The Employment Contract: Balancing the Employees and the Employers Interest - Assignment Example

The Employment Contract: Balancing the Employee’s and the Employer’s Interest Introduction The contract has always played an important part in regulating the relationship between employee and employer.1 Even so, throughout history legislative provisions have also intervened to regulate the relationship between employee and employer, and from time to time that relationship was defined as a status rather than a contractual relationship.2 Reliance on the ordinary principles of contract law has compromised employment tribunal’s ability to fairly balance the interests between employee and employer. The difficulties are particularly profound since the employment contract consists of statutory, implied and express terms.3 These unique characteristics of the employment contract alone speak to the fact that it is no ordinary contract and that balancing the interests of the employee and the employer necessarily requires recognition of the inequality of bargaining positions. This paper examines the employment contract, distinguishing it from the ordinary contract and demonstrates how the application of ordinary contract law to the employment contract can prevent employment tribunals fairly and justly balancing the interests of the employee and the employer, but it is not entirely constraining. Courts and tribunals can when the circumstances demand, ensure that the respective interests of the employee and employer are fairly balanced. The Employment Contract Until recently, the employment contract determined all issues that arose during the course of the work relationship including, rights, duties and remedies. However, many rights, duties and remedies are now provided for by statute such as the question of unfair dismissal and redundancy.4 All employees are deemed to have a contract of employment and where it is not in writing and the parties may even disagree as to the precise terms, a contract exist nonetheless.5 When the parties disagree as to the terms of the contract the employment tribunal has the authority to determine what the terms of the contract are.6 Distinguishing the Ordinary Contract from the Employment Contract Employers are required to prepare a statement reflecting the particulars of the employment which will consist of the bare information such as wagers, start date, position and the disciplinary process.7 This statement will ordinarily provide some evidence of the terms of the contract when there is not written contract. Whether the contract is written or not, statutory provisions will automatically be implied into the contract of employment. This fact alone distinguishes the contract of employment from the ordinary contract. It is automatically inferred into the contract of employment by virtue of Section 1 of the Equal Pay Act 1970 that all persons regardless of gender will be entitled to equal pay for equal work.8 It was held in Barber v RJB Mining (UK) Ltd. [1999] ICR 679 that it was implied by statute that employees have a right to expect minimum holiday with pay.9 Moreover, an employee may not opt out of the basic employment rights conferred by statute and if such a course is taken the contract is voidable.10 Some rights such as the 48 hour maximum work week may be waived by contract.11 This special protection of the integrity of the employment relationship immediately sets it apart from the ordinary contract which recognizes and accepts party autonomy. Parties to an ordinary contract can agree to any terms they wish, provided it is legal. They can waive legislative provision such as ceilings on remedies and exclusion from liability clauses and the contract remains enforceable. When a contract is reduced to writing the vast majority of the terms of the contract will be expressed in the written instrument. However, express terms can also be made orally. For example in an employee accepts an offer of employment bases on an oral promise of a specific sum for an annual commission, such an offer and acceptance will be regarded as an express term of the employment contract and will therefore be enforceable.12 Ordinary contracts, while validating offer and acceptance will no generally enforce these terms unless a contract is formally executed by virtue of consideration.13 The distinctions between the ordinary contract and the employment contract do not end there. It is now entirely unclear whether or not the Unfair Contract Terms Act 1977 applies to the employment contract. In Commerzbank AG v Keen [2007] IRLR 232, the Court of Appeal ruled that a former bank employee was not a consumer and could not take advantage of the 1977 Act to nullify a term in a contract where he had waived the right to a bonus since he was no longer employed at the time the bonus was meant to be paid.14 Even if the 1977 act is inapplicable the employee who is party to a written contract will not be able to avail himself/herself of a claim that any of the terms of the contract were unfair or overly burdensome.15 This raises the question of the recognized inequality of bargaining position between employee and employer and the fact that competing interest could render the contract unduly imbalanced between the parties. Although courts/tribunals have been generally sympathetic toward the employee in this regard, they will not typically void terms and conditions founded on inequality of bargaining power alone.16 Another factor distinguishing the employment contract from the ordinary contract is the collective bargaining potential of the employment contract. The employer may engage in negotiations with a trade union although a collective agreement will not be valid if it is not reduced to writing. Moreover the contract must also include a clause stating that the parties intend to create legal relations.17 In addition it was held in Alexander v Standard Telephones and Cables Ltd. (No.2)[1991] IRLR 286 that the “relevant contract is between” the employee and the employer and it is their respective contractual intent that was to be determined.18 The employment tribunal went on to state that: In so far as that intention is to be found in a written document, that document must be construed on ordinary contractual principles. In so far as there is no such document or that document is not complete or conclusive, their contractual intention has to be ascertained by inference from the other available material including collective agreements.19 The employment while dealing with an aspect of employment contracts that distinguishes it from ordinary contracts stated that the written document must be interpreted by reference to ordinary principles of contract law in order to determine the parties’ intentions. Even assuming that the parties intentions are borne out by the terms and the conditions expressed in the written instrument it is entirely possible that the employee’s interest may have been compromised by the inequality of bargaining power between the employee and the employer. In this regard, the resulting contract of employment can be saturated by the employer’s intention and by extension his/her interests. Complicating matters with respect to the binding nature of the collective bargaining agreement, the procedure for selecting redundancy are not going to be implied since they are not daily occurrences within the scheme of the working relationship. Even so, the selection procedure is distinct form applicable severance processes. It was held in Martland & Ors v Cooperative Insurance Society Ltd [2008] that the severance terms with respect to redundancy as set forth in the collective agreement had the force of contract law but the procedure for redundancy procedures did not.20 It has become increasingly clear that in recent years the courts have become more included to treat the terms under a collective agreement as having been implemented into the actual employment contract.21 In this regard implementation can occur by virtue of two methods. First and foremost, the terms may be implemented by express terms. Secondly, they may be implemented on the grounds that the collective agreement reflects the standard terms and conditions within the industry and that, based on a purely objective test, if both parties would be likely to state that they intended to include the terms in the contract then the terms will be implemented into the contract of employment.22 In Henry v London General Transport Services Ltd. [2002] IRLR 472 the Court of Appeal emphasized that it was entirely important to establish the necessity for unambiguous evidence of the practice of integrating the terms of a collective agreement into a contract of employment.23 The fact is, union agents will typically have unfettered authority to negotiate on behalf of their members even if the union requires collaboration with the individual employee member and/or authorization by a union officer.24 In fact, a collective agreement which has been negotiated by a union for members of that particular union can be applicable to all employees even if they are not member of the union.25 Another factor of an employment contract that distinguishes it from the ordinary contract is the fact that staff handbooks can have the force of contract law.26 An employee, in attempting to make a case for constructive dismissal, might be able to successfully argue that the employer breached a specific contractual term in that it was implied into the contract that the employer would not deliberately and arbitrarily ignore the provisions contained in the employee handbook.27 Employed Terms It is a general tenet of contract law that some terms are automatically implied into a contract for the exigencies of business. This is because they are either part of custom and form or because they are entirely obvious so that courts are at liberty to presume that the parties intended them. The latter is determined by reference to the officious bystander test.28 In this regard, the employment contract is treated as no different from that of the ordinary contract. To this end, certain terms and conditions will automatically be implied into an employment contract to ensure that gaps are filled or when it is established that the terms forms a part of common customs and practices or because in the circumstances the parties very likely intended that the terms and conditions were included.29 Courts and tribunals will proceed with caution in terms of implying terms and conditions into any contract. It therefore follows that in the event a contract of employment is meticulous and articulate, it will be automatically implied that that any omission was: Omitted advisedly from the terms of that agreement on the ground that it was seen as too controversial or too complicated.30 Unfair dismissal has generated an entirely different body of contractual law with respect to implied terms.31 The implied term of mutual trust and confidence is automatically implied into employment contracts for the purpose of safeguarding against oppressive or unfair employer conduct which forces the employee to terminate the employment contract. In this regard the employer is not permitted to: Without reasonable and proper cause conduct itself in a way calculated and likely to destroy or seriously damaged the relationship of trust and confidence between the employer and employee.32 The courts have been predisposed to treat the implied duty of trust and confidence as a duty on the part of the employer to treat the employer-employee relationship reasonably. The requirement of mutual trust and confidence has also been aligned to the duty to act fairly.33 Even so, in balancing the interest of the employer and the employee there is no blanket requirement under the scope and range of the implied duty of trust and confidence for the employer to take a sensitive approach to his dealings with the employee. However, the employer remains under a residual duty to ensure that he/she takes reasonable care to ensure that he does not cause the employee reasonably foreseeable injury.34 Essentially the employer must use reasonable care “for the welfare and well being of the employee.”35 It was held in Morrow v Safeway Stores Plc [2002] IRLR 9 that whenever there is a breach of the implied term of mutual trust and confidence such breach will be treated as repudiatory in nature and the employee is at liberty to respond by resignation in response.36 This ruling however is very little practical importance since it is entirely conceivable that not each act on the employer’s part that results in the employee felling that the employer breached the implied duty of mutual trust will constitute repudiation.37 The implied duty of trust and confidence have been successfully used in a wide variety of circumstances and in this regard can be said to have created a legal means by which the tribunal and the courts might seek to balance the interests of the employee and the employer. For instance in Tesco Stores v Pook [2004] 2004 IRLR 618 it was held that an employee holding a senior position was under a duty to disclose fraudulent conduct in which he was involved in to the employer.38 In other instances, verbal abuse on the part of an employer toward an employee was held to amount to a breach of trust and confidence.39 Failure to provide employees with support was also found to be a breach of the implied duty of trust and confidence.40 So too are unfounded allegations of theft41, undermining a supervisor in the presence of other employees,42 failure to investigate claims of sexual harassment43 and failing to make adjustments under the Disability Discrimination Act.44 A case for constructive dismissal can be brought under the auspices of the implied duty of trust and confidence under what is known as the “last straw which broke the camel’s back” ideology.45 In such a case, the employer’s conduct is such that it would be entirely unreasonable to expect that the employee would remain working under the conditions created by the employer’s conduct. In such cases the conduct itself does not have to constitute breaches of contract.46 The Employment Act 2002 Schedule 2 Para 12 requires that any dismissal and grievance processes be conducted without delay. 47 Section 30 of the Employment Act 2002 which was not brought into force required that all grievance and dismissal proceedings were to be incorporated into all contracts. However, a Code of Practice which came into effect in April of 2009 replaced all of the resolution processes.48 Even so courts and tribunals will at least ensure that the grievances process is conducted within a reasonable time. In one case, where an employer took two months to conduct the grievance process, the court found that the employee had been in breach of the implied duty of trust.49 The list of implied terms into an employment contract is entirely exhaustive and include a duty on the part of the employer to provide a reference in circumstances where the employee cannot be expected to obtain employment without a reference.50 Certainly ordinary contracting parties are under no such implied duties and again this implied duty into an employment contract serves to separate the nature of the employment contract from an ordinary contract. Once the ordinary contract comes to an end, it is customary for all obligations and rights to likewise come to an end. However, the employer’s duty toward the employee is crafted so that the contractual obligations may continue even after the contract comes to an y end. There is also an implied duty on the part of the employer to provide a safe place and system of work.51 The duty however is limited to the extent that the employer is not under a duty to intervene when an employee knowingly exposes himself to the risk of harm.52 Wages are also implied into the employment contract so that where there is no express terms as to the wages payable, the courts will generally imply into the contract that reasonable wages are to be paid.53 Quite often employers change business owners or restructure businesses with the result that the employment contract is varied. If the actual contractual terms are altered the employee’s consent is required. However if it is merely a change in policy, then consent is not required.54 If the contract is changed unilaterally, the employee is entitled to bring an action for constructive dismissal. In any event, the variation of the contract like ordinary contract law must be accompanied by consideration.55 Conclusion While employment contracts are similar to ordinary contracts in many ways, they are quite different a number of significant ways. An employment contract typically anticipates covering an indefinite period of time and as such is quite different from an ordinary contract which typically has a much shorter life. In this regard, the employment contract requires different treatment since it sets out the ongoing and day to day interests and activities of the parties who are party to the employment. The rights, duties and interests of the parties to a contract of employment is influenced by a number of surrounding circumstances that can change from one day to the next and any number of contingencies cannot reasonably be anticipated. However, considering that the implied terms that are applicable to a contract of employment are wide and exhaustive it is entirely possible for tribunals to ensure that the interests of the employee and the employer are fairly balanced. The cases discussed in this paper have proven that tribunals have in appropriate cases ensured that the issues arising have been decided fairly in a number of the cases. Bibliography Barnett, D. Employment Law Handbook. (Henry Scrope 2008). Cabrelli. ‘The Implied Duty of Mutual Trust and Confidence: An Emerging Overarching Principle?’ (2005) 34(4) Industrial Law Journal, 284-307 Filsinger, K. Employment Law for Business and Human Resources Professionals. (Emond Montegomery 2004). Holland, J. and Burnett, S. Employment Law. (Oxford University Press, 2008). Mulcahy, L. and Tillotson, J. Contract Law in Perspective. (Routledge Cavendish, 2004). Vettori, S. The Employment Contract and the Changed World of Work. (Ashgate Publishing 2007). Table of Statutes Employment Rights Act 1996 Equal Pay Act 1970 Trade Union and Labour Relations (Consolidation) Act 1992. Table of Cases Alexander v Standard Telephones and Cables Ltd. (No.2)[1991] IRLR 286. Ali v Christian Salvesen Food Services Ltd. [1996] ICR 25. Barber v RJB Mining (UK) Ltd. [1999] ICR 679. Bracebridge Engineering v Darby [1990[ IRLR 3 Buck & Ors. V Nottinghamshire Healthcare NHS Trust [2006] EWCA 1576. Commerzbank AG v Keen [2007] IRLR 232 Dal v Orr [1980] IRLR 413. Deadman v Bristol City Council [2007]EWCA Civ 822. Devonald v Rosser & sons [1906] 2 KB 728. FC Gardner Lrd. V Berefsord [1978] IRLR 63. GAB Robins (UK) v Triggs [2007] ICR 1424. Greenhof v Barnsley MBC [2006] IRLR 98. Harris v Richard Lawson Autologistics [2002’ ] IRLR 476. Henry v London General Transport Services Ltd. [2002] IRLR 472 Hilton International Hotels v Protopapa [1990] IRLR 316. Home Office v Evans & Laidlaw [2008[ IRLR 59. Lee v GEC Plessey Telecommunications [1993]383. Malik v BCCI [1997] IRLR 462. Marshall Specialist Vehicles v Osboune [2003] IRLR 672. Martland & Ors v Cooperative Insurance Society Ltd [2008] EAT available online at: http://www.emplaw.co.uk/news/summaries/395490099537.htm (Retrieved December 31, 2009). Morrow v Safeway Stores Plc [2002] IRLR 9 Palmanor Ltd. v Cedron [1978] IRLR 303. Peninsula Business Services Ltd. v Sweeney [2004] IRLR 49. Robinson v Crompton Prakinson Ltd. [1978] IRLR 61. Shiner Ltd. v Hilton [2001] IRLR 727. Spring v Guardian Assurance [1994] IRLR 460. Stewart v the Moray Council [2006] IRLR 168. WA Goold (Pearmak) Ltd. V McConnell [1995]IRLR 516. Read More