Employment as a relational contract and the impact on remedies for breach

ABSTRACT

The notion of employment as a relational contract has received much academic attention and is gradually being recognised by common law courts in judicial decision-making. This article focuses on a primary question: what impact, if any, could that relational classification have on the remedies available where an employment contract is breached? Given that this question has not yet been considered judicially, and only mentioned in passing in academic writing, this article seeks to probe the question by traversing existing judicial and academic understandings of employment contracts as relational in nature. It then considers the potential impact that the relational classification may have on the remedies available to employees whose employment contracts have been wrongfully terminated by their employer. Three options are put forward in respect of the potential impact on the remedy available for breach, each of which is underpinned by a combined theoretical and doctrinal analysis. First, it is suggested that awards for specific performance may become more prevalent. Secondly, there may be a place for a special category of relational damages. Finally, it is acknowledged that the relational classification may end up having no impact on the available remedy at all.

KEYWORDS:

• Employment law
• contract law
• relational contract theory
• remedies
• breach of contract
• wrongful termination

Acknowledgements

I thank the anonymous referees for their helpful comments on a previous version of this article. Any errors or omissions remain my own.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 Cf, in the context of relational contracts generally, Campbell (2005); Macaulay (2007).

2 It is well-established that a term will be implied by law into a class of contract, so long as it is deemed necessary: see, eg, Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 448–53; Breen v Williams (1996) 186 CLR 72 at 103. These categories are not closed: see, eg, Castlemaine Tooheys v Carlton & United Breweries (1987) 10 NSWLR 468 at 487. As to the test of necessity for implying a term by law, see generally: Golding (2015).

3 (2014) 253 CLR 169.

4 Commonwealth Bank of Australia v Barker (2014) 253 CLR 169 at [37].

5 See, eg, Dicey (1885) Preface to the First Edition vii, cited by Harlow (1994) p 426: ‘possible weakness [of purely doctrinal legal analysis] as applied to the growth of institutions, is that it may induce men to think so much of the way in which an institution has come to be what it is, that they cease to consider with sufficient care what it is that an institution has [– and therefore could] become’. See also, Prassl (2015) p 9.

6 This study revealed that in certain circumstances, business people have little regard to the law of contract when they enter into business transactions, make adjustments and resolve disputes. Instead, it is their relationships that typically have a significant impact on the way in which they deal with one another: see, eg, Macaulay (1963).

7 See generally, Macneil (1978); Macneil (1983); Campbell (ed) (2001). For a separate discussion on relational contract theory, see, eg, Goetz and Scott (1981); Campbell (ed) (2001); Campbell, Mulcahy and Wheeler (2013).

8 Campbell (2001) pp 15–16.

9 See generally, Feinman (1987). Cf, Macneil (1988a).

10 See, eg, Macneil (1987a) p 277.

11 See, eg, Macneil (1988b) p 9.

12 ‘Exchange occurs in various patterns along a spectrum ranging from highly discrete to highly relational’: Macneil (1987b) p 275.

13 See generally, Macneil (1986).

14 Macneil (1974a) pp 736–7.

15 Macneil (1978b) p 12.

16 See generally, Macneil (1978b).

17 See generally, Brodie (2011).

18 (2003) 128 FCR 1. Many of these features are also highlighted in academic texts on relational contracts: see, eg, Campbell (ed) (2001), cited in Brodie (2016a) p 150.

19 GEC Marconi Systems Pty Limited v BHP Information Technology Pty Limited (2003) 128 FCR 1 at 63–5.

20 See, eg, Brodie (2016a) 146.

21 [2019] EWHC 606. See also, the earlier decision in Yam Seng Pte Ltd v International Trade Corp Ltd [2013] EWHC 111 where the English High Court of Justice had suggested that certain types of long-term contract were relational in nature, meaning that the court would be more willing to imply a duty of good faith. This same stance was later reiterated by Leggatt LJ in Sheikh Al Nehayan v Kent [2018] EWHC 333.

22 Bates v Post Office Ltd (No 3) [2019] EWHC 606 at [725].

23 For a summary of the early academic literature dealing with this debate, see, eg, Freedland et al (eds) (2016) pp 3–7. See also, Brodie (2016b) p 124; Collins (2015) p 46; Collins (1986) p 10; Golding (2019) pp 174–6.

24 For an academic consideration of the employment contract as a relational contract, see, eg, Freedland (2003) pp 88 and 90–2; Brodie (2011); Brodie (2016a); Collins (2013); Bird (2005); Boyle (2007); Levin (2002); Cohen (2012).

25 Boyle (2007) p 634.

26 Boyle (2007) p 637.

27 Brodie (2016a) p 146.

28 Commonwealth Bank of Australia v Barker (2014) 253 CLR 169 at [33].

29 Commonwealth Bank of Australia v Barker (2014) 253 CLR 169 at [37].

30 Brodie (2016a) p 145, citing Brodie (2016b).

31 See, eg, Collins (2016).

32 Brodie (2016a) p 145.

33 Scott (2013) p 116.

34 Brodie (2016a) pp 145–6.

35 Brodie (2016a) p 149.

36 Brodie (2016a).

37 Brodie (2016a).

38 Brodie (2016a) p 201.

39 Brodie (2016a) pp 160–1.

40 Brodie (2016a) p 161.

41 Dixon (2005) p 94.

42 See, eg, the following scattered examples concerning such commercial transactions in the common law world: Dymocks Franchise Systems (NSW) Pty Ltd v Bilgola Enterprises Ltd (1999) 8 TCLR 612 at [236] (regarding a retail business franchise), affirmed on other grounds in Dymocks Franchise Systems (NSW) Pty Ltd v Todd [2002] 2 All ER 849; Flyn v Breccia [2015] IEHC 547 (regarding an agreement between shareholders for the acquisition of shares in a business); Bobux Marketing Ltd v Raynor Marketing Ltd [2001] NZCA 348 at [42] (regarding a distribution agreement); GEC Marconi Systems Pty Limited v BHP Information Technology Pty Limited (2003) 128 FCR 1 at [351] (regarding a software development contract); Bates v Post Office Ltd (No 3) [2019] EWHC 606 at [725] (regarding contracts between the Post Office Ltd and sub-postmasters). The notion of a relational contract has also been used in scholarly literature concerning certain kinds of commercial agreements, including franchises, distributorships and other long-term business arrangements: see, eg, Goldberg (1980); Goetz and Scott (1981); Speidel (2000); Mulcahy and Andrews (2010); Mitchell (2013); Campbell (2014).

43 Citing Johnson v Unisys [2003] 1 AC 518 at [20], as well as the work of Ian Macneil and Stewart Macaulay: see, eg, Macneil (1980); Macaulay (1963), as discussed in Brodie (2016b).

44 Johnson v Unisys [2003] 1 AC 518.

45 (2009) 104 SASR 344.

46 See, eg, Commonwealth Bank of Australia v Barker (2014) 253 CLR 169 at [16]–[18].

47 Johnson v Unisys [2003] 1 AC 518 at [20].

48 [2014] EWHC 2482.

49 C v T Borough Council [2014] EWHC 2482 at [71]–[72], noting that the reasoning in this decision is very similar to that in the abovementioned decision in Johnson v Unisys [2003] 1 AC 518.

50 See further, Tan (2019) pp 117–8.

51 See, eg, Commonwealth Bank of Australia v Barker (2014) 253 CLR 169 at [16]–[18].

52 Commonwealth Bank of Australia v Barker (2014) 253 CLR 169 at [16]–[18]. For further consideration of the distinction between implication and construction, see, eg, Courtney and Carter (2014); Carter et al (2015); Riley (2005) ch 3; Peden (2003) ch 2; Carter et al (2007) ch 2; Peden, (2000); O’Grady (2016); in the context of employee remuneration, Moir (2011) pp 132–6. That said, ‘both conceptions seem maintainable’: Hogg (2012) p 272.

53 See, eg, the array of academic commentary on the concept listed above at n 14.

54 Boyle (2007) p 633.

55 The existence of the mutual trust and confidence term (or a substantially similar term) has support in a range of other common law jurisdictions, including the United Kingdom, Bermuda, South Africa, Hong Kong, Tonga, Vanuatu, Fiji, New Zealand and Canada (at least to some extent). See the applicable authorities from these jurisdictions cited in Stewart et al (2016) p 525.

56 Commonwealth Bank of Australia v Barker (2014) 253 CLR 169 at [36]–[37]. For other recent summaries of the decision and its implications, see, eg, Carter et al (2015); Chighine (2015); Reynold (2015); Golding (2015); Golding (2016); Brodie (2016c); Gray (2015).

57 Commonwealth Bank of Australia v Barker (2014) 253 CLR 169 at [42].

58 For a separate consideration of these two duties, including a discussion as to their controversy and potential similarity, see, eg, Riley (2012); Golding (2017) ch 4.

59 See, eg, Collins (2013) p 65. For an overview of employment as a ‘psychological contract’, see, eg, Guest (2004); Rousseau (1989); Rousseau (1995) p 9; Chaudry et al (2009); Coyle-Shapiro et al (eds) (2004). This idea has sometimes been adopted for the analysis of legal issues: see, eg, Stone (2001). Beyond these references, the idea of employment as resting on a psychological contract is not considered further in this article.

60 See, eg, Stewart et al (2016) p 759.

61 See, eg, Stewart et al (2016) p 759. Cf, Oldcastle v Guinea Airways Ltd [1956] SASR 325; Vision Eye Institute Ltd v Kitchen [2014] QSC 260.

62 See, eg, Stewart et al (2016) p 759.

63 See, eg, Rothenberger Australia Pty Ltd v Poulsen (2003) 58 NSWLR 288 at 300–1.

64 See, eg, Robinson v Harman (1848) 1 Ex Rep 850 at 855.

65 See, eg, Stewart et al (2016) pp 764–5, noting that remuneration for this purpose can extend beyond wages or salary and may also include the pecuniary benefit of other benefits that the employer is obliged to provide.

66 See, eg, Brodie (2016a) pp 145–6.

67 See, eg, Brodie (2016a) pp 145–6.

68 Mitchell (2019) p 75.

69 See, eg, Robinson v Harman (1848) 1 Ex Rep 850 at 855.

70 Stevens (2009) p 172.

71 Friedmann (1995) p 629.

72 (1931) 45 CLR 282.

73 I J C Williamson Ltd v Lukey and Mulholland (1931) 45 CLR 282 at 297–8.

74 Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 428. See also, Jarrett v Commissioner of Police (NSW) (2005) 224 CLR 44 at [7] and [30]; Bostik (Australia) Pty Ltd v Gorgevski (1992) 36 FCR 20 at 32 and 37.

75 Chetwin (2014) p 81.

76 For example, an order for specific performance cannot be made where a wrongfully dismissed employee has elected to terminate the contract: Re Associated Dominions Assurance Society Pty Ltd (1962) 109 CLR 516 at 518; specific performance is usually refused as a matter of discretion where the employer lacks sufficient trust in the wrongfully dismissed employee: Gregory v Philip Morris Ltd (1988) 80 ALR 455 at 481–2; damages are usually found to be the adequate remedy for dismissed employees: Reilly v Victoria (1991) 5 VIR 1 at 11.

77 See, eg, Stewart et al (2016) p 762, citing Bostik (Australia) Pty Ltd v Gorgevski (1992) 36 FCR 20 at 36–8; Quinn v Overland (2010) 199 IR 40 at [97]–[104]; Ewing and Grubb (1987); Furness (1989); Creighton, Ford and Mitchell (1993) pp 264–88; Brodie (1998).

78 GEC Marconi Systems Pty Limited v BHP Information Technology Pty Limited (2003) 128 FCR 1 at [224].

79 GEC Marconi Systems Pty Limited v BHP Information Technology Pty Limited (2003) 128 FCR 1 at [224].

80 See, eg, Chetwin (2014) p 81.

81 See, eg, those reasons already referred to above at n 66.

82 Barnett (2016) p 165.

83 Campbell and Halson (2013) p 483.

84 Campbell and Harris (2002) p 221.

85 See generally, Macneil (1982) pp 957–8.

86 Al-Tawil (2011) p 450.

87 Bunge SA v Nidera BV [2015] UKSC 43 at [12].

88 See, eg, WT Partnership (Aust) Pty Ltd v Sheldrick (1999) 96 IR 202; Quinn v Gray (2009) 184 IR 279, where it was found that the relevant employer’s wrongful dismissal of the employee denied the employee the chance to seek out alternative employment during the agreed notice period, therefore giving rise to an award of damages for the value of that lost opportunity.

89 Bird (2005) p 150.

90 See, eg, Stewart et al (2016) p 768.

91 See, eg, Tucker v Pipeline Authority (1981) 3 IR 120; Beck v Darling Downs Institute of Advanced Education (1990) 140 IR 364; Burazin v Blacktown City Guardian Pty Ltd (1996) 142 ALR 144 at 147–51; Commonwealth Bank of Australia v Barker (2013) 214 FCR 450 at [152]–[158]; Shaw v New South Wales (2012) 219 IR 87 at [62]–[107]; Aldersea v Public Transport Corp (2001) 3 VR 499 at [61]–[66].

92 See, eg, Moore v Scenic Tours Pty Ltd (2020) 377 CLR 209 at [39]–[58]; Baltic Shipping Company v Dillon (1993) 176 CLR 344 at 361 and 395; Aldersea v Public Transport Corp (2001) 3 VR 499 at [61]–[66] and [95]; New South Wales v Paige (2002) 60 NSWLR 371 at [132]–[139] and [155].

93 See, eg, White v Australian and New Zealand Theatres Ltd (1943) 67 CLR 266.

94 See, eg, Baltic Shipping Company v Dillon (1993) 176 CLR 344 at 363, 365, 370–1, 381–2, 405; Burazin v Blacktown City Guardian Pty Ltd (1996) 142 ALR 144 at 149–51.

95 See, eg, Falcko v James McEwan & Co [1977] VR 447.

96 Bridge (1984) p 364.

97 See, eg, Halson (2015).

98 For examples of Australian judges questioning the judicial-law making role, see, eg: Swearing in of Sir Owen Dixon as Chief Justice (1952) 85 CLR xi, during which Sir Owen Dixon expressed a faith in ‘a strict and complete legalism’; Gleeson (2000), who warned of the dangers of judicial creativity; Hayne (2001), who expressed his support for traditional jurisprudence with its bedrock in rules and precedent; Callinan (1994), who, before his appointment to the High Court, denounced the judicial activism exhibited by the High Court, advocating for a swift restoration of strict legalism; Doyle (1995), who expressed reservations about the nature of judicial law-making. With respect to the judicial law-making role in relation to employment contracts, see generally, Golding (2016).

99 See especially, Addis v Gramophone Co Ltd [1909] AC 488 at 494: ‘I have always understood that damages for breach of contract were in the nature of compensation, not punishment … ’. See also, Reed v Madon [1989] Ch 408; Ruxley Electronics v Forsyth [1995] 3 All ER 268 at 270e and 282b–c.

100 See, eg, Halson (2015) p 216.

101 (1854) 156 ER 145.

102 Collins (2016) p 2.

103 See, eg, McKendrick (1995) pp 309–10: ‘In a relational contract … it is suggested that legal remedies play a secondary role … and that non-legal factors … play a critical role in the resolution of disputes’.

104 The divergence away from a reliance on formal contractual remedies was first mentioned in Beale and Dugdale (1975) pp 53–9. This same view was later espoused in Harris, Campbell and Halson (2005): ‘[T]he overwhelming conclusion of empirical studies is that formal remedies are not used in continuing contractual relationships’. See also, Campbell and Clay (1995) pp 54–5.

105 See, eg, the arguments put at above n 66.

106 See, eg, Galanter (1983) pp 121–4; Menkel-Meadow (1984) pp 764–94.

107 See generally, Mnookin and Kornhauser (1979).

Additional information

Notes on contributors

Gabrielle Golding

Gabrielle Golding, Lecturer in Law at the University of Adelaide and member of the Adelaide Law School’s Work and Employment Regulation Research Group and Commercial Law Research Group.