable care is taken regarding health and safety in the workplace.

Managers, supervisors, senior officers and members of Executive have an additional responsibility to exercise due diligence to comply with duties and obligations under the Work Health and Safety (WHS) Act 2011.

Those who fail to meet due diligence requirements can be held personally liable. Under the Work Health and Safety Act 2011, penalties of up to $300,000 and five years imprisonment can apply to employees, and up to $600,000 and five years imprisonment can apply to Senior Officers and Executive.

Factsheets listing the WHS duties for employees (workers) and senior staff (officers) can be found at …

Please ensure that all staff in your team have completed the mandatory online WHS modules, which must be completed at least once every three years.

In her written submissions Dr Anning relevantly said:

  1. The Applicant was entitled to the benefit of the Work Health and Safety Act 2011 (NSW) and for the Respondent to take reasonable and practical action to ensure the Applicant’s health and safety in the work place, including psychological health and safety.

It appears from all of this that Dr Anning contended nothing more than that the University was obliged to comply with certain statutory obligations.  On that basis, the term need not be implied because it is otiose.  However, if I am incorrect in this conclusion there is nevertheless no evidentiary basis for a finding that the provision was breached.

Incorporated provisions:  University code of conduct

Dr Anning relied on cl.5.2 of the Dean Contract to allege that the University’s Code of Conduct formed part of that contract.  That sub-clause stated:

  1.      YOUR DUTIES

5.2          By signing this Agreement and/or accepting employment with the University, you acknowledge that you have read, understand and agree to comply with any duties, obligations and directions imposed on you under the University’s:

(a)     Code of Conduct; and

(b)     Workplace Surveillance Policy,

as in force, amended or replaced from time to time.

It is plain from the terms of that sub-clause that the Code of Conduct was not incorporated into the Dean Contract.  Its effect was that Dr Anning agreed to comply with the Code of Conduct, not that the Dean Contract imposed any enforceable obligations derived from the code on the University.

Reversion term

Dr Anning also alleged that by failing to give her any real work upon her return to the Substantive Position following the end of the Dean Contract, the University breached the Reversion Term.  The allegation refers to conduct referred to in para.48 of the further amended points of claim but this appears to be a mistyped reference to para.46 of the claim.  Whatever the case, this is a different version of the allegation of adverse action discussed above at [186(a)] and [194]-[198] mostly under the heading “Failing to return Dr Anning to the Substantive Position with its original duties and responsibilities following the end of the Dean Contract”.  For the reasons given there, I am not persuaded that the duties Dr Anning performed following her return to the Substantive Position were so different from what she had done previously or so inconsistent with her role, that the University’s assumed expectation that she would perform them amounted to a breach of the Dean Contract.”

 

ANNING v WESTERN SYDNEY UNIVERSITY (No.2) [2019] FCCA 1313 delivered 21 May 2019 per Cameron J