Effects of Implied Terms on Contract of Employment, a Judicial Review - Essay Example

Effects of Implied Terms on Contract Of Employment; A Judicial Review 1 Introduction (1) The employment law of UK is governed by a complex mix of individual and collective agreements, implicit and explicit understandings and rights and obligations enshrined in legal statutes. Here the statute plays an important role in three ways, 1) By establishing floor rights for the individual on issues such as unfair dismissal, redundancy, equal opportunities, maternity leave, healthy and safety work 2) By determining the nature of structural support for collective bargaining 3) By establishing restrictions on what may be deemed lawful industrial action. However, the employee protection exists in parallel with rights accumulated through the precedents of the common law, established through judicial reviews overtime. Numerous rules in both contract law and employment law relate to the contract of employment, whether it is expressed or implied on behalf of the parties deemed to apply in the absence of any express provision to the contrary. These implied terms that bind the employee to the employer are faithful service, obedience, and care. The employer is also bound to the employee under the implied terms of the employment contract by way of trust and confidence, payment of wages, provision of work and reasonable care. But the question arises to what extent this implied terms are considered as binding ------------------------------------------------------------------------------------------------------------ 1. Paul R. Sparrow, Carry L. Cooper the employment relationship: Key changes for HR p 33 2 between the employer and employee. Under what circumstances the implied terms are applicable and also under what circumstance it is not applicable? What are the stands taken by the Court regarding the implied terms of the employment contract? Before proceeding to answer to theses question, firstly we shall explore the scope and applicability of implied terms in employment contract. Implied terms in the contract of employment (2) As said above a contract gives both employee and employer certain rights and obligations. The most common example is that employee has a right to be paid for the work do. The employer has a right to give reasonable instructions to the employee for the work he entitled to do. These rights and obligations are called contractual terms. These contractual terms are two types. Express terms in an employment contract are those that are explicitly agreed between employee and employer and can include amount of wages, including any overtime or bonus pay hours of work, including overtime holiday pay, including how much time off you are entitled to sick pay redundancy pay and how much warning (notice) the employer must give you if you are dismissed. They are terms that have not been expressed orally or in writing but nevertheless form part of the contract of employment. Some are general such as the duty of each party to take reasonable care of each others property and to safeguard each others confidences. ----------------------------------------------------------------------------------------------------------- 2. www.buisinesslink.gov.uk The Employment contract , the implied terms of contract 3 Implied terms in an employment contract are those which are not specifically agreed between the employer and employee. Such implied terms are:- 1) General terms which are implied into most contracts of employment General implied terms includes, a) the duty of the employer to provide a secure, safe and healthy environment for employees b) the employees duty of honesty and loyal service c) an implied duty of mutual trust and confidence between employer and employees that neither side will act in such a way as to breach that trust d) a term too obvious to need stating, e.g. that your employee will not steal from you any terms that are necessary to make the contract workable, e.g. that someone employed as a driver will have a valid driving license In Hagen and ors v ICI Chemicals and Polymers Ltd and ors (3) it was held that an employer owes his employees a common law duty of care to keep them adequately informed of the details of changes to their terms of employment which may follow from a company reorganization and can be sued for the tort of negligence if he is in breach of that duty. 2. Terms implied by custom and practice When dealing with a particular employment problem, there may be no express ----------------------------------------------------------------------------------------------------------- 3. Hagen v ICI Chemicals and Polymers Ltd [2002] IRLR 31 4 contractual term covering the matter. In such a case, it is helpful to look at what has happened to other employees in the workplace. This is because if other employees have been given a right, you can argue that you also have the right under ‘custom and practice’. Moreover, sometimes the law also imposes some terms automatically, such as the right to paid holidays and the right to receive the National Minimum Wage. Even though the duty of trust, care etc constitute the implied terms of employment contract, there are some conditions laid down for term to attain its implied nature. Conditions of implied terms Firstly it should be qualify the “official bystander’s test” i.e. it should prove that the term is so common in the relevant trade or area or so obvious that it must be taken to have been impliedly agreed even though it was not expressed .Secondly it should be one which is needed to give "business efficacy" to the contract - i.e. to make the contract work. Moreover in Albion Automotive Ltd v Walker & ors (4) it was held that the term should be incorporated into individual contracts by custom over a period of time to happen to an implied one. View of Court on the implied terms Initially the court has taken some reluctant view to accept the implied terms. But it has gradually become accepted by the courts that there is a duty of "trust and ------------------------------------------------------------------------------------------------------------ 4. Albion Automotive Ltd v Walker & ors CA 2002 EWCA Civ 946, 5 confidence" in employment contracts which can generally be automatically implied. In recent years the courts have used the idea of a breach of this implied duty to whittle away at the long accepted principle that an employer has no general contractual obligation to act "reasonably" towards his employees. This assumption of court explained while giving judgments in the cases like White v Reflecting Road Studs Ltd (5) and Transco plc v O’Brien. Nowadays the Court has started adhering to the importance of the implied terms in a contract. The court always considers the employer and employee are bound to follow those implied terms in the contract. In recent years, in Mahmud v BCCI (6) the common law has moved to impose certain duties on employers beyond the duty to take reasonable care to protect the physical well-being of his employees. One example of such an extension is the implied term that an employer will not engage in conduct which is likely to undermine the trust and confidence required if the employment relationship is to continue in the manner the employment contract implicitly envisages. Moreover the courts have developed guidelines as to the circumstances in which they may be prepared to imply terms into a contract of employment. The courts will not lightly imply a term. Thus if there is an omission from a carefully drawn up agreement the natural inference will be that it "was omitted advisedly from the terms of that ------------------------------------------------------------------------------------------------------------ 5. White v Reflecting Road Studs Ltd EAT 1991 ICR 733, 6. Mahmud v BCCI 1998 AC 20, 35A. 6 agreement on the ground that it was seen as too controversial or too complicated and the court will not fill the gap with what it considers reasonable . Later this assumption is laid down l in the case Ali v Christian Salvesen Food Services Ltd. (7) From the above we can infer that the court has always taken positive view on that provision regarding the implied terms enumerated in the employment law. But question arises regarding whether the law accepts the implied terms related to the economic well being of a worker? Whether this head comes under the provision of “reasonable care “ in order to attract the overall view of the Law ?Let’s discuss this issue in the light of the decision taken in Crossly Vs Faithful and Gould Holdings Ltd (8). Implied terms of economic well being of the workers The sanctity of the employment contract and the usual slings and arrows of alleged implied terms saw some action. Regarding the implied terms of the economic well being of workers, court has taken different view comparatively in other implied terms. In many cases the court of Appeal rejected the notion of an implied duty on employers to take reasonable care of an employee’s economic well being. Crossly Vs Faithful and Gould Holdings Ltd. Facts of the case Crossly went on sick leave and never returned to work. He was entitled to full ------------------------------------------------------------------------------------------------------------ 7. Ali v Christian Salvesen Food Services Ltd CA 1997 ICR 25, CA). 8. Crossly Vs Faithful and Gould Holdings Ltd 2004 EWCA Civ 293 7 salary for up to six months absence. Pay thereafter was at the companys discretion. He was also a member of the employers long-term disability insurance scheme, entitling him to certain benefits while he remained in the companys employment. He informed the company that he wished to apply for early retirement on health grounds. The company requested a resignation letter stating that he would retire with effect from 6 June 1997. Crossley sent this letter in July, but backdated it to May. He ceased being entitled to disability scheme benefits. The insurers continued to pay benefits for a further year, but refused to continue after that date. Crossley sued for breach of an implied term of the employment contract requiring it to take reasonable care for his economic well-being, by asking him to submit a resignation letter knowing that this would seriously prejudice his entitlement to benefits under the scheme, and by failing to warn him of the effect his resignation would have on his entitlement to benefits. But his claim and appeal were dismissed. And it was held that there was no duty to give staff financial advice on their benefits, or to generally safeguard their economic well-being. The case was similar to the case of Lennon’s but the court took completely different view in the Crossley’s case.In Lennon v Metropolitan Commissioner, (9) In that case Mr Lennon was transferred from the Metropolitan Police to the RUC, and was assured by the personnel officer to ‘leave everything to me’: she had handled hundreds of ------------------------------------------------------------------------------------------------------------ 9. Lennon v Metropolitan Commissioner www.spr-consilio.com 8 transfers and would see it went smoothly. Having been assured by her that taking time off would have no adverse financial consequences, Mr Lennon took a brief period of unpaid leave to sort out his move. In fact the unpaid leave broke continuity and meant he lost a housing allowance that would otherwise have continued indefinitely. Because the personnel officer had specifically assumed responsibility for advising him, the employer was liable for damages of £45,000. In this case the Court cleared its view stating that there is no general implied duty to take care of an employee’s financial health or to advise an employee of the financial consequences of a particular step, but if an employer voluntarily chooses to give advice, responsibility follows. As the judge observed, Mr Lennon could have been referred to the Police Federation, his union, for advice. Now we shall have a look into the grounds of the decision pronounced in crossley’s case. Grounds of the decision 1. The Court of appeal held that such an implied term would impose an unfair and unreasonable burden on employers .If an employer assumed the responsibility for giving financial advice to his employee he was under a duty to take reasonable care in the giving of that advice. It was quite a different matter to impose on an employer the duty to give his employee financial advice in relation to benefits accruing from his employment, or generally to safeguard the employee’s economic well being. The Court considered the 9 decision of Scally v Southern Health & Social Services Board(10) in crossley’s case. In Scally’s case the Court cleared its point of view by describing the relationship of employer and employee, where the following circumstances obtain: (1) the terms of the contract of employment have not been negotiated with the individual employee but result from negotiation with a representative body or are otherwise incorporated by reference; (2) a particular term of the contract makes available to the employee a valuable right contingent upon action being taken by him to avail himself of its benefit; (3) he employee cannot, in all the circumstances, reasonably be expected to be aware of the term unless it is brought to his attention." He considered that it was not merely reasonable, but necessary, in the circumstances postulated, to imply an obligation on the employer to take reasonable steps to bring the term of the contract in question to the employee’s attention, so that he was in a position to enjoy its benefit. Moreover here the court tried to distinguish between the different views taken on the implied terms. In Scally, the implied term was said to be necessary, because unless the employer informed the employee of the terms of the scheme, the employee would have no means of knowing what they were, and would therefore not be able to avail himself of one of the benefits of his contract of employment. In Crossley , the plaintiff is already aware of the scheme , but he raised his claim on not giving any financial advice ------------------------------------------------------------------------------------------------------------ 10. Scally v Southern Health & Social Services Board [1991] 4 All ER 563 10 which was a lame excuse in the view of the court. 2. Moreover, there were no obvious policy reasons to impose on an employer the general duty to protect his employee’s economic well being. In the instant case the defendant had not assumed any responsibility in relation to the question whether the claimant should terminate his contract rather than remain as an employee on permanent sick leave. In the circumstances, and bearing in mind the claimant’s experience and seniority in the company, the judge was justified in concluding that the claimant could reasonably have been expected to be aware of the relevant provisions of the scheme. 3. The context in which the letter was written was one in which the claimant had already decided to retire and in consequence of that decision, applied for benefit under the scheme. The claimant had made his decision to retire in April, on his own initiative and on the basis of medical advice, and his decision was, willingly taken by the defendant. In May the application for benefit had been submitted. Apart from fixing the date of retirement, the die had been cast. 4. The claimant was a person of status and long experience within the defendant. He, as much as any other director, could be expected to familiarize himself with the terms of the scheme. Moreover the court put forward the findings against the claim of the plaintiff as, a) The plaintiff’s medical condition and the likelihood that he would never be able to return to his previous occupation. b) His salary would be payable. 11 c) He had made an application under the scheme and it was only if that application was successful that he would obtain some partial replacement of his income from work. d) The claimant could only pursue his application through the defendant and was relying on the defendant to ensure that his application progressed. e) It would be perfectly possible for the claimant to remain on the defendant’s books as an employee, albeit indefinitely absent from work, for the purpose of receiving benefits under the scheme. The court further explained its view on implied terms and its validity in the eyes of law.In Spring v Guardian Assurance plc (11) the court clearly mentioned the requirements essential for an implied term in the employment contract. (i) The existence of the contract of employment or for services. (ii) The fact that the contract relates to an engagement of a class where it is the normal practice to require a reference from a previous employer before employment is offered. (iii) The fact that the employee cannot be expected to enter into that class of employment except on the basis that his employer will, on the request of another prospective employer made not later than a reasonable time after the termination of a former employment, provide a full and frank reference as to the employee. This being the nature of the engagement, it is necessary to imply a term into the contract that the employer would, during the continuance of the engagement or within a reasonable time thereafter, provide a reference at the request of a prospective employer ------------------------------------------------------------------------------------------------------------ 11. Spring v Guardian Assurance plc 1994 3 All ER 129 12 which was based on facts revealed after making those reasonably careful enquiries which, in the circumstances, a reasonable employer would make". Trust and care Another issue raised in the crossley’s case was the provision of trust and care owed by the employer towards the employee. By pointing out the decision in the case Hagen v ICI Chemicals and Polymers Ltd the Court smacked against the contradictions as that it is in principle possible for even negligent conduct to constitute a breach of this implied term, but the plaintiff submitted that it would have to be a rare case, coming close to recklessness, before that term could be engaged. But in order to constitute a breach of this term, the conduct had at least seriously to undermine trust and confidence. A negligent conduct would have to demonstrate a real and unacceptable disregard for the interests of the employee before this term could successfully be invoked. It would have to be the kind of conduct that would justify the employee treating it as a repudiatory breach. In this case, the plaintiff was employed by ICI in its central engineering resource section. ICI transferred this section as a going concern to RES. The plaintiff’s case was that they were persuaded to agree to the move by representations made to them by ICI and RES. They put their case against ICI in negligence and breach of contract. The implied terms for which they contended included (a) a duty not, without reasonable and proper cause, to act in such a way as would be likely to destroy or seriously damage the relationship of trust and confidence existing between it and its employees; and 13 (b) a duty at all reasonable times to take all reasonable steps to ensure that the plaintiffs were made aware of the true position in regard to their pension rights and to all other benefits and entitlements under their contract of employment. From this it can be noted that prior to the Crossley case the court has shown leniency towards this issue. But in Crossley the court has taken a stringent view .In this regard the Court of Appeal mentioned that the law has not reached a stage at which it can be said that there is implied in the contractual relationship of employer and employee what has been called a "portmanteau obligation" on the former to exercise reasonable care for the latter’s economic well-being. Implied terms – Where the rules does not apply In contract law, interpretation usually refers to problems arising from express contract terms that are reasonably susceptible of more than one meaning. Implied terms are those that are added to, or place limits on, expressly stated terms. The two are closely related, yet not identical. Questions of how courts interpret, and should interpret, contract terms and when courts imply, and should imply, terms to which the contracting parties have not explicitly agreed, loom large in contract disputes and in the legal literature on contract law. The court has always extended the employee its supporting decisions earlier. But recently the Court has framed some strict rules where the concept of implied terms cannot apply. The Court is now turned completely blind towards the employee’s claim regarding the financial advice of employer (Crossly Vs Faithful and Gould Holdings 14 Ltd).The court has opined that the reasonable care can not implicate with the fanatical advice, it can never be constituted as the reason for the breach of trust and confidence. Another outlook of the Court regarding the implied terms is that where there is the exercise of reasonable care proven, then there will be no question of implied terms regarding the breach of the duty. The court specified this aspect in the case Hagen v ICI Chemicals and Polymers Ltd. Hence it can be summarized from above discussion that the Court imply terms as unclear when these terms implied as per the general terms and terms based on the custom and practice given in the employment contract. Conclusion Anson in Anson’s Law of contract (12) said that "In the cases concerning a common relationship, for example sale, carriage, landlord and tenant, or employment, the parties may have left a lot unsaid and the process of implication is different. It involves the Court determining, in the light of general considerations of policy, the standard incidents of the particular type of relationship rather than constructing a hypothetical bargain. Although it has sometimes been said that the criterion for this form of implication is also necessity rather than reasonableness, it does appear that a broader approach is taken. The Courts will consider how the proposed implied term will sit with existing law, will affect the parties to the relationship, and wider issues of fairness. While the parties can exclude or modify the standard incidents of the relationship by express ------------------------------------------------------------------------------------------------------------ 12. Anson’s Law of Contract 28th edition page 149: 15 words, unless they do so they will form part of the obligation as a legal incident of the particular kind of contractual relationship. Such standardized terms, implied by law, have been said to operate as default rules. In these cases it has been said that the problem of implication is to be solved by asking: The court may apply Anson’s opinion in the forthcoming cases or may not be, the court will stick to those rules which were framed by the court for the benefit of the employees and of course, the court will depart from taking any decision in those vague claims made by the employees also. ************************* References 1. Anson, W.R Anson’s Law of Contract, edited by Gues , A.G ,Oxford university Press ,London. 2. Freedman, Warren the Employment Contract: Rights and Duties of Employers and Employees Publ: Quorum Books (October 24, 1989) 3. Sparrow, Paul R., Cooper, Carry L. The employment relationship: Key changes for HR p 33 Table of cases 1. Albion Automotive Ltd v Walker & ors CA 2002 EWCA Civ 946, 2. Ali v Christian Salvesen Food Services Ltd CA 1997 ICR 25, CA). 3. Crossly Vs Faithful and Gould Holdings Ltd 2004 EWCA Civ 293 4. Hagen v ICI Chemicals and Polymers Ltd [2002] IRLR 31 5. Lennon v Metropolitan Commissioner www.spr-consilio.com 6. Mahmud v BCCI 1998 AC 20, 35A. 7. Scally v Southern Health & Social Services Board [1991] 4 All ER 563 8. Spring v Guardian Assurance plc 1994 3 All ER 129 9.White v Reflecting Road Studs Ltd EAT 1991 ICR 733, Read More