What is the importance of implied terms to the contract of employment

A statement from Kentucky Fried Chicken’s website discloses that for years its ‘secret formula’ for fried chickens was carried in ‘head’, but is today ‘locked away in a safe in Louisville, Ky. Only a handful of people know that multi-million dollar recipe.”

Should one of those people trade this ‘secret formula’ it could cost KFC its niche in the chicken market.  

Although there may be express terms in the contract dealing with confidential information, the duty of fidelity is such a fundamental term that the courts, where necessary, will imply it into the contract of employment.  

A duty to cooperate with the employer is also fundamental to the employee’s contract of services.  In Secretary of State for Employment v ASLEF (No.2), the court implied that obeying a lawful instruction could be  ‘rendered unlawful by the motive or objective with which it is done’ because it was done with an uncooperative state of mind in order to frustrate the contract.  Had the courts not implied that term of cooperation, the employer may not have been able to prevent the employees from treating the working rules as absolute terms of employment rather than as a reflection of managerial prerogative, thus working against the commercial interests of the business.

Creswell also extended this duty of cooperation in implying into the contract of employment that an employee was obliged to adapt to new working methods, complex methods for which the employer should provide training.

These cases show that had these duties not been implied into the contracts of employment, the contracts would just not be able to ‘work’ – employees would be unproductive for the businesses.

Now let me consider the importance of implied terms from the perspective of the employee. The individual’s bargaining power is usually limited when ‘agreeing’ his terms of employment hence the terms are often accepted on a ‘take it or leave it’ basis.  Implied terms thus serve as the vehicle through which the courts and Parliament give employees additional rights and protection in the employment relationship.  

The common law protection offered by implied terms to employees is centred largely on the duty not to undermine the trust and confidence of the employee.  Malik v BCCI confirms this development in the modern employment of the employer taking on some of the responsibility for the physical and psychological welfare of the employee. In Malik, an employee whose employers had engaged in fraudulent activities so that the stigma affected his employability was told by the trial judge that there was no term in the contract of employment which required the employer to put the employee in a good position for employment, should the current employment be terminated.  The House of Lords unanimously overturned this decision, holding that the employer had breached an implied term of the contract not, without reasonable and proper cause, conduct business in a manner likely to damage the relationship of mutual trust and confidence with the employee.  In this case, the employability on the appellants was based on their reputation of trust, and the conduct of the dishonest conduct of the appellants made them unemployable.

This implied term of mutual trust and confidence is now being widely interpreted to cover arbitrary treatment of the employee, entitling him to treat such arbitration as repudiation of contract or constructive dismissal.  This was certainly the case in United Bank v Akhtar, where it was implied that an express mobility clause was subject to an implied term of reasonable notice of transfer - the employer had conducted itself in a manner that had destroyed the relationship of mutual trust and confidence with the employee by requiring him to move in such a short notice period.

Similarly, failures to protect an employee from sexual harassment and to respond to the employee’s concern on safety issues have been held to breach the implied term of trust and confidence.

It can be implied into the employment contract the duty of the employer to take reasonable care for the safety of the employee.  But for this implication, an employee could still be under the ‘master-slave’ relationship compelling him to obey the employer’s every instruction even at a detriment to his personal health

The employer’s obligation to pay agreed remuneration was implied when an employee whose wages were cut was entitled to the difference between what was paid to him and his contractual entitlement in wages.  

The point to be made had the courts not implied these terms, it is very unlikely that those rights and interests of the employees would not be protected.

Social constraint on powers of employer.

Collective agreements can provide a benefit to the employer by harmonising labour costs throughout an industry

Implied doesn’t protect employee completely. Emp can only get protection if its incorporated

Privity of Contract

Roger Halson suggests that implied terms interfere with the privity of contract.  His argument is that where there is a provision in the express terms which states that it will override any implied term, the courts have no business in ‘interfering’ because it damages the expectation of the parties in a contract which has already been agreed.  A mobility clause, for example, is created on the expectation that based on the need for businesses to responding to changing circumstances, employees can be required to meet such change - to limit their effect by introducing an implied term restricting the right to move the employee to an area within travelling distance of is home is to work against the interest of the business.

Halson also argues that most of the implied terms are too general and overlap with one another.  The duty of fidelity covers the use of confidential information, making a secret profit and duty to work normally, duty to account, loyalty, goodwill, good faith p129, Ch 7.  This gives the courts unlimited discretion to formulate ‘meaningless’ policies rather than imply terms as the particular employment relationship requires.  He argues that the obligation of trust and confidence is a dangerous concept because it ‘relates to a state of mind that cannot be assessed’, and is capable of ‘suspending’ all the other terms of the contract over the flimsiest.

Halson concludes it unlikely the courts will treat express terms as overriding implied terms in order to maintain the ‘grip’ they have on interpretation of contracts.

While I agree with Halson on the issue that some of the implied terms overlap thereby creating too much of a wide scope for ‘reading into’ the employment contract, there can be no doubt about the importance of the implied terms to the contracts of employment not least because they help to compensate the employee for his unequal bargaining power in negotiating the contract of employment.  Any unilateral variation of the written statement of terms and conditions will be subject to implied terms where necessary thereby nailing the coffin in the nineteenth century imagery of a master-servant relationship.

Ho w, if at all, do the terms generally implied into the contract of employment cause it to differ from other forms of contractual arrangement?

The labour force in the UK comprises of workers employed under a contract of employment or of services – employees and individuals working under some other form of contractual arrangement.  The most common other form of arrangement is as a self-employed independent contractor working under a contract for services.  There are, however, special classes of workers that do not technically conform to the traditional categories of employee or independent contractor (although they may sometimes be classified as either for certain purposes).

Let me briefly look at these special types of workers that are ‘employed’ under other forms of contractual arrangements.

Apprentices or trainees may be employed under trainee or apprenticeship contracts where the employer agrees to teach and them in his trade, and to maintain them during the existence of that relationship.

‘Servants’ of the Crown may be held to work under a contract but it appears that they may be treated as employees for some purposes and otherwise for other purposes.  Military personnel cannot successfully sue the Crown for breach of contract.

Office holders include those in positions of authority in public or private institutions, such as policemen, board of governors of school, clergy, trade union leaders, etcetera.  They cannot be dismissed without being told of their offence and being given an opportunity to present their case.  An assistant curate had no private law contract transforming him into an ‘employee’ and so he was an office holder.

The employment status of agency workers is ambiguous, but where the relationship has the qualities applicable in a contract of employment the worker has been classified as an employee.

The determination of a worker’s employment status is a question of fact, determined by the working circumstances.  

Implied terms can cause the contract of employment to differ from, say a contract for services. The essential difference is that under a contract of employment, the mutual duties and obligations between the employee and the employer are protected by the implication of terms into the contract where as there is marginal scope for ‘reading into’ the contract for services - far less obligations outside those which are contained in the express terms of the contract are imposed on the working relationship.

 

This does not mean that some terms such as duty to pay contractually agreed remuneration and health and safety at work do not apply to a contract of service, but the implied terms in the contract of employment impose higher standards and obligations in the employment relationship such as the duty of mutual trust and confidence, than would be found in contracts for services.  Certain legally implied terms are only available under the contract of employment.  The Court of Appeal, for example, in Lane v Shire Roofing Co (Oxford) Ltd emphasised that where the issue involved was safety at work the tribunal should lean towards finding that the individual was an employee.  This judicial direction shows the judicial implication of a higher duty of care from the employer to an employee under the contract of employment over workers under a contract for services.

Some rights such as maternity and paternity leave and pay only accrue to employees

Essentially, employers owe more stringent duties to employees because of terms implied into the contract of employment.

In Ferguson v John Dawson & Partners (Contractors) Ltd [1976] 1 W.L.R. 1213, the court looked at the true relationship between a labourer and the company which he had been working for to find that although the labourer was been regarded as a "self- employed labour-only sub- contractor", other indicia showed that he was a contractor, and hence the employer was liable for the breach of an implied statutory duty to provide reasonable safety for the employee.

Contracts of employment that incorporate implied terms differ from other forms of contractual arrangement in that they make it easier for the employee to terminate the contract and sustain a claim when an implied term has been breached whereas with these other forms, repudiation depends largely on breach of the express term.   This is why it was held in Daley that the employer had no implied obligation to protect an apprentice from discrimination – that implied term would only apply if she were an employee under a contract of employment.

If vicarious liability were implied into the contract of employment it would mean that employees could be indemnified against a tort committed; in general employers are not vicariously liable for the negligence of independent contractors or workers employed under various forms.

Sometimes, it would appear that the terms implied into contracts of employment do not cause it to be so dissimilar from other forms of contractual arrangement.

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