Implied Terms in Employment Contract - Dissertation Example

Implied Terms in Employment Contract The courts have been able to exercise a powerful influence over the content of the employment contract by the use of implied terms Introduction Implied terms are integrated in employment contracts as a means to fill the gaps not covered by the expressed terms. They create an obligation between the employer and the employee. The courts, evident by some of the previous case studies have played a major role in enforcing these obligations arising from breach of the implied terms. The courts have over time recognized the essence and need to incorporate the implied terms in employment law. There has been however controversy regarding which of these terms is automatically recognized by law and whether the parties agreed to them or not. The courts therefore have deemed them suitable for the employee-employer relationship to subsist. Customs and practices over time have also been a major influence in the analysis and incorporation of implied terms for administration of justice. For example if over the years, the company has been regularly offering a Christmas bonus, it becomes an implied term to subsequent employees joining the same company. (Graduate Recruitment Bureau, 2014). Implied terms and case studies Several approaches are used to slot in implied terms in the contract of employment. First, by trade customs. In the case of Hutton v Warren 1836 EWHC Exch J61, a farmer, the claimant was a tenant to the fields of the defendant. He worked on the fields on which he had planted barley and corn. Before the harvest was due, the tenancy was terminated. Consequently, the claimant sought compensation for the cost of the seed and the work on the field as was customary on such farming tendencies. The defendant rejected the claim saying nothing in the contract said so. The court held that there existed an implied term for the tenancy in provision of compensation for the expanses and work done the growing of crops. It was an implied term because it was a common practice for farm tenancies to have such a clause (Speaight, 2012). In Attorney General v New Zealand Post Primary Teachers Association, the Court of Appeal stated that implied terms should involve five criteria. They should be necessary to efficiency of the contract. They should also be equitable and posses the reasonableness. They should be obvious, that is, “goes without saying” and as well as capable of apparent expression. Lastly they should not be contradictory to the express terms. Statutes also recognize implied terms in employment law. In this, the law seeks to protect the weaker parties. A term is only implied if it is deemed necessary for efficient operation of law. Work time regulations are the prominent examples that have made it necessary for employers to redesign their terms and conditions regarding night shifts, rest breaks and yearly leave entitlement. Acceptance through practice applies in cases where alterations are not expressly authorized in the contract but employers enforce them with all the hope that the employees will adhere to. If the employees do not protest against the new terms after working for some time, for instance a number for weeks they are held as implied terms. In case of alter protest to the same, employer can give an argument that they initially accepted, that is, acted as accepted. This is enforceable by court in some instances as evidence for acceptance. This has a shortcoming. Acceptance by majority does not permanently implement the change. If 1% of the workers does not accept the changes and rejects the new scheme, he has the right to revert it and therefore changes will not be constituted. Employers therefore can institute minor changes in the terms and conditions without fearing legal action. Employees similarly find a way to resist to some changes in workplace especially those that undermine the working conditions as explained above (Emir and Taylor, 2012). Employers, however, may use sweeteners, form of payment, in order to facilitate speedy response to newer terms and conditions. House of Lords and the Employment Relation Act of 1999 backed up use of sweeteners instead of collective bargaining approach. Even in cases of lawfully offered sweeteners, not all employees may end up accepting the new terms and condition and its vital to note that those in opposition still have the right within law to rescind and they cannot be induced to take up the new conditions. In cases where a small number of employees are not in the view of change of terms and conditions, employers raise the amounts in effort to buy over more employees. The courts deem this as unlawful and can create rifts among employees between those who accepted (having higher pay) and those who rejected (having lower pay) (Emir and Taylor, 2012). The courts have outlined several employee implied terms that are enforceable. The employee has a duty to serve and it is implied that he/she agreed, is ready and willing to carry on the duties as given by the employee. Failure to observe this duty is a breach to the contract of employment. He is also expected to have reasonable skills to enable him undertake delegated duties. This implied term also covers the ability of the worker to adapt to new work techniques and methods in cases where training is adequate. Employees are also expected to reasonably obey instructions and other lawful orders that are required within the extent of the contract. Keeping trade secret and information is also an implied term and disclosure to the third party is a breach. The employee is as well expected to be loyal to his work and carry his out his work in good faith. This term relates to use and misuse of property, not engaging in direct competition with the employer and not bringing disorder at the workplace (Graduate Recruitment Bureau, 2014). On the other hand the employer implied terms under the common law establishes obligation towards reasonable care in the safety, health and welfare of the employees and providing a safe environment for the employee to work. He also has a duty to remuneration the workers for the job done in wages or salaries and give to the workers reasonable amount of work. Each party is however expected to exercise reasonableness and conduct themselves in a way that does not harm the subsisting relationship. In Mahmud v Bank of Credit and Commerce International SA (in liquidation) (1997) 3All ER 545, who employees faced summarily dismissal on basis of redundancy. Stories about the bank’s collapse went round that senior personnel had been dishonestly and fraudulently operating. The dismissed employees laid claims to the bank’s liquidators for the stigma compensation. They relied on implied obligation of mutual trust and confidence. The claims for their financial losses were rejected. The foundation for rejection was that an ex-employee is not entitled legally to claim damages for loss of reputation reason to the breach of employment contract. In the contract of employment in England, there is an implied term regarding trust and confidence. It outlines that the employer will not carry out business in a manner to seriously damage of devastate the relationship that subsist between him and the employee. The House of Lords in the above stated case (Mahmud v Bank of Credit and Commerce International SA (in liquidation) (1997) 3All ER 545) the employer had broken the implied term by operating in a corrupt and dishonest business. When the bank went into receivership in 1971, the two employees lost their jobs and could not find other jobs because they associated with Bank of Credit and Commerce International. They attributed their inability to secure other jobs to the “stigma” and sought the aid of the House of Lords which permitted them to pursue damages in financial cost from the Bank’s liquidators (Palmer and Carter, 2002). Incorporation of implied term was a matter of law. It therefore means, for the term to be implied if only, absence of the term, from the employee perspective, the contract will be “rendered nugatory”, “deprived of its substance, seriously undermined or drastically devalued in an important respect.” This could be tricky because traditional approach does not recognize interests of employee (Palmer and Carter, 2002). As noted by Lord Nicholls, employers were at common law not obliged to improve the future employment prospects of their employees but there was a distinction between damage and failure to improve. Employment led to close relationships with power disparity that left employee vulnerable in most occasions. Though the implied term was to guard the existing employer-employee relationship, there was nothing unreasonable that the employer will be liable by causing damage on future prospects of the employee. He therefore cautioned employers to take care not to damage the future employment prospects of their employees through oppression or other forms of inappropriate conduct. Lord Hoffman gave the leading judgment by outlining that employment law offered balance of both employee and employer, not only to individual basis but general economic importance. He observed that at common law, courts treated employment contracts like others with no implied terms unless in cases to fulfill tests of necessity. This freedom put the employer in a more superior position, free to give terms to the employee. Recently however, employment has been recognized as an important aspect in someone’s life, not only offering a livelihood but also self esteem and identity. Lord Hoffman, however, had doubts regarding application of Implied terms beyond the area of dismissal. The social reality has been realized and the parliament altered legislation towards the same direction. For instance, the Employment Rights Act has enabled more right to the employees as well as more support from the European Law. Changes in attitudes and more recognition to rights of individuals have continually shaped the common law. This has also observed evolution to the implied terms in employment contracts (Palmer and Carter, 2002). Lord Steyn would have rejected the claim by employees on basis of remoteness difficulties. He regarded a reasonable action for breach of implied terms of trust and confidence. He propagated for the workability of legislation of unfair dismissal should his views be accepted and consequent less protection through collective bargaining. Implied terms operate as default regulations. The employment contracts therefore cannot be in any case equitable to other commercial contracts. The implied terms therein seek to protect employees through exercising their rights have been of recent given preference in comparison to the past. Employees do not place their reliance on implied terms in fact. They rely on standard terms in law and not individualized terms from certain provisions in the contract. The standardized term is incident of all employment contracts. Bothe parties freely modify or exclude them. But in the present case of the two employees, certain term of the employment contracts could not influence the implied obligation concerning mutual trust and confidence. Scally v Southern Helath and Social Services Board (British Medical Association, Third party) (1991) All ER 563 at 572, (1992) 1 AC 294 at 307. Advancement in the implied conditions has been a workable in practice despite that it has not received endorsement from the House of Lords. It has not met adverse criticisms and moreover, it has been applauded in academic writings. It has been seen, in legal perception, as a sound development. The scope of limitation of the employer obligation is determined on: firstly, conduct under complain must be conduct relating to the employee in question. Secondly, the employee must be aware of the conduct while still an employee and lastly, the conduct must be a calculation to destroy or harm the relationship between the employer and employee. In Mahmud v Bank of Credit and Commerce International AS English House of Lords (1998) AC 20, the issues were that whether their contract indeed included the implied terms of mutual trust and confidence and they could instigate proceedings for breach of these terms. The judges held that Mr. Malik and Mr. Mahmud were initiating legal action against the employer’s corrupt activities (conduct) that took place while they were still employees and not with respect to dismissals. This put simply means, Mr. Malik and Mr. Mahmud were suing to claim for damages flowing from breach while they were employees and there is had no connection with their termination. They were, however, unable to provide evidence that they could not get jobs elsewhere as a result of reputation from their former employer which is difficult to prove anyway contracts (Palmer and Carter, 2002). Implied terms in a contract of employment creates obligation to the parties involved to conduct themselves in ways that do not compromise the relationship regarding trust and confidence. High court authority has no to date questioned whether these implied terms are part of employment contracts in Australia. In the recent case of Commonwealth Bank of Australia v Barker (2013) FCAFC 83, decision by the majority in the Full Court of the federal Court is seen as the pioneer case in which appellate court recognized the subsistence of the implied terms in a contract of employment. In the United Kingdom, implied terms were first recognized in 1997 from the decision of the House of Lords Malik v Bank of Credit and Commerce International SA (1997) UKHL 23. The high court is making a consideration of the appeal advanced by Commonwealth Bank on whether the application of law in Australia will recognize the presence of implied terms for mutual trust and confidence in contracts of employment. In the case of Commonwealth Bank of Australia v Barker [2013] FCAFC 83 the Full Court of the Federal Court by 2.1 held that there existed a grievous breach reading the bank’s redeployment policy but this did not result in the breach of the implied terms in the employment contracts. This contradicted the initial stand given by the previous court. It was verily established that in such the prevailing circumstances, the bank ought to have taken steps and in consultation with the manager make him aware of appropriate options of employment. The majority noted that such obligation were within the contents of the implied terms of confidence and trust. In the above mentioned case, therefore, the bank on failure to reflect on redeployment opportunities dismissed the manager. Having worked with the bank for a period of 23 years, the possibility of considering a redundancy as well as redeployment in the bank as another way instead of terminating the manager’s contract of employment was not thought of and therefore this was failure by the bank in this viewpoint (Melbourne Law School, 2014) In the initial court decision, Justice Besanko made verdict that the implied terms were prevalent in the employment contracts unless excluded expressly. He held that the Commonwealth Bank of Australia breached the implied terms by not adopting the redundancy policy. This consequently led to awarding Mr. Barker a sum of $317,500 recovery in damages for the economic loss suffered. Two issues were addressed here, whether the implied terms existed in the employment contract and secondly, whether breach of Commonwealth Bank of Australia’s policies could amount to a serious breach of the relationship between it and the employee, Mr. Barker in terms of Mutual trust and confidence (Melbourne Law School, 2014). The full court in drawing its judgment concurred to the fact that the High court had not yet determined if the implied terms in contracts of employment were recognized in Australia. It however made reference and relied on Malik v Bank of Credit and Commerce International SA (in liq) (1998) AC 20 as well as Johnson v Unisys Ltd [2003] 1 AC. There is limited operation within the English law regarding implied terms in employment contracts until the termination period but in Barker’s case it related to the actions of the Commonwealth Bank of Australia in prior period before his termination. The Full court ruled that Mr. Barker could institute legal action for damages as a result of breach of the implied terms for the events that resulted to his termination of employment. Therefore, implied terms could be expressly excluded in employment contracts. The Full court in contrast with the verdict of Justice Besanko, held that Commonwealth Bank of Australia did not contravene the implied terms in the contract of employment by inability to follow the redundancy policy. It is by reason that the redundancy policy of the bank were not able to impose contractual benefit as they were stated expressly that they were binding in the contract. The parties in the employment contract were at liberty to exclude this implied term or make a modification of it (Malik at 15) It was held by the Full court that what implied terms necessitated the employer to do was depended on prevailing circumstances within the case. In the case of Commonwealth Bank of Australia v Barker (2013) FCAFC 83, the Full court took note of Mr. Barker long tenure in the employment contract with the bank and the alternative positions available considering its size. The CBA was required by the implied terms in taking bold steps to consult with Mr. Barker with the chance of redeployment and let him aware of other available positions within the bank that he could take up. The court increased the previously awarded amount in damages as a result of breach of implied terms in the employment contract from $317,000 to $335,623.57 (Melbourne Law School, 2014). The initial common law stand that contracts of employment are essentially contractual has been superseded since the 20th century kicked off. In Australia, Superior courts have recognized the implied terms such as in Russell v Trustees of the Roman Catholic Church for the Archdiocese of Sydney (2007) 69 NSWLR 19 where the Appellate court assumed their existence as well as majority of High Courts (Koehler v Cerebos (Aust) Ltd (2005) 222 CLR 44 at 54-55 (Koehler). A number of Federal Courts have articulated their doubts if implied term of trust and confidence are generally implied and if damages can be instituted as explain thereon. In the case of Dye v Commonwealth Securities Ltd [2012] FCA 242 at [599]–[611]), Justice Buchanan working for the deferral court dismissed Ms Dye’s application. Justice Buchanan also ordered Ms. Dye to cover for the CBA’s costs for defamation and sexual harassment. The allegations made by Ms. Dye were termed as ‘malicious’ and ‘falsely made.’ It was revealed that she was on revenge to Mr. Patterson on a cause that he failed to do. Her claims were therefore not believed. This presented with a range of issues regarding the implied terms in employment contracts could arise as well as the extent to which policies in employment contracts’ could be effected. Mr. Patterson had suffered justified and could recover damaged from Ms Dye (Finkin and others, 2013) Most Australian courts have been reluctant to offer damages for the breach of implied terms in contracts of employment. In Shaw v State of New South Wales [2012] NSWCA 102, the court of appeal made a suggestion that courts could be more willing to award damages arising from the implied terms in the employment contracts. In this case the New South Wales Director-General of Education dismissed two teachers in probationary time. The two teachers filed a claim that there was a breach in the implied terms regarding mutual trust and confidence. Judge Elikaim rejected their claim and held that there were no chances of finding an implied term in their employment contract. The resorted to appeal in NSW Supreme Court of Appeal and to find whether their claims were justified and if the claim will be heard. The initial strike-out by Judge Elikaim was reverted. It was held that the claim was of ‘triable quality’ by reason that they were probationary employees. Provision of Teaching Service Act 1980 did not enable probationary employees to challenge their dismissal. Johnson Rule consequently had no action. The Appellate court held that no rule, absolutely, prevented damaged flowing from the breach of implied terms of trust and confidence. No authority by the Court of Appeal or High Court could unquestionably enforce a claim for damages. The case was evidential that the implied terms of trust and confidence within employment contracts in Australia exist in cases where there is no access to laws regarding inequitable dismissal. This included casual, executive and probationary contracts among others. Similarly in the case of Johnson v Unisys Ltd [2001] UKHL 13; [2003] 1 AC 518, it was held that employees should not make attempt to avoid the statutory rule of unfair dismissal and institute a claim for damages at common law in the case that his dismissal was a breach to terms implied in the employment contract. Such claims fall in ‘Johnson exclusion area’ that is entitled to Employment tribunal (Chitty, 2012). The case of Crossley -v- Faithful & Gould Holdings Ltd in 2004 also brings another perspective on court’s decisions resulting from breach of the implied terms in the employment contracts. Mr .Crossley, a senior executive, is eligible for benefits under long term disabilities (LTDS). He opts for retirement from the company not aware that to acquire the LTDS, he had to be in employment. The employer aides him in the process inclusive of drafting letters for him. He however fails to notify Mr Crossley that retirement on medical grounds will make him inaccessible to the LTDS scheme and payments will be stopped by the insurer of which he did. The high court dismissed Mr. Crossley’s claim and held that no implied proposition in the employment contract existed requiring the employer to give him warning that medical resignation will deprive him of the LTDS benefits. The court of appeal dismissed his claim. Basing on the decision by the House of Lords in Scally -v- Southern Health & Social Services Board as well as and Hagen -v- ICI Chemicals, the Court of Appeal held that the employer was generally not obliged to exercise reasonable care for the economic wellbeing of the employee in precise situations. Such proposition was too extensive and resulted to imposing unfair burden upon employers and the House of Lords termed it inconsistent (Turner and Turner, 2013). In the case of Scally v southern Health Social Services board (1992),a distinction was outlined by the House of Lords between implied terms by fact (those giving the business efficiency within a contractual obligation) and implied terms by law( those outlining necessary duties on either of the parties in the contract). The question on expectations of employer to inform employees on a relevant term depends on whether the employee can be reasonably expected on the same as in Crossley v Faithful & Gould Holdings Ltd (2004). The House of Lords held in Scally v Southern health and Social Services Board that there existed an implied duty on employers to publicize a term that bestowed benefits on employees but only in narrowly defined circumstances. Conclusion Implied terms are incorporated in the contract of employment to protect the interests of each of the parties as well as the relationships between them. Common law as regard to implied terms has undergone transformations where employment contracts are regarded not just a livelihood but also source of esteem and recognition within the society. Implied terms therefore have been a centre for controversy on whether they from part of the employment contracts and if claims for damage can be instituted Customs and practices have also made contributions to a wider analysis of these aspects such as In the case of Hutton v Warren 1836 EWHC Exch J61 involving leases related to farming. Different statutory legislations have made contributory influence as far as implied terms of mutual trust and confidence are concerned. Extend to which employment policies are effected in relation to termination period and implied terms have also affected the employee-employer relationships. Use of sweeteners has also been attributed and extensively utilized by employees in effecting implied terms in contracts of employment. The high court is yet to determine if the implied terms of mutual trust and confidence as part of the employment contracts in Australia. This presents uncertainty on the part of the employers. The employers in the meantime are advised to exclude expressly these implied terms of trust and confidence. A cautious analysis is therefore vital before this exclusion executed. For instance, exclusion could damage the brand of the venture or the exclusion could be a loophole for employees for misconduct for the employer’s trust without necessity for dismissal. Assessment therefore is a necessity in terms of disciplinary processes, redeployment and redundancy processes carried out in line with existing policies and procedures. References Chitty, J. (2012). Chitty on Contracts: General principles. London: Sweet & Maxwell. Chris Turner, C. T. (2013). Unlocking Contract Law, Third Edition. Oxon: Routledge. David Carter, M. P. (2002). Roles and Perspectives in the Law: Essays in Honour of Sir Ivor Richardson. Speaight, A. (2012). Architects Legal Handbook. Oxon: Routledge. Graduate Recruitment Bureau: Implied Terms for Employers: www. employers.grb.uk.com/implied-terms-for-employers: Accessed on 12th April 2014 Matthew W. Finkin, J. C.-G. (2013). Multinational Human Resource Management and the Law: Common Workplace Problems in Different Legal Environments. Camberley: Edward Elgar Publishing. Melbourne Law School (2014): http://blogs.unimelb.edu.au/opinionsonhigh/2014/01/28/orifici- barker/ Accessed on 12th April 2014 Taylor. S, A.E (2012) Employment Law: Introduction. Oxford: Oxford University Publishers Read More