Robert Menzies writing in 1956, said of the history of our common law that "our intellectual tradition is inductive trial, error, trial, success, precedent". And, although he was drawing a comparison with the deductive tradition of continental Europe his remark spoke of something that, for all its imperfections, has redeemed the common law down the ages. For while the common law has been susceptible as much to atrophy as to activism, we have seen utility in its incrementalism and virtue in its flexibility.
The federal government's workplace reforms will aim to restore to a considerable extent the role of the common law in day-to-day employment relationships, Greater recognition of employment contracts and independent contractor relationships will enhance freedom of contract.
This is welcomed, but employers should not assume that the common law means only greater freedom. Sensible employers will appreciate that their obligations to employees will lie increasingly in contract and not in statute. They will not misunderstand this as encouragement to ignore obligations freely entered into. This is important for many reasons, especially in the area of dismissal.
First, the common law, far from being an inert legal landscape, has become the preferred battleground for employees, who have seen that statutory remedies rarely deliver more than a nominal remedy. In, say, unfair dismissal and breach-of-certified agreement cases, compensation is more limited than applicants assume, while reinstatement and fines seldom yield long-term advantages. Disgruntled former employees who successfully resort to common law remedies do so without legislative thresholds and ceilings, facing only the burden of proving the loss and damage they allege.
The common law surrounding employment has long recognised implied duties of good faith and fidelity. It is also recognising, with greater application, the duty of mutual trust and confidence, which is, very simply described, the duty to act fairly. Two 2004 House of Lords decisions in Eastwood and McCabe considered how this duty operates. While finding in each "case" that the duty of mutual trust and confidence imposes a duty to act fairly during one's employment, it does not extend to termination.
These decisions are, of course, not binding on Australian courts, but they form part of a trend suggesting that, while the duty at present does not extend to termination itself, it may be only a-matter of time before courts, including those in Australia, recognise what in effect will be a common law remedy for unfair dismissal.
The lesson? Employers should be careful when dismissing employees even after unfair-dismissal laws have been wound back.
Second, the implications for employers are not limited to common law developments that might expose them to new causes of action. In this new era of reform, an employer disregarding the manner of termination maybe powerless to enforce the employment contract after dismissal.
This is important in the area of restraints of trade. Employers often try to protect their goodwill by securing restrictive covenants from employees. Such covenants are pervasive but difficult to enforce. The Federal Court's decision in the so-called ICAP case in February, as well as the NSW Supreme Court's decision in the Aussie Home Loans case in April, illustrate these difficulties. In both cases, applications for injunctions restraining the employment activities of former employees were dismissed.
Courts presume that a restraint of trade is void unless the employer can prove it is reasonable to protect its assets. The presumption is justified by the public interest in competition and the imperative of preserving an employee's ability to earn a living.
Many employers do not realise that dismissing employees in breach of contract may release them from restrictive covenants they signed. An employee, say, who is wrongfully dismissed will say the employer's breach of contract amounts to a repudiation of that contract, discharging the employee from his obligations, including those owed under any restraint. If so, gameover.
Prudent employers won't interpret imminent legislative changes by the Howard governments an invitation to dismiss employees capriciously or without sound reasons. This depends at once on an apprehension of exposure under common law principles in a state of continuous evolution, as well as an understanding that you cannot enforce a contract you have not been prepared to honour.
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