Implied Terms for Employers

Introduction
Contrary to what some employers and employees may believe, the express terms of a contract of employment are not the be all and end all of the contract. 

Terms that have been implied into the contract under the common law add to the contract to create further obligation for both parties. Some terms may be implied to reflect the presumed, but unexpressed, intention of the parties - in other words they plug the gaps left by the expressed terms.

These could include matters such as a sales representative having to hold a valid current driving licence in order to carry out his/her job, and to a large extent could be said to be in the parties' contemplation even when not expressed in contract.

Perhaps more controversial are the terms which may be implied automatically by law, whether or not the parties would have agreed to them or not. These terms are sometimes called 'imposed terms', and have come into existence because the courts consider them to be appropriate in the employment relationship rather than because an employer would want to see such a term incorporated in the employment contract.

Employee Implied Terms Include:

  • Duty to serve - employees impliedly agree to serve their employer by being ready and willing to work, and will breach this duty if they refuse to be available for work.
  • Duty to exercise reasonable skill - employees impliedly warrant that they possess reasonable skills for the work that they have agreed to undertake, and that they will exercise reasonable competence in undertaking it. This duty extends to employees adapting to new methods and techniques in performing their duties where the employer supplies necessary and adequate training.
  • Duty to obey reasonable and lawful orders - employees impliedly agree to obey the reasonable and lawful orders of the employer within the scope of their contractual obligations. This extends to required employees to be flexible in relation to the orders given, particularly where new technology is involved.
  • Duty of confidentiality - employees impliedly agree not to use or reveal to any third party any confidential information or trade secrets relating to the employer or its clients that the employees have obtained in the course of their employment. This duty is of particular importance to employees who leave their employment as it continues (albeit in a more limited form) after the employment has terminated.
  • Duty of fidelity - employees impliedly agree to serve the employer loyally and in good faith and not to act against the employer's interests. This is an especially wide-ranging duty that subsists throughout the employment up to the termination date, and consists of:
    • Not misusing the employer's property.
    • Not soliciting the customers or clients of the employer in order to transfer their custom to the employee once he/she has left employment.
    • Not setting up in direct competition with the employer (although the duty does not extend to prevent an employee from seeking alternative employment whilst still employed).
    • Not disrupting the employer's business.

Employer Implied Terms Include:

  • Duty to pay wages - this term is nevertheless conditional upon an employee earning his/her wage or salary by carrying our work for the employer, or at least serving the employer by being ready and willing to perform work.
  • Duty to provide a reasonable amount of work - in the case of a skilled employee, the courts may be prepared to imply that companies have this duty in order that the employee maintains his or her particular skill set. This implied term can be very relevant when considering the enforceability of garden leave would lead to a diminution in an employee's marketable skills.
  • Duty of health, safety and welfare - an employer impliedly agrees to take reasonable care to ensure it employees' health, safety and welfare at work. This duty extends to taking reasonable care not to cause psychiatric harm to employees by reason of the character of volume of the work imposed on them. However, a recent UK case has ruled that there is no general duty to take care for an employee's economic well-being.
  • Duty to provide a safe working environment - employers are under an implied obligation to provide and maintain, so far as is reasonably practicable, a working environment that is suitable for the performance of the contractual duties of employees. This duty may be breached, for example, where an employee is being bullied at work by fellow employees of exposed to passive smoking.
  • Duty not to terminate a sick employee's contract of employment on the grounds of sickness - where that employee, if he/she continued employment, would have become entitled to receive PHI benefits.

The mutual duty of trust and confidence - each party to a contract of employment should not, without reasonable and proper cause, conduct itself in a manner likely to destroy or seriously damage the relationship of confidence and trust between employer and employee.

Examples of what may constitute an employer's breach of the duty of trust and confidence include:

  • Unjustified criticism and/ or continual criticism over a period of time.
  • Failure to investigate properly an employee's grievance.
  • Reprimanding a senior employee in front of other employees.
  • Failure to follow company procedures.
  • Deceiving an employee.
  • Limiting an employee's authority in key areas.
  • Falsely accusing an employee of theft on the basis of flimsy evidence
  • Giving unjustified warnings in order to dishearten an employee and drive him or her out of employment.
  • Causing psychiatric injury to an employee.

In essence, the duty covers the concept of fair dealing on the part of the employer.

Breach of implied terms
So what happens if an employee or employer breaches any of the implied terms of employment?

This will depend on the implied term in question and the seriousness of the breach. Employees are likely to use the breach to claim damages or as a means of justifying a constructive dismissal. Employers are more likely to use a breach as a reason for instituting disciplinary action and/or justifying dismissal, or, when there has been a breach of implied duty of confidentiality, as a means of obtaining an injunction against the employee to prevent further breaches.

Practical pointers

  1. Before putting an employee on garden leave, consider the length of the notice period and the nature of his/her skills sets. The longer the notice period and the more skilled the employee, the more likely it is that the employee could challenge the requirement to stay at home and 'garden'.
  2. There is a legal argument that an express contractual term which entitles an employer to terminate an employee's employment will override the implied duty not to terminate in these circumstances.
  3. The UK courts have suggested that the provision of counselling service will go a long way to assisting an employer to show that it took such steps as were reasonable practicable to prevent harm to its employee's psychiatric health.

True or false?
"David used to work in our trust administration department. Before he went off on four month's sick leave with a bad back, he expressed an interest in moving to the company administration department. During his time off sick we created a new post in the company administration department. However, we did not notify David of the vacancy on account of his lack of experience. When David found out about the new post, we told him that it had been filled. He believed that he would have been suitable for this post and has now resigned claiming constructive dismissal. He won't have a leg to stand on though, as we have done nothing wrong".

Answer = FALSE
David's claim for constructive dismissal may succeed on the basis that his employer has fundamentally breached the implied duty of trust and confidence by failing to inform him of job opportunities and developments and notifying him of the vacancy while he was on sick leave.

It is not relevant that David would have been unsuccessful had he applied for it. The breach of trust and confidence lies in David believing he would be suitable for the post and his employer failing to notify him of the opportunity.

Source: Adapted from Carey Olsen, Human Resources Focus, October 2004

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