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

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

A contract of employment comes into existence once an employee’s offer of services had been accepted, and the employer is required to issue a written statement of the main terms and conditions of employment.  Because the employment relationship is so extensive it is impossible to capture all the ‘intentions’ of the parties or ‘necessities’ of the employment relationship on that statement.  This means that the contract of employment – in addition to being represented in other forms – is also governed by implied terms, which allow the courts to ‘read in’ certain terms that are necessary to make the contract of employment work.  The test for implication of terms is ‘necessity’  and not reasonableness.

There are three ways of incorporating implied terms into the contract of employment  – by fact, by law, and custom.  A term implied by fact is specific to the particular contract of employment.  It would be implied that a doctor working in a hospital holds a medical license to practise.  Two tests are used to determine whether there is a term of specific implication - the business efficacy test of whether the term was necessary to make the contract work, and the officious bystander test of where an officious bystander to suggest the express provision of the term he would have been suppressed with a common “Oh, of course!” because the term seemed obvious and necessary to both parties.  If the parties would not have agreed a term, case law suggests that it cannot be implied by fact.  

The terms implied by law are obligations so fundamental that they apply to the status of being in employment.  These type of terms will either be implied in statute, as with provisions in the Equal Pay Act 1970 implying a pay equality clause into the contract of employment, or by common law because “specific duties ought to be attached to the type of contractual relationship in question”, such as an employee’s duty to faithfully serve his employer.

A term will be implied by custom if it reasonable and relevant to the ‘market, trade and locality in which it is made, unless the custom is inconsistent with the express terms of the contract’

Why is it necessary to imply terms into the contract of employment?

The main importance of implying terms to the contract of employment is that it allows for flexibility to incorporate important terms that have not be ‘caught’ or expressed in the statement of terms and conditions.  

I will evaluate the importance of implied terms by assessing the employment relationship in terms of the employee’s obligations to the employer and the employer’s obligations to the employee rather than providing a series of ‘light weight’ arguments.

The employee’s obligations to the employer include to the duty to obey reasonable orders, to exercise reasonable care and competence, to cooperate, to maintain fidelity and good faith.  The employer’s obligations to the employees include the duty to pay wages, to (sometimes) provide work, to exercise care and to cooperate.

Terms implied into to contract of employment help to protect the interests of the employer in a way that would be impossible if the written statement of terms where to form the only basis for an employment contract.  

The employee’s duty to obey lawful instructions is a ‘condition essential to the contract of employment.  Failure to adhere to reasonable instructions of the employer means that the employee is not fulfilling that which it is reasonable to expect him to do with regards to his employment contract and so could amount to a repudiation of contract.  

However an employee may be entitled to disobey instructions that are unreasonable or unlawful.

The interests of the employer are also protected by the implied term of fidelity and good faith to the employer.  An employee must not purposely act in such a way that would seriously damage the employer’s business.

This duty however, does not apply to all information learnt by the employee during the course of employment.  In Fowler v Faccenda Chicken Ltd, the court held that the employee was generally allowed, when his employment ceased, to apply the skill and knowledge he had acquired, but specific trade secrets remained the intellectual property of the ‘master’ and could not lawfully be used by the employee.

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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. ...

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