External Sources of the Contract of Employment

Employers and employees are generally free to agree whatever contractual terms they wish, provided certain statutory rights are complied with, including the right not to be discriminated against on grounds of age, sex, sexual orientation, race, religion or disability. The United Kingdom law governing contracts of employment derives from three main sources common law, statute and law of the European Community. The main statutes governing employment is the Employment Rights Act 1996 (ERA), the Employment Act 2002, the Employment Relations Act 2004, and the Transfer of Undertakings (Protection of Employment) Regulations 2006. Legislation enacted to prevent discrimination includes the Disability Discrimination Act, 1995, the Sex Discrimination Act, 1975, the Race Relations Act, 1976, the Equal Pay Act, 1970, and the Fixed-term Employees Regulations 2002. Common law implies certain general terms into contracts of employment. The contract of employment is important in itself, in that it may give rise to a common law claim for its enforcement or for damages for its breach, but it’s equally important in areas of statutory employment law because the expression ’employee’ is defined by reference to the contractual relationship at common law. A contract of employment can be express or implied, and if it is express, it can be oral or in writing, sec. 230(2), ERA). There is no requirement for the contract to be in writing, but every employer must provide the employee with a written statement of the main terms of employment, sec. 1 (ERA 1996). Traditional contract doctrine says that where there is a clash between an express term and an implied common law term, the express term (the will of the parties) should prevail [1] . However, the courts have to a degree limited this rule, without expressly overruling it. In particular, the development of the implied term of mutual trust and confidence has been used creatively by the courts. The creativity of the judiciary has led to some criticism of usurping the judicial role, in addition to creating problems of uncertainty. Others welcome the judicial intervention. Implied terms are those terms not expressly agreed by the parties but which can be attached to the contract of employment by common law or statutory, and which places obligations on both employers and employees. Such as the implied term of mutual trust and confidence, the employer’s duty of care and the employee’s duty of fidelity [2] .

Legislation and common law Implied terms

Under the common law and legislation the employees and employers obligated by implied duties. Where for example, terms implied into the contract of employment by statute . S.1 Equal Pay Act 1970, statutory minimum notice entitlement S.86 Employment Rights Act 1996. The courts use of implied terms, on the assumption that these are the type of terms which a contract of employment should contain. These types such as the employee’s duties to co-operation, confidentiality and fidelity. Where the employer’s duties is to safeguard employees’ health and safety, provide employees with work and most important of all, not to act in such a manner as to destroy the trust and confidence which should exist between employer and employee.

The implied duty of cooperation between employer and employee, is to be found in Secretary of State for Employment v ASLEF [3] under the industrial relations Act 1971 the secretary of the state for Employment could order a cooling off period for a strike where, inter alia, employees were acting ‘in breach of contract’. It was decided that an employee who places a literal and exacting interpretation on the employer’s instructions with the purpose of injuring the employer’s business so as to secure a wage increase breaches the implied duty of cooperation. In the case of B.T. v Ticehurst [4] extends the duty of co-operation by emphasising that employees commit a breach of contract regardless of whether or not the industrial action they take is actually effective to advance their claim. The employer is entitled to lock them out without pay even if disruption is minimal. In these decisions the common law tightens the restraints on the ability of workers to organise and to deploy economic sanctions against employers. In upholding the withdrawal of the wage the courts permit the employer to strike at employees precisely where they are often most vulnerable in order to encourage their early capitulation.

In United Bank v Akhtar [5] , the implied term of mutual trust and confidence was used by the employee to override the express terms of the employment contract. A mobility clause in Akhtar’s employment contract permitted the bank to require him to transfer to anywhere in the UK where the bank had a presence. The bank had discretion to pay relocation and other allowances. Akhtar was asked to move from Leeds to Birmingham with less than one week’s notice. When he asked for more notice to sell his house and so forth, the bank refused. To make matters worse, it offered no financial assistance. The difficulty for the tribunal was that, under normal principles of contract law, an implied term cannot override the express terms of the employment contract. Nevertheless, it manoeuvred its way around this problem to find in the employee’s favour. It held that while the implied term of mutual trust and confidence could not override the express mobility provision, the latter had to be interpreted in such a way that it included an implied requirement that reasonable notice would be given, and that discretion concerning financial assistance be exercised in a way that allowed the employee to comply with his contractual obligations. The bank appealed but to no avail. In Johnson v Unisys Ltd [6] the house of Lords held that the implied term of mutual trust and confidence does not apply to the manner of the dismissal, which means that an employee cannot rely on this if he is denied a fair hearing. An implied term cannot contradict an express term at common law allowing the employer to dismiss with due notice. Also, the term is concerned with the relationship during its existence, and therefore does not apply where that is being terminated at least in relation to the employer’s acts that form part of the dismissal process.

Then Gogay v Hertfordshire County Council [7] [2000] IRLR 703 muddied the waters. This was a contractual claim for damages for clinical depression, caused by the employee’s suspension and the employer’s failure to properly investigate the allegations that led to it. The court found in the employee’s favour and said the strict rules in the Johnson case did not apply as the Gogay case related to a suspension, not a dismissal. Court of Appeal decision on trust and confidence in McCabe v Cornwall County Council [8] . A number of schoolgirls complained of inappropriate sexual conduct by their teacher, Mr McCabe. Five days after the complaints were received, McCabe was suspended, without being given details of the allegations made against him. It was not until four months later, while still under suspension, that McCabe was finally made aware of the allegations. From then on, he suffered from psychiatric illness. During the course of the next three years there were three disciplinary hearings, each unfavourable to McCabe. In the end he was dismissed, even though it was found that his original conduct could have been described as relatively trivial. The High Court dismissed the case – the Johnson principle barred the claim because it related to the manner of the dismissal and Gogay only applied in suspension cases falling short of dismissal. But the Court of Appeal took a different view. It said that dismissal is not an automatic bar to a claim of breach of the term of mutual trust and confidence; if an employer’s conduct would have entitled the claimant to bring a claim had it not been for the dismissal then there may be a case to answer. However, in some cases, the conduct that the employee claims has breached the term, will be so closely linked to the dismissal that the Johnson bar will still apply.

In addition, the implied terms of health and safety cases, under Wilson & Clyde Coal Co Ltd v English [9] an employee is owed a threefold duty by the employer: (i) to select proper staff; (ii) to provide adequate materials; and (iii) to provide a safe system of working. The employer’s obligations have been extended beyond the orthodox duty to take reasonable care for the safety of their employees. Implied duties now require employers to provide, as far as is reasonably practicable, a working environment which is reasonably suitable for the performance of the employees’ duties. This transcends issues of safety so as to include such issues as reasonable comfort – a development which importantly suggests a concern with working efficiency. This is most evident in Waltons & Morse v Dorrington [10] , where the EAT reached an express finding that the term was breached even though there was no evidence of damage to the complainant’s health caused by the smoking of other workers. In this case it is clear that the only rationale of the implied duty was to provide a comfortable working environment to assist in ensuring the productivity of a majority of the workforce. The starting point for the implication of the term was the duties under the Health and Safety at Work Act 1974, s2 (2) (e). In addition, s .2(2) of the unfair contract terms Act 1977 prohibits exclusion or restriction of liability for negligence in the case of loss or damage in favour of the employee unless reasonable. In Jupiter General Insurance Co Ltd v Shroff [11] , it was held that the employee must exercise reasonable care in carrying out duties but the court seeks the standards of men and not those of angles. In British Aircraft Corporation v Austin [12] [1978] IRLR 332 the employer committed a fundamental breach by failing promptly and sensibly to investigate the employee’s complaint about safety.

The house of lords held in Spring v Guardian Assurance pls (1994) that an employer has an implied duty of skill and care to the employee in writing a reference for him, and the EAT confirmed in TSB Bank v Harris [13] , that this is a duty that applies in contract as well as in trot. As such, it may form the foundation not just for a claim for damages in contract but also of the fundamental breach necessary for a constructive dismissal claim in unfair dismissal- in constructive dismissal, the employee resigns because of a fundamental breach of the employment contract by his employer, but this is construed by statute as the employer dismissing the employee, enabling him to claim unfair dismissal. The importance of this duty can be seen by the decision of the court of appeal in Bartholomew v London Borough of Hackney (1999) that employers have, in writing references, a duty not only to be honest, but to give a fair and account. In other words, referees cannot rely on ambiguous statements- such as ‘I cannot praise this woman highly enough’- nor misleading comments which are strictly capable of being read either as true or as beliefs honestly held. Neither can they rely on partial knowledge if they should reasonably have had more information. Note also that duty is to provide a reference that is both accurate and fair. It is not enough that what is said is true if this gives a misleading impression. For example, if the employer were to state that, at the time of the dismissal the employee was involved in disciplinary proceedings, the employer would be in breach if the reference omitted to say that employee was subsequently exonerated. This does not mean that the reference needs to be comprehensive. Neither is there any duty on the employer to provide a reference should he not wish to do so [14] .

At common law the employee is, in general, under an obligation to obey all lawful instructions of the employer, and this indeed described as’ a condition essential to the contract of service’ in Laws v London Chronicle (Indicator Newspapers) Ltd (1959). That the employee might be summarily dismissal if he does not comply is a great bulwark of the managerial prerogative. in the modern law, the unfair dismissal jurisdiction has established procedural safeguards for the employee who has the requisite eligibility for protection, and even at common law some of the harshest early decision (e.g. in Turner v Mason (1845)) would not be reached today, since they reflect a very different view of the extent of the rights of employers. Now instructions must be tempered by reasonableness. Ottoman Bank Ltd v Chakarian (1930) was a particularly strong case since the employers ordered the plaintiff, an Armenian, to stay in constantinople where he had previously been sentenced to death and it was held that he was within his rights in refusing. On the other hand, in Bouzourou v Ottoman Bank (1930) a christian employee was under an obligation to obey an order to work at a branch in Asia Minor, notwithstanding the well- known hostility of the Turkish Government to his religion. It is suggested this would not be decided the same way today. It has also been held a breach of contract to refuse an order to visit Ireland because of general fear of IRA activity (Walmsley v Udec Refrigeration Ltd (1972). An employee is also under an obligation to adapt reasonably to new work methods (Cresswell v Board of Inland Revenue (1984) [15] .

By contrast, a dismissal for failure to obey an illegal order is always wrongful, so that in Morrish v Henlys (Folkestone) Ltd (1973), where an employee was ordered to falsify the account . The same result was reached in Gregory v Ford (1951) where the employee said he would not take on the road a vehicle not covered by third party insurance [16] .

Several duties owed by the employee are comprised under the rather vague rubric of fidelity. The duties are owed not only to the contractual employer but also to any employer to whom the employee is seconded for a period (Macmillan Inc. v Bishopsgate Investment Trust (No. 2) (1993). What the duties have in common is that, without them, the employee’s use to the employer would be limited, but their precise character differs according to the status and position of the employee, and is influenced by principles of equity. Moreover, the basic implied obligations are often taken further by express agreement. If there is a fundamental rule, it is that there is a requirement of honesty in the service of the employer. First, the employee must account to his employment, and can be disciplined in the event of any dishonesty. A blatant example is illicit borrowing from the till (Sinclair v Neighbour (1967). In Boston Deep Sea Fishing & Ice Co. v Ansell (1888) the principle had been taken somewhat further, however. The defendant, who was managing director of the plaintiff company A, also owned shares in company B, which supplied ice to A, and received a bonus on these shares for all sales gained. Such secret profits were in breach of his duty to account to the plaintiffs and he was held to have been lawfully dismissal. The case might, however, be narrowly distinguished since Ansell was a director and under strict fiduciary duties, as well as an employee [17] .

The duty to disclose misconduct was considered in Syborn Corporation v Rochem Ltd (1983). At issue was the occupational pension of the chief manager who was discovered after his retirement to have been involved in a directly competing company while still employed. The plaintiff claimed that the pension had been given as a result of a mistake of fact and sought restitution. The court of appeal decided that the company was entitled to recover the money . Stephenson LJ distinguished the House of Lords decision in Bell v Lever Brothers (1932) on the grounds that, while there might be no duty on the employee to disclose his own misconduct [18] .

The case can be usefully contrasted with Horcal Ltd v Gatland (1983). The defendant, the managing director of the plaintiff building contractors, was negotiating to purchase the shares of the company when a customer telephone him asking that work be done on her home. He gave an estimate on the company’s notepaper but kept the proceeds of the contract for himself. The company did not find out until after the termination of him contract and the activation of a termination agreement. Although the court of Appeal found that he had committed a repudiatory breach, due to the breach not being discovered before termination, it held that there was no failure of consideration and no basis on which the money could be recovered.

The courts are vigilant to protect an employer whose employee acts part time in competition with him, but on the other hand they will not prohibit the individual’s legitimate spare time activities. Lord Greene MR indicated how far the courts would intervene to protect this delicate balance in Hivac Ltd v Park Royal Scientific Instruments Ltd (1946) when he said that it would be deplorable if an employee could consistently. knowingly, deliberately, and secretly inflict great harm on his employer’s business. In that case , two weekday employees of the plaintiff company spent their Sundays working on highly specialised tasks for the defendant firm which were in direct competition with the plaintiff. An injunction was granted against continuing this arrangement, notwithstanding that there was no evidence of actual misuse of confidential information, because their actions infringed the general duty of fidelity. Lord Greene MR and Morton LJ referred to the danger of future transfer of information and emphasised the secret nature of their work. In Sanders v Parry(19670, a solicitor employed as an assistant by another made an agreement with an important client of the latter to work for the latter, and Havers J some contracts of a routine nature in which there is no question of exclusive services being required. Many employees moonlight, that is work for one employer by day as well as for another by night, with the full acquiescence of the employers. in Nova Plastics Ltd v Froggatt (1982) an odd-job man was held not to be in breach of contract when he worked for a competitor of his employee may engage in preparations for competitive activity while still employed [19] .

The duty of fidelity is broken where an employee leaves a job and then uses his ex-employer’s resources or confidential information to assist him to set up in competition with him. Thus in Wessex dairies Ltd v smith (1935) a milk rounds man who canvassed his employer’s customers on his contract. To copy out a list of customers may be a breach. Where a managing director, while still employed, approached his company’s main customer to obtain their views as to whether he and senior colleagues should set up a rival business to the company, the EAT held that that was a breach of contract (Marshall v Industrial System and Control Ltd (1992). Building up goodwill with customers which may incidentally be valuable if the employee were to set up a business himself on his own account is, on the other hand, quite lawful. In order to prevent even the possibility of such occurring, many employers insert express restrictive clauses but these will be very strictly construed by the courts.

The public interest disclosure Act 1998 contains statutory protection for ’whistle- blowing’ employees who disclose information in the public interest. If an employee uses information confidential to his employ, both he and the recipients of the details may be liable in damages, and restrained by an injunction. This is a heads of implied term that the court of Appeal specifically distinguished from the duty of fidelity, of which it might have been thought a part, in Faccenda Chicken Ltd v Fowler (1986). In Thomas Marshall (export) Ltd v Guinle (1978) Megarry V-C developed criteria for determining what information was confidential including whether the owner reasonably believes the release of the information will be injurious to him or advantageous to his rivals and whether the owner reasonably believes that the information is not already public. The information must be judged in the light of the usage and practices of the industry involved [20] . The secret need not in any way be unique or complicated, and it is no defence for an employee to contend that a third party has already made it public. The judge held that prices paid, details of manufactures and suppliers, customer requirements, contract negotiations and details of fast moving lines were all matters that were confidential.

The employee must give faithful and honest service, in Hivac v Park Royal Scientific [1946] a competitor obtained an injunction preventing his staff from working in their spare time for the competition. And the employee must obey his employer’s lawful instructions, in Pepper v Webb [1969] a gardener’s refusal to obey instructions was held to be a breach of his implied duty and warranted his summary dismissal. In Malik v B.C.C.I. [21] , in which the House of Lords held that if an employer conducts the business in a manner likely to destroy trust and confidence, and damage to the employee’s reputation thereby ensues to the prejudice of future employment prospects, damages will lie. In Goold (Pearmark) Ltd v McConnell [22] , the EAT established a new implied duty binding the employer to ensure the employee has a reasonable and prompt opportunity to obtain redress of any grievance. And a new obligation of disclosure was imposed on employers by the House of Lords in Scally v Southern Health and Services Board [23] [1991] 4 All ER 563. Another breach of the implied duties arises when management fails to recognise and address the early indications of distress in the working environment. This was evident in British Aircraft Corporation v Austin [1978] IRLR 332 where the employer committed a fundamental breach by failing promptly and sensibly to investigate the employee’s complaint about safety. In Malik v B.C.C.I. [1997] IRLR 462 the House of Lords held that the operation by the employer of a corrupt and dishonest business constitutes a breach of the duty to maintain trust and confidence. The employer’s conduct does not have to be directed at the employee concerned who may even be unaware that the conduct is taking place. Lord Nicholls observed (at 464): “the objective standard provides the answer to the (respondents) submission that unless the employee’s confidence is actually undermined there is no breach. A breach occurs where the proscribed conduct takes place: here, by operating a dishonest and corrupt business. Proof of a subjective loss of confidence is not an essential element of the breach. In Courtaulds Northern Textiles v Andrews [24] [1979] IRLR 84, the employer expressed a strong opinion on the employee’s incompetence which the employer did not believe. It was the employer’s dishonesty that constituted the breach of contract. In Wilson v Racher [1974] ICR 428 it was held that a duty of mutual respect is imposed upon the parties to a contract of employment. Accordingly, in Palmanor Ltd v Cedron [25] [1978] ICR 1008 verbal abuse directed at an employee was held to be capable of constituting a fundamental breach of contract.

In conclusion, these decisions is the practical one that if the courts are to give effect to the contractual contemplation of the parties it must be possible to identify what this is. This is no easy task where an alleged informal promise conflicts with the express words of the contract. First there is a certain danger of revisionism in so far as one party may seek to evade express obligations by alleging either prior or subsequent promises of contrary effect. These issues will have to be resolved as a matter of evidence. Secondly there may be problems where the courts refuse to give priority to what the parties actually agreed outside the formal document but what they might have agreed had they considered the matter. However, common law and statutory has been grate instrumental in extending protection to employees, terms implied by law into all contracts of employment have afforded the judiciary with new employment standards.