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Discuss the Balance of Implied Contract Terms

Info: 2873 words (11 pages) Example Law Essay
Published: 6th Aug 2019

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Jurisdiction / Tag(s): UK Law

‘A survey of the leading cases dealing with implied contractual terms would suggest that the judges’ decisions almost always favour the employee’. Critically discuss this statement.


Implied Terms are terms introduced into contracts either by statute1, custom2 or the courts.3 Traditionally, terms were implied by courts based on necessity and reasonableness.4 There are two categories of terms implied by courts: terms implied in law and terms implied in fact. Terms implied in fact are those terms implied in order to give effect to the intention of the parties. These derive their application from the contract of employment itself, and as such are not consistently applied.

On the other hand, those implied in law are those terms consistently applied by the court regardless of the intention of the parties.5 An example of this is the implied term of trust and confidence, usually implied into all contracts of employment unless expressly excluded6 and which has formed the basis for a lot of dismissal litigation hence, this essay will primarily focus on the cases where the implied term of trust and confidence was in issue. This will be done by first considering implied terms in employment contracts generally, followed by a survey of the leading cases and lastly, an evaluation of the cases will conclude the essay on whether judicial decisions does indeed favour employees

Implied Terms in Employment Contracts

Implied terms have been regarded as a necessity in employment law for a number of reasons. Firstly, contracts of employment do not usually give a complete picture of the contract between the parties; secondly, gaps may exist in the contract of employment which implied terms can help to fill; and thirdly, the unequal bargaining power between employer and employee makes it imperative.7 Some terms may be so obvious that the court will imply it into the employment contract as reflective of the intention of the parties.8 Occasionally, the custom and practice of an employer may also be used to interpret contractual employment terms.9 However, this is not automatic.10 In Quinn v Calder Industrial Materials Limited11, payment of enhanced redundancy based on a policy document known to the employees informally, was held not to have contractual effect in negation of the custom argument.12 Nevertheless, if the custom is widely practised in the particular industry or trade, the Courts are more willing to imply it into the contract. See Sagar v Ridehalgh & Son Ltd13 where the court upheld the custom of reducing wages, prevalent in the weaving industry in Lancashire, for poor workmanship.14 The conduct of the parties during the negotiation of the agreement may also be relevant for implying certain terms into the contract, although once the contract is concluded, subsequent conduct cannot be used in this way.15

Some implied terms have an overriding effect over express terms of the contract. Two such terms with this effect are: mutual obligation of trust and respect16 and the employer’s duty to take reasonable care of the employee’s health and safety.17 By virtue of S. 2 of the Unfair Contract Act 1977, the duty to take reasonable care cannot be excluded by contract. The implied term of trust and respect on the other hand is a mutual obligation which employer and employee have to abide by and is primarily used to control abuse of management’s powers18. The cases below will consider whether the courts have favoured employees in its decisions.

A Survey of Leading Cases

Most of the employment cases that reach the courts centre on the duty to maintain mutual trust and confidence. The implied term of trust and confidence first gained prominence in Malik & Mahmud v Bank of Credit and Commerce International SA.19 The facts are as follows, two employees who lost their jobs in a bank brought a claim for compensation on the basis that their association with the bank had disadvantaged them from finding a new job. The misconduct was the running of a corrupt and dishonest business by the bank. The Court held that there was an implied obligation of an employer not to operate a corrupt business, breach of which will entitle an innocent employee to resign. The court noted that if the misconduct was known to the employee while he was still in employment, it will be treated as a repudiatory breach otherwise he will be entitled to damages if no longer in employment.

In reaching this decision, the court considered that ’employment creates a personal relationship’ based on mutual trust and respect. Where an employer engages in harsh and oppressive behaviour or other unacceptable conduct, this is likely to undermine the trust and confidence required for the continuity of the employment relationship, in which case an employee will be entitled to walk away.20

This decision seemed to create a haven for employees to obtain compensation where the employer’s conduct becomes so intolerable as to lead the employee to resign.

The courts in Malik v BCCI justified the necessity of applying the implied term as facilitating the proper functioning of the contract. However, in RDF Media Group Plc v Clements,21 the court recognised the mutual obligation of both parties to the contract and refused to favour the employee when he had been guilty of misconduct himself. In that case, Mr Clements signed a non-compete agreement for 3 years; sixteen months into the contract, he resigned to join a rival firm. He tried to renegotiate the restrictive agreement, which his company refused. Thereafter, RDF made some damaging remarks about him to the press, following which he instituted proceedings for damages alleging constructive dismissal. The Court held that the relationship between RDF and Clements had already been damaged by Clement’s resignation to join a competitor during the pendency of the non-compete agreement.

The Courts have also applied this term as a means of regulating employment relations need and to prevent an employee from constantly snooping around in order to gather information which he may afterwards use against the employer. In Brandeaux Advisers (UK) Ltd v Chadwick,22 the defendant sent a large number of documents containing confidential information to her private email for the purpose of retaining them in the event that she needed any of the documents to show the nature of her work environment and to prove her performance in the company. The defendant copied a vast majority of confidential company information without sorting for relevance as she claimed she had no time to do so and knew that most of what she copied would be irrelevant. The Court noted that her manager had been very harsh and critical of her and treated her in an objectionable manner but considered that The defendant could not be relied on to perform her duty to keep confidential information and allowing her claim constructive dismissal would open the doors to employees constantly holding on to information in order to be able to use it against the employer in future.

Similarly, tribunals recognise that the court’s duty is to strike a , a balance and not to indulge in the whims of employees. In Morrow v Safeway Stores plc23 an employee resigned, alleging constructive and unfair dismissal, because she had been told off twice by her manager in front of staff and customers in a bakery supermarket. The Employment Appeal Tribunal (EAT) noted that though the public criticism was a breach of the implied term of trust and confidence, it was not serious enough to found a claim on constructive dismissal. Similarly, in Quinn v Weir Systems Ltd24 where an employee resigned after hearing rumours that he was to be made redundant, his claim for constructive dismissal failed as the EAT did not consider him to be in an intolerable position.

The Court will however, protect an employee where the employer engages in underhand tactics and conduct capable of undermining confidence. In Tulett Prebon Plc v BGC Brokers LP & Ors,25 BGC Brokers tried to recruit brokers from Tulett by offering them a higher remuneration and inducing them to enter into forward contracts which required them to join BGC once they were free to do so. Some brokers who had signed the contracts changed their minds and refused to join BGC. The Court held that the brokers could refuse to honour the contracts if they felt that the trust and confidence they should have in the employer had been eroded because of the manner in which they were recruited

Although sometimes the protection of the employee goes beyond what is reasonable.. In Buckland v Bournemouth University Higher Education Corp26 the court upheld the employee’s claim of constructive dismissal even though the employer had tried to remedy its actions. The case concerned the remarking of examinations papers which the claimant already marked with a high rate of failure, resulting in a similar failure rate. . The Claimant’s complaint led to an inquiry being set up by the university which. criticised the board of examiners in its report and made proposals for improving rules and practice in the department.

However, the Claimant wasn’t satisfied with the report arguing that his integrity as an examiner had been impugned. unsatisfied and resigned with the resignation to take effect several months later when his obligations to his students would have ended The issue which came before the courts was whether an employer who has committed a fundamental breach of contract can cure the breach while the employee is considering whether to treat it as a dismissal, came up for consideration. Presumably, the setting up of the inquiry with its resultant report should have cleared the misconduct. The tribunal at first instance held that the university had through its conduct destroyed the relationship of trust and confidence which is implied in all contracts of employment and that the inquiry did not exonerate the integrity of the claimant which had been impugned. On appeal the Court held that a completed breach once it has occurred cannot be undone and . that a fundamental breach if cured takes away the innocent party’s option of acceptance and it is undesirable to introduce such a rule into employment law.27

The implied term of trust and confidence seems to be entrenched in the English legal system; however, its effect is waning in other parts of the globe. See the US Supreme Court’s decision in Dore v Arnold Worldwide Inc., 39 Cal. 4th 384 (2006) 28 and the recent Australian case of Commonwealth Bank of Australia v Barker 2014 HCA 32 where the High Court of Australia held that the implied term of trust and confidence does not exist under Australian Common law and it was not necessary to impute such a term into employments contracts since its purpose serves to maintain the relationship between the parties rather than enhance the functioning of the employment contract.29 In New Zealand, however, it is still very much relevant.30

From the discussion above, it seems that implied terms tilts towards the employees with the term of trust and confidence growing to become the most favourable and encompassing term for employees. Even though, such a notion has been rejected on the basis that this term is on equal footing with all other terms.31 Especially since it can be excluded from the employment contract.32 However, Brodie33 argues against allowing employer’s contract out of this term implying that employees stand to lose if this term is excluded. Nonetheless, the Court’s duty is to maintain a balance between the employer’s freedom to run his business as he deems fit and the protection of the employee from harsh exploitation.34 The courts are mindful of this duty and this is reflected in the Court’s decision in Johnson v Unisys Ltd35 where an attempt to use Malik v BCCI to gain a higher compensation than that provided under the Employment Rights Act 1996 was rejected. Though, it has been suggested that this decision was based more on the unwillingness of the Court to move into a territory occupied by legislation,36 arguably, had there been no legislation existing, the Courts would have developed implied terms further using the necessity rule.37


Therefore, though some judicial decisions seem to be in favour of employees, it is not arbitrarily decided without regard to the employer’s interests. Employees are in a weaker position in the bargaining contract and the Court has to take this into consideration when applying implied terms. However, where an employee is itself guilty of breaching the employment contract, the court does not allow it benefit from the breach. In this way, the Courts strive to maintain balance between the sometimes competing interests of employer and employee. Its application of implied terms in employment contracts is utilised as a tool to ensure the proper functioning of the employment contract, which is neither geared towards the employer or the employee. is used


1 For example, Sale of Goods Act 1979

2 Used mostly in commercial contracts but such customs must be reasonable and widely practised

3 See Ewan McKendrick Contract Law: Text, Cases and Materials (2nd edn, OUP 2005) 370

4 ibid

5 ibid, 380

6 ibid

7 See Ian Smith and Nicholas Randall, Contract Actions in Employment Law: Practice and Precedents (2nd edn, Bloomsbury Professional 2011) para 3.14

8 See FL Memo Ltd, Employment 2006: Law and Practice Human Resources (FL memo Ltd 2006) para 1172

9 See Ian Smith and Nicholas Randall (n 7) Para 3.16

10 See FL Memo Ltd (n 8) Para 1180

11 1996 IRLR 126

12 See also Albion Automotive Ltd v Walter 2002 EWCA Civ 946, CA

13 1931 1 Ch 310

14 See FL Memo Ltd (n 8) Para 1178

15 ibid Para 1176

16 See United Bank Ltd v Akhtar 1989 IRLR 507 which regarded duty of trust and respect as an overriding obligation

17 See Ian Smith and Nicholas Randall (n 7) Para 3.19

18 See David Cabrelli, Employment Law in Context: Text and Materials (OUP 2014) 192

19 1997 UKHL 23

20 per Lord Nicholls of Birkenhead

21 2007 EWHC 2892 QB

22 2010 EWHC 3241

23 2002 IRLR 9

24 2001 IRLB 673

25 2011 EWCA civ 131

26 2010 EWCA Civ 21

27 per Sedley LJ Para 43; see also LJ Jacob’s dissenting view on this point where he stated that the wronged party should have the choice of affirming the contract or leaving.

28 cited in Jonathan Fineman’s ‘The Inevitable Demise of the Implied Employment Contract’ (Sep 2007) Click here to read the article accessed 28th June 2015

29 Ashurst Australia, ‘Employment Alert: What You See is What You Get – High Court Finds No Implied Duty of Trust and Confidence’ (10 September 2014) Click here to read the article accessed 2nd July 2015

30 See Gordon Anderson, Roger Bianpain and Michele Colucci, Labour Law in New Zealand (Kluwer Law International 2011)

31 See David Cabrelli, ‘The Implied Duty of Mutual Trust and Confidence: An Emerging Overarching Principle?’ 2005 34(5) ILJ 284

32 See Hugh Collins, Keith Ewing and Aileen McColgan, Labour Law (CUP 2012) 137

33 See Douglas Brodie, ‘Beyond Exchang: The New Contract of Employment’ 1998 27(2) ILJ 79

34 ibid

35 2001 UKHL 13

36 See Joellen Riley, ‘Before the High Court – ‘Mutual Trust and Confidence’ on Trial: At Last’ 2014 36 Sydney Law Review 151, 155

37 See Douglas Brodie, ‘How Relational is the Employment Contract’ 2011 ILJ 232, 237-238

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