Critically analyse the development of the law in the area of implied terms, with particular reference to the burden/duties placed on the "employer" and the "employee".

Example Employment Law Essay

Implied terms play a very important role in the operation of employment law. As Middlemiss notes, "often prospective employees are faced with accepting the standard terms of an employer or not getting the job"1 and consequently "Employment law tries to offset this problem by inter alia introducing implied terms into the contract of employment."2 Employment law has developed implied terms that create duties for the employer and the employee. Of all the implied terms creating a duty for an employer, the duty of mutual trust and confidence is usually cited by commentators as being the most significant. Holland and Burnett note that this duty has become "a sort of 'default rule' in the governing of employment relationships"3, whereas Middlmiss notes that "It has been generally recognised that the most important implied term in the employment contract is the implied term of mutual trust and confidence."4 Accordingly it makes sense to examine the development of this term in some detail.

It is worth noting that this implied term arose for a very specific purpose. Davies comments: "It is generally accepted that its development was prompted by the decision in Western Excavating to adopt a contractual test for constructive dismissal."5 Davies also goes on to point out that the court in Western6 deliberately tried to limit the application of the term by expressly ruling out a general obligation of reasonable behaviour on employers.7 19 years later, what had begun in Western as aid to help courts determine whether someone had been constructively dismissed had become a duty upon employers to be implied into all employment contracts. This change was brought about by the House of Lords in Malik v Bank of Credit & Commerce International8 (BCCI). Lord Nicholls defined the term as being that an employer "would not...conduct itself in a manner likely to destroy or seriously damage the relationship of confidence and trust between employer and employee."9 In Malik two former employees contended successfully that BCCI had by carrying out dishonest and illegal business practices for which it gained widespread notoriety, breached this implied term. The House of Lords further found that an employer's trust-destroying conduct did not necessarily have to be targeted at any particular employee.10 Malik was a significant milestone in the development of implied terms because as Woodford comments, "The extent of the duty is potentially limitless."11 Unsurprisingly therefore use of this term as developed across a wide range of situations. For example in French v Barclays Bank plc12 an employee was provided with a bridging loan to help him relocate to another part of the country. However, Barclays then withdrew the loan which had the effect of forcing him to sell his house at a lower value than expected. The Court of Appeal held that the duty had been breached by Barclays altering the arrangement after the employee had relied upon it. In TSB Bank v. Harris13 the Employment Appeal Tribunal held that mutual trust and confidence had been breached by the TSB giving a reference for Harris which detailed complaints made against her but which had never been drawn to her attention while she worked at the bank. Moreover, an employee does not have to demonstrate that an employer intended a repudiatory breach of contract. For example in BG plc v. O'Brien14 it was held instead that an "Employment Tribunal must look at the employer's conduct as a whole and decide reasonably and sensibly that the employee could not be expected to put up with it."15

However the development of this term cannot be seen as a simple process of employees increasing their legal rights against their employers. This is because employers have also litigated to expand the use of this term against employees. As Smith comments: "One area of controversy in modern employment law is whether (and if so, to what extent) an employer should be able to justify dismissal on the ground that it has lost trust and confidence in the employee."16 For Smith, this development is going too far: "what it really involves is reversing the implied term of trust and confidence on to the employee, whereas its true nature is as an implied term on the employer (and its true home constructive dismissal)."17 An example of a dismissal upon the basis of a breach of this term being upheld is Williams v Leeds United Football Club.18 In Williams the employee was dismissed for using his "work email to send a junior female employee an email with an attachment containing a number of obscene and pornographic photographs."19 Lewis J upheld Williams' dismissal even though Leeds United's internet policy did not appear to provide for this outcome. Commenting on the case Salter & Bryden noted "the internet policy itself referred to such matters as being "serious disciplinary matters" which should therefore be treated as "serious" not "gross" misconduct, for which summary dismissal should rarely be a sanction."20 Lewis J did not accept this argument saying "The sending by a senior manager of obscene and pornographic simply not compatible, viewed objectively, with the role that the Claimant was employed to carry out at the Club."21

In another development, Wragg argues that employers are using this term to restrict employees' use of social media and considers this a serious attack on freedom of speech22 and argues that courts and tribunals are not robust enough in protecting employees' rights in this area. In his article he is concerned that employees are being punished for statements made outside of the workplace and not using an employer's IT system: "an employer might argue that the behaviour amounted to a significant breach of the implied term of mutual trust and confidence because...the conduct brought them into disrepute. Yet whether the level of harm required by the court/tribunal to satisfy this claim is sufficiently high enough to recognise an employee's right to free expression is debatable."23 He cites the case of Gosden v Lifeline Project Ltd24 in which the Employment Tribunal found that sending an offensive email from a home computer on a private account could still be sufficient to breach this implied duty even though the employer had not been able to demonstrate how its reputation had been damaged by this act.

Very closely intertwined with the development of the law on mutual trust and confidence is the development of an implied term to provide information - particularly where the economic situation of an employee is concerned. In Scally v Southern Health and Social Services Board25 junior doctors had complained that they had not been made aware of a time-limited provision to pay extra into the pension scheme in order to receive a larger final pension. The House of Lords held that when an "employee cannot, in all the circumstances, reasonably be expected to be aware of the term unless it is drawn to his attention...I take the view that it is not merely reasonable, but imply an obligation on the employer to take reasonable steps to bring the term of the contract in question to the employee's attention."26 However, subsequent case law has yet to develop this term into a more widely applicable duty to provide information. In University of Nottingham v Eyett27 the High Court considered whether an employer was under a duty to advise an employee if his choice of retirement date would have negative financial consequences. In that case an employee had discovered that had he waited one further month to retire, he would have been significantly better off. Hart J decided that no such duty could be implied and noted that "the recognition of such a duty has potentially far reaching consequences for the employment relationship. A degree of caution is therefore required."28 The Court of Appeal took the same approach in Outram v Academy Plastics29 where Tuckey LJ held that there was no general duty upon employers to provide advice to employees about their company pension.

Other implied terms have not developed been developed as widely - for example the implied duty upon employers to pay the employee. At first blush this term would appear to be significant as it touches upon the very reason why people wish to work in the first place. However Holland & Burnett note that this is area is significantly covered by statute. For example the Employment Rights Act 1996 Part II governs how employers may make pay deductions and the National Minimum Wage Act 1998 helps to prevent very low levels of pay. Discriminatory pay scheme are outlawed by the Equality Act 2010.30 Where issues of pay are not covered by statute, the courts have not been willing to extend this term to fill the gap. A good example of this is the issue of sick pay: in the absence of an express term, is there an implied term for sick pay in an employment contract? In Mears v Safecar Security Ltd31 the Court of Appeal held that there should be no presumption either way and that each case would turn on its own facts. Accordingly this particular implied term cannot be said to be particularly effective in filling in gaps in statutory coverage or in the employment contract itself. However the courts have been prepared to rely on this implied term in specific cases where there is not an issue of extending a general principle. This particularly seems to have been the case when disputes about share options have arisen. Holland and Burnett give the example32 of Levett v Biotrace International33 in which an employee had been denied his right to purchase shares in the company having been dismissed. The Court of Appeal held that as he had been dismissed in breach of the company's disciplinary procedure he was still entitled to exercise this option and that the employee had effectively relied on their own breach of contract to deny him this option. Another example is Mallone v BPB Industries plc34 in which the court ruled that if a share purchase scheme was worded to give the employer absolute discretion on dismissal to reduce any share option available to an employee that did not entitle the employer to reduce it to nil.

So in the development of the law of implied terms we can see contrasting forces operating. From the above we can see that use of the implied term of trust and confidence has clearly expanded since its inception in Western. Woodford notes this development with concern saying, "Recent cases have pushed the boundaries of this duty, applying it to a myriad of different employment situations."35 However, moving against this development is a clear desire from the judiciary to try and limit this development from creating further implied terms. For example the decision in Scalley on the provision of information was not allowed to develop in a completely new duty to provide information - as was demonstrated by the decisions in Eyett and Outram. In addition the courts have steadfastly maintained the limitation set up in Western that there should be no general obligation of reasonableness upon employers. For example Davies compares the approach of the judiciary in employment law cases against their approach in public law cases.36 He notes that despite there being a greater statutory basis for the use of reasonableness tests in employment law than in public law, "the courts seem determined to construe and apply the relevant statutory provisions in a way that limits their role."37 This caution is also demonstrated by the courts' treatment of the implied duty to pay. Whereas courts have been prepared to rely on this term to resolve problems with specific share option cases (e.g. Levett and Mallone) they have been unwilling to extend the implied duty to pay to any kind of general duty to pay sick pay as was shown by the case of Mears.

Other contrasting forces in this development are the balance of duties upon the employer on one hand and the employee on the other. We have seen that Middlemiss sees the role of implied terms in levelling the playing field between employer and employee whereas Woodford regards them as an ever expanding set of obligations upon the employer. In this area of development it would seem that implied terms still place more duties on the employee rather than the employer. As has been shown above, the duty of mutual trust and confidence has been held to apply to the employee as much as the employer. Moreover some implied terms are simply not reciprocal. For example there is an implied duty to take care of an employer's property but "Interestingly there is no corresponding duty placed on the employer to safeguard the employee's property."38 Finally it is important to note that regardless of ongoing developments, implied terms still operate within the standard principles of contract law. This means that although they have the same force as express terms, they will cease to be effective if there is an express term to the contrary. Moreover courts and tribunals will use them simply to make the contract work - not to make it reasonable.39 Although implied terms can be effective in curtailing the worst behaviour of employers, they will inevitably fall short against express terms. As contracts will almost always be written by the employer the balance of power will lie with them rather than employees and the development of implied terms has not fundamentally changed where power lies in the employer/employee relationship.


1 Middlemiss, S "The psychological contract and implied contractual terms: synchronous or asynchronous models?", International Journal of Law & Management Int. J.L.M. 2011, 53(1), page 32

2 Ibid

3 Holland J & Burnett S, "Employment Law", Oxford University Press 2014, page 71

4 Middlemiss, S "The psychological contract" page 41

5 Davies, ACL "Judicial Restraint in Labour Law", Industrial Law Journal, Ind Law J (2009) 38 (3): 278 at 296

6 1978 QB 761

7 "Judicial Restraint in Labour Law" at 296

8 1997 IRLR 462

9 Ibid at para 8

10 Ibid at para 14

11 Woodford, CCC "The duty of trust and confidence - A minefield for employers", Tolley's Employment Law Newsletter, ELN January 2003, 147

12 1998 IRLR 646

13 2000 IRLR 157

14 2001 IRLR 496

15 Middlemiss, S "The psychological contract" page 42

16 Smith, I "A position of trust", New Law Journal 2012, 162 NLJ 95.

17 Ibid

18 2015 EWHC 376 (QB),

19 Ibid at para 54

20 Salter, M & Bryden C "An own e-goal", New Law Journal 2015, 165 NLJ 7645

21 2015 EWHC 376 (QB) at para 61

22 Wragg, P "Free Speech Rights at Work: Resolving the Differences between Practice and Liberal Principle", Industrial Law Journal, Ind Law J (2015) 44 (1): 1

23 Ibid at p6

24 ET/2802731/2009

25 1991 IRLR 522

26 Ibid at p307

27 1999 IRLR 87

28 Ibid at p443

29 2000 IRLR 499

30 "Employment Law" p70

31 1982 ICR 626

32 "Employment Law" p70

33 1999 IRLR 375

34 2002 EWCA Civ 126

35 "The duty of trust and confidence - A minefield for employers", page 1

36 "Judicial Restraint in Labour Law"

37 Ibid at 305

38 "Employment Law" page 73

39 Ibid page 36