Employment Law: Implied Contracts - Case Study Example

Employment law: Implied contracts Employment law: Implied contracts Employment is a contractual agreement just like an engagement that cannot be breached or divorced from a commercial perspective. It also reflects on the context that the law-making role of the judiciary is limited in scope1. Agreement contracts are considered as agreements and associations between employee and employee and contain terms such as the ones discussed below. Statutory terms are terms imposed and regulated by law such as the period of minimum statutory notice Expressed terms are terms that are specifically stated in the employment contract, either written down or in oral agreements and have been agreed mutually by both the employer and the employee. Implied terms are terms that are not specifically mentioned in the contract in writing or agreed orally, but may sound to obvious for them to be recorded2. A good example is that an employee is not supposed to steal from the employer. Incorporated terms are terms put in contracts from work rules to collective agreements. Everyone who has a job is entitled to an employment contract. It does not mean that all employment contracts be written, or partly written. The subject matter in the contracts is the terms stated in by both the employer and employee when entering into the contract agreement. They are made over the entire work life and are composed of oral promises made to the employee and other consistent employer practices contained in the contract. Although such oral contacts (implied contractual terms) present very difficult problems of proof and evidence, courts still enforce them once they are proven. That is why several research programs have stated in most cases judges tend to favor employees during the actual ruling. However, judges should hold employers and employees to the contracts they had made when judging cases of employment contracts3. Employment agreements assumed to be at will, for example, the US has been considered as one of the major nations where employment is entirely at will. Employers are allowed to only dismiss employees for a good cause. The reasons why nations still apply the concept of employment at will are employee deference, respect for contract freedom as well as the belief that both employees and employers like it when the employment is at will over job security. At will employment means that an employer is allowed to terminate a contract with an employee at any time they wish but the reason must be legal and that the parties will not incur any legal liability. Similarly, the employee can leave a job at their will at any time provided that the reason of leaving does not cause any adverse legal liabilities. This means that an employer can alter the employment relationship terms without notice and yet suffer no adverse consequences. They can change wages, terminate benefits and even reduce paid time off4. This presumption of at will employment is a default rule that can be altered and modified by contract. For instance, an employment contract may provide for only a specific employment term or allow termination for only cause. Agreements created by collective bargaining usually provide that employee’s contracts may only be terminated for reasons of cause. Cause may include reasons such as employee misconduct, poor performance, or if the termination is necessitated by economic conditions5. A contract of employment may outline the specific situations or actions that would definitely lead to employee termination for cause. For many years, courts have tried to change the at will presumption by trying to bring into action exceptions so as to mitigate some harsh conditions. This has created several precedents where in most of the cases, the judges have ruled in favor of the employee6. The three major exceptions in common law are public policy, implied covenant of good faith as well as implied contact. The presumption of at will employment has been very strong and has proved to be difficult for employees to prove that the underlying circumstances fall within the exceptions. In addition, not all of the above exceptions are recognized by law. Public policy is the most widely recognized exception of common law to the presumption of at will employment which safeguards employees from adverse actions of employment that may violate public interest. Judges use this exception to judge in favor of employees in employment disputes. Implied employment contracts are legally recognized in various nations but in certain cases, they are recognized to be difficult to be proved by the plaintiff. Implied contracts may be created in various ways. Oral assurances by the employer may result to an implied contract. For instance, the need of good employees, employees ready to change their behaviors, among other assurances. On the other hand, employer’s policies and practices or other written assurances also create implied employment contracts7. Judges use this concept of implied contracts as well as their jurisdiction to judge in cases of employment termination. They look for various evidences on the same as seen in the cases discussed in the paper, where in most of those cases, the judgments were in favor of the respective employees. Even though there may not be express written contracts between employer and employee, the employee may have some hope and expectation of fixed term employment and even indefinite employment based on the employer’s policies, and other statements8. It has been a general rule that courts disregard long-term and permanent employment and tend to consider employment relationships to be at will. However, employers can safeguard themselves through the use of clear disclaimer on written documents. They can also use the right to modify and change employment policies and procedures at any time. In nations with fraud statutes, there have always been contract requirements in written form that creates additional hurdle to the employee in claims that involve oral assurances9. Only a few nations recognize an implied agreement of good faith and fair dealing in employment agreements. There has been a varied judicial interpretation from requirements for cause of termination to prohibiting terminations that have been made in bad faith or have been motivated by malicious practices. Some examples of bad faith terminations may include an employer terminating employment for an older employee so as to avoid paying retirement benefits or terminating the work of a sales person so as to avoid paying large commissions10. Termination of an employment contract Employment contracts may be terminated either by the employee resigning from work or the employer terminating the agreement or when agreed contract period expires. The employment laws states clearly that should employees decide to quit job, they should make it clear that they are formally resigning and this notice would be best if made in writing when there is enough time for the employer to look for a replacement11. By law, employees are expected to give a notice of either one week or the amount stated in the employment contract, whichever is long. It is a prerequisite by law for workers to give employees the notice stated in the contract or the general statutory minimum period from where the employee will select the longest period between the two12. Summary dismissal refers to dismissal without notice and should be used for gross misconduct in cases where the situation is serious such as fraud, theft or violence that the employer does not give notice13. Nonetheless, the employer should conduct an investigation on the circumstances before dismissing the employee and follow a fair procedure in such cases. Contract terms The word ‘Terms’ refer to the legal components of a contract. The employer is supposed to make it clear on the parts of a contract that are legally binding. A contract term could be: In written form or in a similar document such as a written employment statement. Agreed verbally. In the company’s notice board or in the employee’s handbook In a letter of offer from the employer Required by law for instance the employer must pay the employee not less than the national minimum wage. Agreements that are negotiated between the employer, trade unions and staff associations. Implied terms which are parts of the contract though they are not written down If the employee and employer do not clearly agree on anything about a particular issue in the employment contract, it may be taken care of by an implied term14. For instance, An employee should not steal from the employer Employer should strive to provide a safe and secure working environment A legal requirement like the minimum wage rate Something fundamental for the job line a driver should always have a valid license Something that has been regularly practiced in the company for past periods such as Christmas bonus. Some various cases discussed below have indicated various judgments by courts and most of them show that judges tend to favor employees in employee termination cases. The Moorcock case of 1889 The Moorcock case of 1889 is one of the leading English contract case laws in which the concept of implied contractual terms. The Moorcock was the name of a ship whose owners contracted for space a wharf owner’s jetty so as to unload the ship’s cargo. It happened that the tide went down such that the ship hull hit a ridge damaging the ship. The plaintiff stated that the wharfingers were responsible to ensure that the vessel would be safe while docked. In their defense, the owners of the wharf argued that there were no provisions stated in the employment contract for the safety of the vessel nor they could not have foreseen any damage caused to the vessel15. The court was supposed to determine whether there was any implied warranty in the situation. After several investigations, the court found out that the case had an implied warranty. The court ruled and held on behalf of the ship owner and stated that there was an implied contractual term that the wharfingers had initially taken steps to ascertain the state of the riverbed next to the jetty16. If they had taken such steps, then they would have noticed the rock ridge and would have warned the owners of the ship on the potential hazard17. The failure of forewarning would have been an actionable case in tort. Therefore, this restricted term was enough to provide protection to the owners of the ship. Any implied warranties should be based on the assumed intentions of the parties involved18. In this case, the implication which the law draws from what is considered as the intention of the parties represents the object of giving transaction efficacy and preventing any failure of consideration. United Bank Ltd v Akhtar In this case, the employee was contracted by a bank in Leeds under an employment contract which contained a very clear mobility clause which stated that the bank required an employee to be transferred from time to time temporarily or permanently to any business place in the UK for which a relocation and other allowances may be payable at the bank discretion19. In this law case, a notice of 6 days was given to the employee to transfer to Birmingham but he was not able to comply with the law20. He decided to resign and thus was held to have been dismissed constructively. However, the way in which the employers had cited the mobility clause at a very short notice and not offering any financial assistance, all this amounted to what was called a repudiatory breach of contract. This case states the existence of an implied contractual duty, for employers to conduct themselves in a manner that will not destroy the relationship that has been created between employer and employee. In the United Bank Ltd v Akhtar 1989, the court ruled and upheld the claim as a constructive dismissal irrespective of the fact that an express mobility clause existed in Mr Akhtar’s contract21. This was as a result of the fact that Mr Akhtar was being asked to relocate to a city in a period of just 6 days and the bank did not consider his personal circumstances. One can change a clause in the employment contract without notifying the other party and this can be considered as a lawful act. They can decide to insert a new term in the contract which gives enough power to both parties to vary it. These new terms can exist in the form of express or implied contractual terms. An employer should not exceed these powers lest it is considered as breach of contract as in the case featuring United Bank Ltd v Akhtar, 1989. In this case, the judges found out that apart from the variation which created the breach of contract, it was also of consideration that the unreasonable use of power by the employer to vary the contact terms brought about the breach of contract in terms of breaching the implied mutual confidence and trust. Johnstone v Bloomsbury Health Authority, 1991 Johnstone v Bloomsbury Health Authority, 1991 was considered as a case of implied contractual terms and unfair terms as indicated in the Unfair Contract Terms Act 1997. Dr Chris Johnstone who was a junior doctor at the University college hospital was expected to be on call for an average of 48 hours a week apart from his 40 hours contact as stated in the employment contract. His claim was that his contract could cause some foreseeable injury and considered as a breach of duty of care. Another claim from him was that the clause which allowed him to be so long on call was against section 2(1) of the Unfair Contract Terms Act 1977. Again, the court of Appeal ruled in his favor and stated that Bloomsbury Health Authority had to pay damages to Dr Johnstone for the harm they caused to his health during the past contract time. Judge Stuart-Smith LJ stated that an implied contractual term in law can succeed over an express contractual term. Johnson v Unisys Limited, 2001 Johnson v Unisys Limited, 2001 is also a leading labour law in the United Kingdom and represents a case where damages were made for unfair dismissal of the employer and the nature of the employment contract. Mr. Johnson worked for twenty years for Unisys Ltd in Milton Keynes but in 1994, he was alleged to be irregular in his work and was dismissed. Out of this, he suffered a major mental breakdown, started drinking heavily until he had to be admitted at a mental hospital. He applied for more than 100 jobs but could not secure any work even at age 52, and considered his career at stake and that it was unlikely for him to enjoy a promising future career. He argued that he was dismissed unfairly and the manner of his dismissal caused him health problems22. He decided to seek compensation for the unfair dismissal as well as the breach of mutual confidence and trust by the employer23. The House of Lords held that Mr. Johnson was unfairly dismissed but could not be compensated in the dismissal case if that could surpass the statutory scheme laid in the Employment Rights Act of 1996. Mr Mahmud and Malikn v the Bank of Credit and Commerce International, 1997 This is one of the top English contract laws and one of the major UK cases of labor laws. It implied that contractual terms and mutual confidence and trust existed in the employment contract. Mr Malik and Mr Mahmud worked for the BCCI but the bank was declared insolvent due to excessive frauds, terrorist connections, extortion, money laundering, among other factors. The toe sought for employment from elsewhere but could not get any job and decided to sue the bank alleging that their reputation had been damaged and this made them not to secure jobs. Nobody could hire them because of the massive fraud that had led to the closure of BCCI. The House of Lords collectively decided that the mutual confidence and trust terms were implied into the contract as a fundamental incident in the employment contract. This thus, represents a contract case in which judges ruled in favor of the employee. Although common law and the discussed statutory exceptions, the presumption of the ‘at will’ employment in implied contractual terms remains an important feature in most of the nation’s employment landscape. An employee may be able to make several claims but they can be hard to prove in the courts. Moreover, not all claims are recognizable in law as well as the fact that judicial interpretations of law may be construed24. Bibliographies B. Burchell, S. Deakin, and S. Honey, The Employment Status of Individuals in Non-Standard Employment EMAR paper no. 6 (London: DTI) www.dti.gov.uk/er/emar/emar6.pdf Burton, Steven J, “Breach of Contract and the Common Law Duty to Perform in Good Faith” 94Harv. L. Rev, 1980,369. J. 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Fridman, The Law of Contract in Canada, 6th ed.  Toronto:  Carswell, 2011. R. Glenn, Solomon, “The Montana Wrongful Discharge From Employment Act, Twenty Years Later ,”  Glenn Solomon Blog, 2007, http://www.glennsolomonblog.com/Post.shtml.    H. Collins, ‘Discretionary Powers in Contracts’ in D Campbell, H Collins and J Wightman (Eds), Implicit Dimensions of Contract: Discrete, Relational, and Network Contracts, Hart Publishing, Oxford, 2003, p 222. S. Honeyball, Honeyball and Bower’s Textbook on Employment Law. Oxford Univesity Press, 2012. H. Collins & Mark Freedland, “Finding the Right Direction for the ‘Industrial Jury’: Hadden v Van den Bergh Foods Ltd/Midland Bank plc v Madden” ,2000, ILJ 288* S. Anderman, ‘Termination of Employment: Whose Property Rights?’ in C. Barnard, S. Deakin and G. J. Beatson, ‘Public Law Influences in Contract Law’ in J Beatson and D Friedmann (Eds), Good Faith and Fault in Contract Law, Clarendon Press, Oxford, 1995, p 267. V. Katherine W. Stone. 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Wayne Outten, “When Good Deeds Are Punished:  The Legal Landscape of Retaliation and Whistleblowing,” Litigation and Administrative Practice Course Handbook Series, PLI Order No. 11091 New York:  Practising Law Institute, 2007. Read More