7
Implied terms

Aims and Objectives

After reading this chapter you should be able to:

• ■ Understand the nature of implied terms and how terms are implied into contracts by statute or by common law
• ■ Understand why the common law implies terms into employment contracts
• ■ Understand the duties owed by employers to employees
• ■ Understand the duties owed by employees to employers
• ■ Be able to critically analyse the concept of implied duties
• ■ Be able to apply individual categories of implied terms to factual situations

7.1 The process of implying terms

7.1.1 The nature of implied terms

As we have already seen, while employment law is an area that is heavily influenced by statute as well as by EU law it is also in essence a specific area of contract law. All contractual relationships are based on terms either agreed by the parties before entering the contract or implied by process of law by the courts or by statute.

All implied terms are of two types:

Statutory implied terms in the employment contract

Implied terms appear throughout contract law and, because of the nature of the employment relationship, have a significant role to play in employment law. Employment law, and in particular employment protections, have traditionally been subject to regulation by statute and subject also to continuous change. Inevitably this reflects the different attitude of conservative and socialist governments to employment. Many of the subsequent chapters of this book in effect deal with the insertion of terms into employment contracts through statutory intervention and by which both parties to the contract are bound. A classic example of a statutory implied term is the insertion of the so-called 'equality clause' into all contracts of employment by s1(1) of the Equal Pay Act 1970, which has now been overtaken by the Equality Act 2010 to reflect developments in EU law.

Common law implied terms in the employment contract

A simple scan of a chapter on terms in any contract law text will also identify that terms can be implied by the courts, either as a question of fact or by process of law. Implied terms of this type have developed in a very specific way in employment law and we generally refer to them as the 'implied duties' of both employers and employees.

The basic proposition is that, in those circumstances where the parties (which in the case of employment contracts almost inevitably means the employer) have failed to insert an express term into the contract to meet a particular contingency or a particular aspect of the specific employment relationship, the court or tribunal will, if necessary, imply terms into the contract to cover that contingency or the particular feature of the employment relationship which is in dispute.

This point can easily be illustrated in two contrasting cases:

Clearly the court is basing its judgment on the facts of the case and the circumstances of the particular type of employment. In this way the courts will not automatically imply mobility clauses into all employment clauses, only those where the actual working practices reflect a real need for mobility. A contrasting outcome can therefore be illustrated in another case.

7.1.2 The process of implying terms into contracts

It is inevitable that courts and tribunals will only be asked to imply terms into a contract, including a contract of employment, when a dispute has already arisen between the parties and the parties are in disagreement as to what the actual terms of the contract are.

The court is then being asked to look at the contractual agreement with hindsight in order to determine what the presumed mutual intention of both parties was at the time the contract was formed. This is necessarily an artificial process because the parties clearly already have different viewpoints so that one at least is going to be disappointed with the result.

The original justification for implying a term into a contract by fact was expressed as the need to give business efficacy to the contract. In other words the contract would be rendered commercially meaningless if the term was not included in the contract even though no express mention had been made of it at the time when the contract was formed.

The other classical test for determining how and when a term will be implied into a contract is that developed by McKinnon LJ in Shirlaw v Southern Foundries Ltd [1939] 2 KB 206 CA, the so- called ‘officious bystander test’.

The language is somewhat strange but the point is simple and straightforward, terms can be implied into a contract where they are so obvious to the effective completion of the contract that they 'go without saying'.

In determining what would obviously be included as a term in the employment contract despite a failure to incorporate it expressly courts and tribunals have been prepared, for instance, to look at trade custom. In this way courts have accepted that certain terms can be implied where they are 'certain, notorious, and reasonable'.

However, the employee must be aware of the precise custom and have accepted it as part of the employment contract and this must be demonstrated for the court’s satisfaction for it to be enforceable against him. It is not sufficient merely that the employee is working at the same time as being aware of the custom.

The process of implication of terms has in any case moved on in the field of employment contracts and the argument very often now, rather than involving either what produces 'business efficacy' or what is the presumed intention of the parties, focuses instead on what is reasonable in all the circumstances of the case.

Again both the history of what has gone on during the contract and what is reasonable in the circumstances are both relevant in deciding the outcome.

As a result in many cases the courts are able to imply terms quite easily based on what is reasonable in the circumstances.

The precise effect of implied terms on the express terms has also been subject to a change of attitude by the courts. In Rank Xerox Ltd v Churchill [1988] IRLR 280 the attitude of the EAT was that where the contract of employment included an unambiguous mobility clause then this could not be modified purely by inclusion of an implied term that such a clause should be exercised reasonably. However, a significant turning point in the attitude of the courts has been not just to accept the inclusion of such implied terms but also to see them as overriding the express terms.

A much broader view has then been taken in the context of employment law to the implication of terms. This broader view has also in effect modified the original test of business efficacy. In this way the test, in an employment context has now has been widened to the extent that certain terms will be implied simply because the relationship of employment exists and, as Lord Bridge described it in Scally v Southern Health & Social Services Board [1991] IRLR 522 HL, the term is one:

This builds on the comment already made by Lord Reid in Sterling Engineering Co Ltd v Patchett [1955] AC 534:

This category of implied terms has been developed in a very structured way in employment contracts and we now refer to these implied terms as ‘duties’. These duties are of two different types:

• ■ implied duties owed by the employer to the employee
• ■ implied duties owed by the employee to the employer.

It must be remembered, however, that the categories of implied terms, while currently falling into neat established groupings, are not absolutely fixed but are in fact expanding.

While the employer, for instance, owes employees trust and respect (see 7.2.5 below), this basic duty has been developed and expanded so that now it is also possible to say that the employer should not treat his employee arbitrarily or vindictively.

Indeed some terms are now implied irrespective of intention of parties because they are considered to be so important in the context of the employment relationship. A classic example of this is the development of a law on protection of the mental health and psychiatric well-being of the employee (see Chapter 16.3). As such they may automatically override express terms in the contract, even though the test is less absolute for other implied terms.

7.2 The implied duties of employers

As identified above, a variety of implied terms have been accepted by the courts over a period of time which can be categorised into groups, known as the implied duties of the employer.

7.2.1 The payment of wages

The duty to pay wages is still a fundamental common law principle, although the area is now heavily regulated by statute. Every employee should receive an itemised pay statement (see Chapter 6.1). However, in the absence of express details in the contract or related documentation such as collective agreements, the court will declare a reasonable amount on a quantum meruit (literally for the amount earned).

Moreover, an employee who is ready and willing to work may be entitled to wages even though there is no work currently available.

The same principle can be seen operating in a slightly different way in the case of Devonald v Rosser [1901] 2 KB 653 (see 7.2.2 below) where it was held that pieceworkers should be given enough work to make their normal earnings.

7.2.2 The provision of work

The basic traditional view was that there is no absolute 'right to work'. As a consequence there is similarly no obligation on the employer to provide work for the employee.

As an example of the principle this was possibly meaningless to the average employee of the time. Nevertheless, the court did recognise that the basic principle inevitably had exceptions where the failure to provide work could amount to a breach of duty by the employer:

• ■ Where there was an existing obligation to provide work.
• ■ Where the employee gained his income solely from, for example, commission or piecework, meaning that it would be impossible to earn a wage unless work was provided. The point has been established in the case of commission Turner v Goldsmith [1891] QB 544 and in the case of piecework Devonald v Rosser & Sons [1906] 2 KB 728, where the claimant, a pieceworker, in other words paid by the ‘piece’ of work rather than a set wage, was given one month’s notice but no work to do after his employer ceased trading and he successfully sued for damages.
• ■ Where public performance was an essential feature of the contract and a failure to provide work might lead to a loss of reputation.

This is particularly true of employment in a theatrical, musical or entertainment context because the opportunity to work may have a value independent of pay.

The categories have subsequently been added to by the courts to reflect the realities of modern employment situations.

• ■ Where expert employees with specific skills are involved.

This has developed out of the 'garden leave' cases (see Chapter 6.1). Employers often impose lengthy notice periods on highly specialist employees on full pay but with no work, possibly to prevent the employee going to a rival company and carry with them recent expertise or expert knowledge. In Provident Financial Group plc and Whitegates Estate Agency Ltd v Hayward [1989] IRLR 84 the Court of Appeal identified that the employer could only impose such conditions if there was a clause to that effect in the contract. It also recognised that the publicity exception could extend beyond actors and musicians to other areas of skilled and specialist work. This has subsequently been accepted.

The point has been expanded since in SG & R Valuation Service v Boudrais [2008] IRLR 770. Here the court qualified the position in that those with a right to work in such circumstances hold it subject to a breach of contract indicating that they are not willing and ready to work.

Another and even more interesting approach was taken by the Court of Appeal in Langston v AUEW [1974] ICR 180.

7.2.3 The care of the employee

A basic duty has developed to take care of the health, safety and welfare of the employee and this has expanded significantly in recent years. Health and safety law is a massive area in its own right and is covered in detail in Chapter 13.

There has been intervention both by domestic statutes and as a result of EU law. There has also developed, however, a basic common law duty owed under the contract. This may be significant since the measure of damages is obviously different between contract and tort.

However, the House of Lords (now the Supreme Court) has held in Tai Hing Cotton Mill Ltd v Chong Hing Bank Ltd [1986] that the courts should not simply find the existence of a duty in tort where the same duty exists in contract. The basic obligation is that the employer must provide a safe system of work, safe premises, safe work colleagues and safe plant and equipment.

The duty has developed over time so that it includes the psychiatric well-being and general welfare of the employee.

However, the duty is towards the employee so there is no duty to care for his property.

A logical development of this is that there is no duty to care for the employee’s general economic well- being.

There is also no duty to provide personal accident insurance for an employer working abroad, or to provide any specific advice Reid v Rush & Tompkins Group [1989] IRLR 265 CA.

(N.B. Much more detailed consideration of this area of the duty is given in Chapter 16 on common law health and safety law.)

7.2.4 The duty to indemnify

The employer is under a duty to indemnify the employee for all expenses that are necessarily incurred in the course of employment. In many ways this is a very straightforward duty. It obviously applies to all expenses that naturally arise out of the employment. This quite commonly includes, for example, travel expenses where it is required to travel during work hours, board and lodging or hotel bills, and even purchases necessarily made in the course of employment. Quite often the payment of such expenses is agreed beforehand and may be identified as an express term of the contract.

The situation may be more complex where the expense involves the payment of fines or defending legal proceedings against the employee.

The same basic principle can be adopted in other situations where the employee is facing legal proceedings in respect of something that occurred during the course of the employment and was therefore done on behalf of the employer.

7.2.5 The duty of mutual trust and respect

The duty of mutual trust and respect is probably the widest and most significant of the employer’s duties. The actual width will vary from employment to employment. However, it essentially means that the employer must be conscious of good personnel practice, take appropriate steps towards training and improving standards, and fair and appropriate disciplinary procedures.

The duty has its origins in the nineteenth century, at which point it was very limited in scope. Inevitably, with the introduction of unfair dismissal and constructive dismissal, the concept has grown as the traditional idea of hire and fire at will has disappeared.

In short the basis of the duty is that the employee should be treated fairly and with respect by the employer. It is therefore, a breach of the duty where the employer does anything that would undermine the relationship and prevent the contract from continuing in the manner which was envisaged when it was formed.

The duty can apply in many situations. An obvious example from Arden v Bradley [1994] IRLR 490 is that the employer should not unilaterally change the pay or status of an employee.

Obviously the personal relationships within an employment environment are significant in maintaining a good working environment as well as maintaining trust and respect. Criticising an employee in front of colleagues is clearly damaging to the relationship.

A rational extension of the principle is swearing at staff or using abusive language, or indeed of provoking the employee into anger or frustration where he might use abusive language as a result.

Another logical extension of the principle is that the employer should not be deliberately provocative towards an employee. In Donovan v Invicta Airways Ltd [1970] 1 Lloyd’s Rep 486 CA the employee resigned claiming a number of instances where he had been treated unfairly. Although the court held these to be an irritation rather than sufficiently substantial to amount to a breach, it did hold that an employer should show sufficient courtesy and consideration to his employee to allow the contract to continue.

It could also be a breach of the implied duty if the employer treats employees differently by providing one or more with a benefit that is barred to others. In BG plc v O’Brien [2002] IRLR 444 an employee was denied the opportunity given to other employees of signing a changed contract which contained better redundancy payments. This was a breach of the implied duty because, as it was suggested, this could damage the trust and confidence between employer and employee, and may even be calculated to do so.

Harassment, and more precisely a failure to deal with it, could also amount to a breach of the duty. Where this leads to a claim of constructive dismissal by the employee who feels unable to continue work in the circumstances it could also amount to an unfair dismissal.

The later case of Reed & Bull Information Systems Ltd v Stedman [1999] IRLR 299 EAT identified that, if an employer has reason to suspect harassment, it has a duty to investigate and take action, not wait for a formal complaint.

The duty inevitably also has a context in respect of the employee’s reputation. As a result where the actions of the employer may impact on the employee’s future prospects this may also be a breach of the duty.

7.2.6 The duty of confidentiality

The duty of confidentiality owed by an employer mirrors that owed by the employee. The employer is under a duty not to pass on information to third parties which is relevant only to the employment and not public knowledge.

The EC Data Protection Directive 95/46 and the Data Protection Act 1998 also offer similar protections.

7.2.7 The duty to deal with grievances promptly

While grievance procedure is a separate issue dealt with in Chapter 15.1 of this book, it has also been accepted that there is an implied duty to deal with grievances promptly. Where an employee raises a formal grievance within his employment the subject of the grievance is clearly something that is causing distress. For this reason it is important for maintaining a good working relationship that the issue is sorted out as quickly as possible to avoid further distress. In fact Codes of Practice confirm this point.

7.2.8 The giving of references

Another of the duties owed by employers to their employees has largely developed in fairly recent times. This is the duty to take care and not be negligent in the drafting of references that they provide.

The case was a significant development for employees since previously their only remedy would have been through defamation law where they would have been prevented from seeing the reference unless they could prove malice. In negligence, however, they would be entitled to thorough discovery of documents.

The approach to dealing with negligently prepared references has since been developed by the Court of Appeal. In Bartholomew v London Borough of Hackney [1999] the court increased the duty to ensuring that information provided is accurate and that the reference does not create any unfair impression. It has also been developed still further.

7.3 The implied duties of employees

7.3.1 The duty to obey lawful and reasonable instructions

The duty to obey lawful and reasonable instructions originates with the master and servant rules developed in the nineteenth century, which also at that time included a master’s right to chastise (see Chapter 1.4.1). Now it is much more to do with the necessity of cooperation in order to satisfy the needs of the contract.

Obviously provided the order is both lawful and reasonable then it should be obeyed and a refusal could amount to a breach of the contract justifying dismissal. In this respect the contract itself is significant.

Express mobility clauses have, however, been the subject of some controversy and of different treatment by the courts. In Bass Leisure Ltd v Thomas [1994] IRLR 104 the EAT held that the principle on mobility clauses from Claydon should not automatically be followed. In High Table Ltd v Horst [1998] ICR 409 it was suggested that the proper test was a factual one so that the existence of a mobility clause in a contract did not mean that an employee could automatically be transferred if his current place of work was his expected place of work. Besides this, in United Bank Ltd v Akhtar [1989] IRLR 507 (see 7.2.5 above) suggested that mobility clauses, in any case, should be exercised reasonably.

Clearly a dismissal for a breach of the duty can be justified because in essence it destroys the basis of the contract and makes it unworkable.

By definition, of course, this means that there is no obligation on an employee to obey an order that is unlawful. In fact the employee could be said to be under a duty to disobey such instructions.

It is equally clear that there is equally no obligation on an employee to obey an order which is unreasonable.

However, the risk must also be a real one. In Walmsley v Udec Refrigerators Ltd [1972] IRLR 80 an employee was dismissed after refusing to travel to a place in Ireland. His argument that it was hotbed of IRA activists and he was therefore in danger could not be substantiated so his refusal was a breach of his contract.

What is reasonable may also have to be measured against good industrial relations. In Payne v Spook [1984] IRLR 219 EAT a foreman was asked to compile a merit table of the performance of employees and send out warnings to those on the bottom of the table. Since he did not see all of the employees each week he refused and was threatened with dismissal. Since the system was unfair a dismissal for refusing to apply it was unfair also. However, in Robinson v Flitwick Frames Ltd [1975] IRLR 261 a dismissal for a refusal to work overtime, which was not a contractual obligation, was fair because all the other workers complied and this would have in effect meant different employees operating on different terms.

One other important point is that it is the refusal itself which amounts to a breach rather than necessarily the manner in which the refusal is made.

7.3.2 The duty to exercise reasonable care and skill

An employee, on appointment, undertakes to perform the work competently and taking all reasonable care and skill. A failure to show such competence and skill can therefore amount to a breach of the implied duty. This was identified at an early point in Harmer v Cornelius [1858] 5 CBNS 236 (although the case actually involves a representation by the worker that he had the necessary skill to carry out the work).

So an employer might be able to recover for incompetence or lack of skill by the employee that has caused a loss to the employer.

Another aspect of the duty obviously involves taking appropriate care of the employer’s property.

7.3.3 The duty to adapt

In an ever changing economy and with technology constantly developing it is inevitable that working practices change over time. The duty to adapt is not an absolute duty on the employee without qualification as this would be to demand of an employee what he never contracted for in the first place. However, where an employer does need to change working practices, unless the changes are so fundamental as to change the very nature of the job, then employees should be willing to adapt to necessary changes.

On the basis of this it was accepted by the court in Connor v Halfords Ltd [1972] IRLR 109 that a dismissal for a refusal to attend training necessary to adapt to new methods is a fair dismissal. Such a refusal is a straightforward breach of contract by the employee.

7.3.4 The duty of faithful service

The duty of faithful service, sometimes known as the duty of fidelity again goes back to the development of master and servant rules in the nineteenth century (see Chapter 1.4.3).

The original aspects of the duty included:

• ■ the duty to be honest;
• ■ the duty not to compete with the employer;
• ■ the duty of confidentiality;
• ■ the duty to disclose misconduct.

There has also been suggested a general duty not to harm the employer’s business in any way.

The duty to be honest

The duty could include simple acts of dishonesty. For instance in Denco Ltd v Joinson [1992] IRLR 63 the employee was dismissed when it was found that he had used a password without authorisation to gain access to confidential records in a computer. The dismissal was fair.

It could also include acts which while the employee might argue are not dishonest in fact could be seen as a breach of good faith. For instance in Sinclair v Neighbour [1967] 2 QB 279 an employee borrowed money from a till. Even though he intended to pay it back and had left an IOU, it was held to be a breach.

Another aspect of the duty is that the employee should not make a secret profit or bribe out of his employment.

The duty not to compete with the employer

In general the courts accept that an employee can do whatever he likes in his spare time. On this basis they dislike prohibiting spare time activities unless they harm the employer.

While an employee may be able to indicate a future intention to compete with his employer, for instance in a business capacity, it would be a breach of the duty of fidelity if the employee was to compete during employment. In Adamson v B & L Cleaning Services Ltd [1995] IRLR 193 EAT a foreman tendered for the renewal of a cleaning contract which his employer currently held. His dismissal for refusing not to tender was fair, as he had breached his duty.

The duty of confidentiality

The general duty is not to misuse confidential information. There may be a difference in the application of the rule between existing employees and ex-employees. In the case of existing employees the rule is strict and may cover the employee’s own skill and knowledge. In Bents Brewery Co Ltd v Hogan [1945] 2 All ER 570 Lynsey J stated:

To decide if information is confidential leading to a breach, if it is disclosed it must:

• ■ have the necessary quality of confidence;
• ■ be imparted to the employee in circumstances which create an obligation of confidence;
• ■ involve an unauthorised use of the information to the disadvantage of the employer.

In Foster v Scaffolding Ltd [1973] IDS Brief 13 a dismissal was upheld as fair when an employee had passed information to a rival company to the disadvantage of his employer.

Where the employee has left the employment then restrictions on disclosure are probably limited to trade secrets and client contact. These may then be the subject of a valid restraint of trade clause if reasonable (see Chapter 6).

The employer failed to gain the injunction because it had not included an express restraint clause in the contract to protect its business interest.

It will, however, be a straightforward breach of the duty where the ex-employee in effect 'poaches' clients away from his ex-employer. In Sanders v Parry [1967] 2 All ER 803 an assistant solicitor set up in independent practice by taking one of his ex- employer’s main clients with him. This was a clear breach of the duty.

In the case of employee inventions the traditional position was that the employer is entitled to the inventions of the employee if made during the course of employment and are referable to the employment. In British Syphon Co Ltd v Homewood [1956] 1 WLR 1190 the company discovered a new type of soda siphon and the chief technician applied to patent it but failed.

The position is now covered by s39 Patents Act 1977 under which employee inventions only belong to the employer if (a) they were specifically assigned, whether made in the course of employment or not, or (b) they were made during the course of employment and the employee was under an obligation to further the employer’s interests. Under the Copyright Designs and Patents Act 1988 an employer may be the first owner of copyright of literary, dramatic, musical and artistic work.

Of course there are also situations which act as exceptions to the basic rule where an employee might be obliged to breach confidentiality. One such instance would be where the employee is under a legal duty to provide necessary information to a health and safety inspector under the Health and Safety at Work, etc. Act 1974. Another example is the duty of a doctor, not only to his patient’s confidentiality, but to the public good. In W v Egdell [1990] Ch 359 Scott J recognised that there was not only a duty of confidentiality to a patient but also a duty to the public in situations where failure to disclose information might expose the patient or someone else to the risk of death or serious harm.

There is also an exemption to the principle under the Public Interest Disclosure Act 1998 in the case of a so- called ‘protected disclosure’ (sometimes called ‘whistle- blowing’). This is one where the employee has disclosed confidential information and has been dismissed and has disclosed information that is confidential to his employment because he reasonably believes:

• ■ that a criminal offence has been, is being or is likely to be committed; or
• ■ that a person has failed, is failing or is likely to fail to comply with legal obligations; or
• ■ that a miscarriage of justice has occurred, is occurring or is likely to occur; or
• ■ that the health and safety of an individual has been, is being or is likely to be damaged; or
• ■ that the environment has been, is being or is likely to be damaged; or
• ■ that information relating to any of the above has been, is being or is likely to be deliberately concealed.

The employee only needs a reasonable belief in any of the above and the disclosure must be made to:

• ■ the employer or another responsible person; or
• ■ a legal adviser; or
• ■ a Minister of the Crown (if the employee was appointed by such); or
• ■ a prescribed person e.g. a local authority.

(N.B. the issue of 'whistle- blowing' will be considered again in Chapter 22 under unfair dismissal.)

The duty to disclose misconduct

While there is no general absolute duty on an employee to disclose misconduct, it could in specific circumstances be seen as a breach of the duty of faithful service. This area of the law has certainly developed as an element of the fiduciary duty of directors who, while executives, are still employees. It was certainly an issue that was raised in the cases below.

The case has been distinguished in similar circumstances but where there was a genuine mistake of fact which was the basis on which the contract was formed. On this basis the mistake would be operative.

The duty not to harm the employer's business in any way

One final aspect of the duty of faithful service that has been considered by the courts concerns the extent to which an employee has to cooperate with the employer. The question is of obvious sensitivity when set against trade union rights and trade union action. Courts in dealing with the issue have been keen to show that an employee should not be doing anything that is harmful to the employer’s business.

The potential consequences of applying this aspect of the duty go beyond the issue of fair or unfair dismissals, and the principle has been extended in more recent times.

In fact another extension of the principle is that a wrongful act by an employee that harms the employer may still be a breach of the duty even if it does not benefit the employee in any way (as the railwaymen’s action above could have done if it had succeeded). For instance, in Dalton v Burton’s Gold Medal Biscuits Ltd [1974] IRLR 45 a dismissal of an employee who clocked in a fellow employee falsely was upheld as fair.