Russell v The Trustees of the Roman Catholic Church for the Archdiocese of Sydney & Anor [2007] NSWSC 104
Implied duties in employment contracts
Two new implied duties were recently found to apply to an employment contract in a case heard by the Supreme Court of New South Wales. In Russell v The Trustees of the Roman Catholic Church for the Archdiocese of Sydney & Anor [2007], it was found that there was a duty implied by law in Mr Russell’s employment contract that the Church would “act in good faith” towards Mr Russell.
It was also found there was an implied duty that “the Church would not conduct itself in a manner likely to destroy or seriously damage the relationship of mutual confidence and trust between the parties.”
Background to the case Mr Russell commenced employment as Director of Music at St Mary’s Cathedral in 1976. He was responsible for the general management of the choir, including teaching and training members, conducting at church services, concerts and rehearsals. He also arranged and accompanied the choir on various overseas tours. There was no written documentation with any express provisions of the contract of employment.
In 1982 Mr David O’Grady began work as a sacristan at St Mary’s Cathedral. At the Dean of the Cathedral’s request, he lived in Mr Russell’s residence. In 1999, Mr Russell was arrested and voluntarily stood down. The arrest related to sexual misconduct claimed by a former choir member, Mr Buckley. Another former choir member, Mr X, also provided a statement regarding Mr O’Grady’s conduct, whilst he was residing with Mr Russell. Mr O’Grady was charged and convicted. Bail was granted and Mr Russell returned to his duties under the condition he would be supervised. In March 2000 the committal proceeding began. Mr Buckley failed to attend and all charges against Mr Russell were dismissed. He resumed full duties without any conditions or restrictions.
From February to August 2002 there were communications between the Catholic Commission for Employment Relations (CCER) and the New South Wales Ombudsman’s Office. This led the Church to conduct an internal enquiry. In August, the Ombudsman’s office wrote to the Church stating that it would investigate the CCER’s conduct. It required documents and records relating to the Church’s checks of Mr Russell’s performance of duties. Once again Mr Russell conducted his duties under full supervision. He expressed concern at the lack of information that had been provided with. In October 2002, Mr Russell, his advisor, a Church investigator and the Dean of the Cathedral, attended a meeting where Mr Russell denied each of the allegations against him.
By letter, the Dean requested the attendance of Mr Russell at a meeting on 10 December. At this meeting, Mr Russell was informed that the allegation of indecent assault had not been sustained. However, preliminary findings of neglect had been sustained on the balance of probabilities. A review of his suitability to continue employment had been recommended as disciplinary
action. On 31 January 2003, the Dean consulted with the Cardinal Archbishop, who approved the decision to terminate Mr Russell’s
employment.
Mr Russell commenced proceedings for the reinstatement of his employment under section 84 of the Industrial Relations Act 1996
(NSW) on 17 February 2003 in the Industrial Relations Commission. It was concluded that Mr Russell’s termination was unreasonable.
Deputy President Harrison did not consider reinstatement ‘impractical’ and ordered reinstatement with ‘restitution of wages
and continuity of services for all purposes.’ Mr Russell continued his employment after his reinstatement on 1 June 2004, he was
paid income that he did not receive while he was not working.
In the recent proceedings Mr Russell claimed damages for wrongful termination and for breaches of two implied terms in the employment
contract. The damages included the cost of the proceedings, the expenses of a media consultant, injury to reputation
and damages for distress, embarrassment, humiliation and hurt to feelings. Damages were also claimed for negligence. Additionally aggravated and exemplary damages were claimed.
Two New Implied Duties in Employment Contracts?
7
Implied Terms – What are Implied Terms?
There are two types of terms in employment contracts. There are those that are expressed by the parties and those implied by law.
There are a number of terms that are implied in contract at common law, for example that parties will not breach other terms of the contract. There are various reasons why implied terms are read into the contract:
⇒ They are rules of law which the parties have taken to be intended as part of their contract;
⇒ From the factual circumstances of their agreement, the law can state that the parties must have tacitly agreed to a particular term; or,
⇒ The law will say that a custom is legally enforceable as part of the contract.
Mr Russell argued that the Industrial Relations Act 1996 (NSW) did not abolish the common law rights that would apply. He claimed
that there were two implied terms in his contract of employment which were breached by the Church. These were:
⇒ There contained a duty implied by law in his contract that the Church would “act in good faith” towards Mr Russell.
⇒ Mr Russell also claimed there was another implied term in his contract, that “the Church would not conduct itself in a manner likely to destroy or seriously damage the relationship of mutual confidence and trust between the parties.”
1) Duty to Act in Good Faith Justice Rothman defined good faith as a ‘requirement that a person doing the act exercise prudence, caution and diligence.’ This would mean taking due care to avoid or minimise adverse consequences to the other party.
Mr Russell’s representatives claimed that in Australia, an obligation to act in good faith was recognised as implied in contracts of employment. The court did recognise that various implied terms and obligations implied upon an employee, which we now take for granted, were originally based upon the obligation to act in good faith. It examined Robb v Green [1895], in which Lord Esher stated that “It is impossible to suppose that a master would have put a servant into a confidential position of this kind, unless he thought that the servant would be bound to use good faith towards him.” Justice Rothman accepted this analysis and came to the conclusion that there is no reason why an employer would be less likely to be bound to act in good faith, then an employee.
As a starting point, Justice Rothman analysed the implication of a contractual duty of good faith in commercial contracts. He examined Renard Constructions v Minister for Public Works (1992) and concluded that in this area, the duty arises because it is predominately reasonable and equitable. This case implied a duty of good faith as both an implication of fact and an implication of law.
Byrne v Australian Airlines (1995) found that ‘rules of construction are not rules of law so much as terms implied, in a sense attributed to the contractual intent of the parties.’ However, the court believed that there may be a distinction without difference as to whether terms arise by construction or implication.
In Vodafone Pacific Ltd v Mobile Innovations Ltd [2004], there is an imposition of law, by acknowledgement of a contractual intent to the parties, and the rule of “construction,” is a rule for imposing in law a meaning on the parties. In Esso Australia Resources v Southern Pacific Petroleum [2005], Chief Justice Warren states that that the test for interference in contractual activity is that the parties relationship must be unequal, with one party vulnerable or at a particular disadvantage. Then the employment relationship would apply. This must occur in the interests of certainty in contractual activity.
Justice Rothman said that apart from various terms relating to wages and an initial trial period, there were no express terms in the contract allowing the parties to regulate their relationship. He understood that both parties envisaged a continuing, indefinite period of employment. He stated that the very nature of Mr Russell’s work, spending large amounts of time teaching and supervising children, inevitably involved circumstances which had direct and binding effects on the Church. Such work was performed without supervision, for example the various overseas tours. As a result, Justice Rothman concluded that it would be impossible to imagine the contract of employment operating without the presence of a duty of good faith.
8
2) The Church would not conduct itself in a manner likely to destroy or seriously damage the relationship of mutual confidence and trust between the parties.
Justice Rothman defined the duty of mutual trust and confidence, where there exists a duty not, without reasonable and proper cause, to act in a manner calculated and likely to destroy or seriously damage the relationship of confidence and trust between employer and employee.
The court examined the case of Thomson v Orica Australia [2002]. In this case Justice Hoeben referred to Justice Allsop in Burazin vBlacktown City Guardian (1996), where he stated ‘there is ample authority for the implication of a term in a contract of employment that the employer will not, without reasonable cause, conduct itself in a manner likely to damage or destroy the relationship of confidence and trust between the parties as employer and employee.’
Additionally the court found that this duty was not a novel concept. Prior to recent findings, for example Hollis v Vabu (2001), the duty formed the rationale for vicarious liability, dating back to Hern v Nichols (1701). This is one of the early examples where vicarious liability depended upon vicarious responsibility, where the employer bestowed trust and confidence upon their employees for the various acts that they were involved in.
The court recognized that it is essential that an employee must have confidence in their employer. They must be able to trust the capacity of the employer to give directions and conduct operations in such a way which allows the employee to carry out the work in safety and without harm. This is an acknowledgment that under an employment contract, an employee submits to the surrounding work environment.
There are co – workers and directions over which they have very little control. Hence in this regard, an employee places trust and confidence in the employer. Similarly an employer places trust and confidence in the employee. The employer must trust everything the employee does in the course of their employment. Hence trust and confidence is fundamental to the contract of employment. If one destroys trust and confidence, and trust and confidence is a necessary and essential ingredient of a contract of employment, then the contract of employment is destroyed. This is demonstrated in the case of Concut v Worell (2000) which described the relationship between employee and employer as ‘importing implied duties of loyalty, honesty, confidentiality and mutual trust.’
Hence, Rothman, J determined that such implied terms do exist under Australian law.
Effect of Implied Terms
A contract of employment may be terminated either by the employer or the employee, by giving reasonable notice of termination, except where there is an express provision in the contract prohibiting this. In spite of finding that both of the above implied terms apply in contracts of employment, this does not deal with whether such duties impact upon the capacity of the employer or employee to terminate upon reasonable notice.
Justice Rothman observed that there is no authority in Australia or England for the proposition that the application of implied terms impinge on the right to terminate. In this case, Mr Russell’s representation submitted that it is possible for the Court to separate the dismissal
from the conduct leading up to the dismissal. In particular, the conduct of the investigation and various events surrounding it.
Justice Rothman believed that the implied duty not to act to destroy the relationship of trust and confidence, will not interfere with the right of a party to a contract of employment to terminate the contract. He determined that it is possible for the implied duty of good faith to operate at the point of termination, however it cannot operate in circumstances where the termination is, as a matter of fact and as a matter of law, without cause. In this case, Justice Rothman found both implied terms operate.
Mr Russell’s representation alleged that there were breaches of the implied conditions, as there was a delay by the Church in responding to the New South Wales Ombudsman’s Office. Additionally, the plaintiff claimed that there was a failure to inform the plaintiff of the inquiries of the New South Wales Ombudsman’s Office. Justice Rothman determined that unless the results would have been different, the timeliness of the response, and the timeliness of the information to Mr Russell cannot have caused damage.
However, when referring to these implied terms, the interests of the employer must be balanced against the adverse effects they may have on an employee. The Church did owe a non-delegable duty to the children who attended St Mary’s College, to ensure reasonable9 care was taken of them while they were on school premises, particularly while attending St Mary’s Choir (this was a condition of their scholarship to attend the college). To support this Rothman J cites Geyer v Downs (1977) and The Commonwealth v Introvigne (1982). Rothman stated that the Church’s actions were required only to satisfy itself that Mr Russell’s employment presented for it an unacceptable risk of injury
or harm to the children in its care. Given the nature of these allegations put forward, where an employer acts on suspicion, it is imperative the suspicion and its reasonableness be proven, as stated in Briginshaw v Briginshaw (1938). The plaintiff complained that Mr X was not interviewed face to face and he should have been, due to his significance to the investigation. They claimed this was a breach of the duty of good faith. Justice Rothman concluded that given the resources and infrastructure it should as a matter of prudence, caution and diligence interviewed
Mr X face to face. Not doing so was a breach of the Church’s duties.
Wrongful Dismissal
In Mr Russell’s case there was no express provision of the contract of employment dealing with the termination of the contract. When these circumstances arise it is implied in the contract of employment, a right of either party to terminate the contract on reasonable notice. Additionally, the common law does not give a right to terminate a contract of employment on payment in lieu of reasonable notice. The immediate termination of Mr Russell’s employment contract and payment in lieu of reasonable notice, was a breach of the contract.
Conclusion
Justice Rothman found in favour of the defendant, the Trustees of the Roman Catholic Church for the Archdiocese of Sydney & Anor. Despite finding that the Church breached its duty, regarding the implied terms of the contract, the breach occasioned no damage and no damages were awarded. In terms of wrongful dismissal, it was found that the manner of Mr Russell’s dismissal was inconsistent with the implied term that termination could occur on reasonable notice. In spite of this, it was found that no damage had been suffered by the plaintiff as a result of the breach. Due to his reinstatement, there was no loss of income and no damages were awarded.
In making this judgement, Justice Rothman established that the contract of employment had a duty of ‘good faith’ implied, as well as an implied duty of trust and confidence where ‘the Church would not, without proper and reasonable cause, conduct itself in a manner calculated or likely to destroy or seriously damage the relationship of confidence and trust between the parties.’ Despite the fact that in this case, there was found to be no damage suffered as a result of the breach, in following cases, the opposite may occur. Perhaps in subsequent cases, additional
implied duties may be read to exist in employment contracts. Hence, the implied duties of ‘good faith’ and for an employer not to “conduct itself in a manner likely to destroy or seriously damage the relationship of mutual confidence and trust between the parties” have been read to apply in employment contracts.