In Commonwealth Bank of Australia v Barker, a managerial employee, Stephen Barker, was made redundant. The bank tried to redeploy him but its overtures did not reach him until shortly before his employment ended.

Barker began legal proceedings, alleging the bank had breached its redundancy and equal employment opportunity policies by not conducting "the termination or redundancy process in a bona fide and/or proper manner". His employment contract said those policies did not form part of the contract. Nonetheless, Barker claimed the CBA's actions constituted a breach of an implied contractual term of mutual trust and confidence, which obliged the bank not to, without reasonable and proper cause, conduct itself in a manner likely to destroy or seriously damage the mutual trust and confidence between it and him.

Federal Court justices Anthony Besanko (at first instance) and Peter Jacobson and Bruce Lander (on appeal) upheld the claim, relying largely on English authority. To them, the term was part of the inexorable progression from the traditional master and servant relationship to the modern employment paradigm: it "can be seen as consistent with the contemporary view of the employment relationship as involving elements of common interest and partnership, rather than of conflict and subordination".

If the full Federal Court's ruling had remained untouched, it would have implied a mutual trust and confidence term into every employment contract in Australia as a matter of law. Obviously, such a significant development concerned employers. The CBA (perhaps encouraged, if not supported, by other "big end of town" employers) decided to pursue the matter.

In a unanimous decision across three judgments handed down last month, the High Court ruled against Barker, holding that a term of mutual trust and confidence was not implied into his contract with the bank – nor, as a matter of law, into any other contract of employment in Australia. In short, the court held it was not necessary for an employer contract to have implied into it such a term as a matter of law for the contract to be effective.

Given the widespread ramifications of such an implication – it was referred to as "a Trojan horse" and, mixing metaphors, tantamount to crossing "the Rubicon that divides the judicial and the legislative powers" – the court also considered it "a matter more appropriate for the legislature than for the courts to determine".

The lack of an implied term of mutual trust and confidence is relevant to public sector employees because, despite the statutory nature of their employment, an employment contract still exists between employees and the Commonwealth, state or territory (as the case may be). As such, terms can still be implied at common law into public sector employment relationships – such as a duty of good faith and fidelity on the employee's behalf – unless a particular statute precludes the implication.

South Australia v McDonald provides an interesting example of the latter. McDonald was a public school teacher in South Australia employed under that state's Education Act. He contended the SA Education Department had breached the implied term as to mutual trust and confidence in the way it had addressed certain grievances of his. The state's Supreme Court, anticipating Barker in a way, found that "the statutory and regulatory context in which Mr McDonald's contract of employment operated made the implication of a term concerning mutual trust and confidence unnecessary". It is thus possible that other implied duties that survive (or may survive) Barker might not apply or have their implication modified in the public sector employment context.

Further litigation, though, will be necessary to provide clarity in that regard, and may come to the fore following Barker's deliberate failure to address the implied term of good faith.

Described rather aptly by Sydney University academic Joellen Riley as "siblings but not twins", mutual trust and confidence's "brother", "good faith", requires that parties to a contract act so as to enable both of them to enjoy fully the benefits of the contract. Thus, NSW Supreme Court Justice Stephen Rothman, at first instance in Russell v Trustees of the Roman Catholic Church for the Archdiocese of Sydney, suggested:

In the context of an employment relationship, if there exists a duty to act in good faith "it imports a requirement that the person doing the act exercise prudence, caution and diligence", which would mean due care to avoid or minimise adverse consequences to the other party.

In her judgment in Barker, High Court Justice Susan Kiefel observed that "the question whether a standard of good faith should be applied generally to contracts has not been resolved in Australia" and, since it was not argued at hearing, "it is therefore neither necessary nor appropriate to discuss good faith further, particularly having regard to the wider importance of the topic". The majority judgment contained similar remarks.

Given its nebulous meaning, after Barker, "good faith" will likely replace "mutual trust and confidence" as the (some might say "Hail Mary") alternate argument in employment disputes, where the more established causes of actions are unavailable. Until the court decides otherwise, it would be sensible for APS agencies to consider the Australian Government Solicitor's recommendation: government agencies should "endeavour to act as a model employer [by acting] honestly and reasonably, and with prudence, diligence, caution and due care".

While it may have inadvertently heeded Bon Jovi's advice to "keep the faith", it is only a matter of time before High Court considers the term's Barker equivalent. In the meantime, alleged breaches of the implied term of mutual trust and confidence will be replaced by that of good faith, and public servants have one fewer avenue for relief when the employment relationship turns sour.

John Wilson is the managing legal director at Bradley Allen Love Lawyers and an accredited specialist in industrial relations and employment law. john.wilson@bradleyallenlove.com.au