2. The Employment Contract PDF

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The Employment Contract...

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The Employment Contract (1) Form and Content: Contract Law 

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Changing social and industrial conditions in the 18th and 19th centuries required a new legal theory of work relationships as they could no longer be based on status as ‘master and servant’. Contract law offered a model tried and tested by the judiciary which appeared to fit with many elements of the employment relationship e.g offer/acceptance/consideration. But employment relationships are personal and numerous contract law constructs do not sit happily with the personal nature of the bargain. Notwithstanding contract as the established underlying legal structure, employment law has, since the 1970’s been overlaid with a wide range of statutory provisions.

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No requirement for employment contracts to be in writing (but note certain statutory provisions require particular agreements to be in writing e.g employer’s rights to make deductions from wages, opt outs from the max 48 hour working week However, as per orthodox contract law, they must be by deed or supported by consideration S1 Employment Rights Act 1996 (ERA) - statutory requirement for ‘written particulars’ of the main terms of employment. This provides evidence of the contract but is not, of itself, a contract of employment.

Terms: express  

Employment contracts comprise terms from a variety of sources. Express terms are those agreed between the parties either orally, by conduct or in writing, however, inequality of bargaining power means employees tend to be given only those express rights which the labour market demands for that type of position.

Terms: implied Terms can be implied by common law or by statute and fall into several categories. The most important of these categories are: o Terms implied ‘in fact’ o Terms implied by law o Terms implied by statute Implied terms in employment contracts are enormously important and do not necessarily conform to orthodox contract law principles. Typically, implied terms are relied upon by the employee rather than the employer Contract law requires a Tribunal to take a subjective approach and to look at the likely intention of the parties ‘at the time the contract was made’. This approach ignores the concept of reasonableness which is central to employment law and consequently, implied intention and business efficacy may have little part to play in employment implied terms.  

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Terms implied ‘in fact’- individualised gap fillers Traditional contract law tests: (one must be followed)

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1. Business efficacy (The Moorcock [1889] 14 PD 64 CA) Where a term is necessary to give a contract business efficacy (eg a term requiring an area sales manager supplied with a company car to hold a valid driver's licence)

The Moorcock [1889] 14 PD 64 CA → Ship-owners contracted with the defendant wharfingers to discharge a ship at their jetty. → The jetty extended into the River Thames where the ship must necessarily ground at low water. → The river-bed adjacent to the jetty was not vested in the wharfingers, and they had no control over it. They had taken no steps to determine whether the space was safe for the ship and, on grounding, she suffered damage because of the uneven nature of the river-bed next to the jetty. → The ship-owners claimed for breach of contract. The ship-owners argued it must have been an implied term of the contract that the river-bed was safe, because the jetty could not be used at all without the vessel grounding at low water. → HELD: o The ship owners were successful in their claim. The whole purpose of the contract was to use the jetty and the jetty could not be used without the vessel grounding. The wharfingers must, therefore, be deemed to have impliedly warranted they had taken reasonable steps to ensure the vessel could safely ground without suffering damage. o If the contract makes business sense without the term, the courts will not imply a term.

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2. Officious bystander (Shirlaw v Southern Foundries Ltd [1939] 2 KB 206 CA) The proposed term is so obvious that it goes without saying such that, had an officious bystander suggested to the parties that it be included in the contract, they would have said “Oh of course” (eg a term that an employer will not, without good reason, dismiss an employee if this would prevent him or her from benefiting from a permanent health insurance scheme)

Shirlaw v Southern Foundries Ltd [1939] 2 KB 206 CA → Shirlaw was appointed managing director of Southern Foundries (SF) for a fixed term of ten years. → SF was taken over by another company who altered the pre-existing articles of association empowering two directors and a secretary to remove a director, irrespective of the terms of his contract. 1 → Shirlaw was sacked prior to the expiration of the fixed term, and he brought a claim to recover damages for breach of contract. → The company contended they were empowered to amend their articles of association under s10 Companies Act 1929. → The new articles had been appropriately adopted, and the new procedures correctly followed. Given the statutory right to alter articles, it would be inappropriate for a court to interfere with the company’s right to do so. → Shirlaw argued his employment contract was for a fixed term of 10 years, and the articles could not amend that contract. He argued there was an implied term of the contract that the company would not amend its articles in a way which would be detrimental to him → HELD: o

Shirlaw successfully recovered damages for breach of contract. It was an implied term of his employment contract that he would not be removed from his role during the fixed ten-year period. The company could not be prevented from altering its articles of association, but it may be liable in damages if it amends the articles so as to prejudice a contract validly made prior to the amendments

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3. Custom and practice (Mears v Safecar Security Ltd [1982] 2 ALL ER 865) Where it is the normal custom and practice to include a particular term in such contracts such that it is “reasonable, notorious and certain” that it will be followed — the phrase comes from case law and “notorious” is used neutrally, as in “well known” — and there is a sense of legal obligation to do so (eg a term entitling employees to payment of a bonus which has been paid every year for many years and which is well known to employees) …refers to any unofficial aspect of company, trade or industry culture that has become the ‘norm’

Mears v Safecar Security Ltd [1982] 2 ALL ER 865 → The employee was absent from work for two periods totalling seven months out of his 14 months' period of employment. → He received sickness benefit under the Social Security Act 1975 but he neither applied for nor received any wages from the company for which he worked, during his absences. → There was no reference to sick pay in the written terms of employment but he was told by other employees, who visited him while he was sick, that the company did not pay wages during periods employees were off work through sickness. → He applied to an industrial tribunal pursuant to section 11 (1) of the Employment Protection (Consolidation) Act 1978 for a determination of what particulars relating to payment of wages during sick leave ought to have been included in the written particulars of his employment under *55 section 1 (3) (d) (ii) of the Act. → The industrial tribunal considered that it was to be assumed that there was an implied term in the contract that the employee would be paid during illness unless the company could show that the opposite was to be implied. → The majority of the tribunal were satisfied that if at the time the employee started working for the company the parties had been asked whether payment was to be made during illness, the company would probably have answered that it was not their practice to do so but neither party would have considered it so obvious that nothing need have been said about the matter. → They decided that the company had not shown that a term was to be implied that payment would not be made during a period of sickness and that the written particulars ought to have included a term that the company would continue to pay the employee's wages during any period of absence through sickness, but subject to a deduction for any sickness benefits received. → On the employee's appeal from the decision that deductions should be made and on the company's cross-appeal from the decision that they were obliged to pay him while he was away sick, the appeal tribunal held that the industrial tribunal were wrong to apply a presumption that if nothing was expressly said about sick pay in the contract of employment, wages were payable unless the employer could show that some other term was to be implied, and that on the facts the tribunal should have found that a term was to be implied that wages should not be paid during periods of absence due to sickness. They accordingly allowed the cross-appeal, and they also dismissed the employee's appeal. → On appeal by the employee:→ HELD: o

…dismissing the appeal, that, since the written statement of the terms of employment was an incomplete statement in that it failed to set out the terms as to sick pay as required by section 1 (3) (d) (ii) of the Act, the reference to the industrial tribunal was a reference under section 11 (1) and (5) of the Act; that the industrial tribunal, in determining the particulars that ought to have been included or referred to in the statement, had first to consider whether the term had been expressly agreed between the parties; that, if there had been no such express agreement, the industrial tribunal were not confined to the tests applicable in deciding the terms to be implied in a commercial contract but could consider all the facts and circumstances of the

relationship between the employer and employee including their subsequent acts under the contract; and that the facts and circumstances all pointed to a term that no wages were to be paid during absence from work because of sickness and such a term ought to have been included in the written terms of employment Terms implied by law These are terms characteristic of particular types of contract and thus will apply to all employment contracts (e.g duties owed by employers to employees and vice versa) as opposed to terms implied ‘in fact’ which are implied to fill gaps in particular contracts. → These are not based on the parties presumed intentions and are of fundamental importance to the maintenance of the employment relationship. → The courts may imply a term in law in contracts of a defined type eg Landlord/tenant, retailer/customer where the law generally offers some protection to the weaker party Terms implied by statute e.g: → Minimum notice periods – S86 ERA → Limits on working time – Reg 4(1) Working Time Regulations 1998 Parliamentary intervention enforceable as terms of an individual employment contract.

Incorporated terms:  

If one document is referred to in another it is incorporated, which means it forms part of the other document. Something put into the contract from other sources, such as a staff handbook or an agreement affecting many others 1. Collective agreements – can be express or implied incorporation (Malone v British Airways plc [2011] IRLR 32)

Malone v British Airways plc [2011] IRLR 32 → British Airways plc reduced the number of cabin crew on their planes, above those required by law but below the level stipulated in a collective agreement, subject to a ‘disruption agreement’ requiring crew fly with one less member during disruptions and getting compensation → Miss Malone’s contract said the collective agreement was incorporated. Malone argued the section was apt for incorporation because it affected the crew’s working conditions. → The Judge, Sir Christopher Holland held that those provisions were not apt for incorporation, and that even if he had found they were, he would not have awarded an injunction to enforce it because the balance of inconvenience weighed heavily against. → The crew appealed. → HELD: o Smith LJ, for the Court of Appeal held that the provisions were not aspirational, they were definite undertakings, but not an undertaking to individual employees. If it was individually enforceable, it would be ridiculous because then an individual could bring a flight to a halt by refusing to work under the contract terms. It was only binding in honour. → 60. As I have said, I have found this issue difficult. It is not clear from the language whether section 7.1 is intended to be enforceable by an individual employee. In that it is unlike several other subsections which clearly impose duties on an individual employee or obligations on the

employer towards individual employees. In my view, examining the context of the agreement as a whole does not help with the construction of section 7.1. → 62. Set against that are the disastrous consequences for BA which could ensue if this term were to be individually enforceable. It seems to me that they are so serious as to be unthinkable. By that I mean that if the parties had thought about the issue at the time of negotiation, they would have immediately have said it was not intended that section 7.1 could have the effect of enabling an individual or a small group of cabin crew members to bring a flight to a halt by refusing to work under complement. So, if I apply the rule by which a term of uncertain meaning is to be construed, that of asking what, objectively considered in the light of the factual matrix against which the agreement was made, the parties must be taken to have intended the provision to mean, I am driven to the conclusion that they did not mean this term to be individually enforceable. I accept that there are pointers towards individual enforceability but these are not conclusive. In the end, I think that the true construction of this term is that it was intended as an undertaking by the employer towards its cabin crew employees collectively and was intended partly to protect jobs and partly to protect the crews, collectively, against excessive demands in terms of work and effort. I think that it was intended to be binding only in honour, although it created a danger that, if breached, industrial action would follow. → Ward LJ and Jackson LJ concurred. 2. Staff handbooks and policies – Keeley v Fosroc International Ltd [2006] IRLR 961 CA; Bateman & ors v Asda Stores Ltd [2010] IRLR 370 Keeley v Fosroc International Ltd [2006] IRLR 961 CA As a matter of construction an enhanced redundancy payment provision set out in a staff handbook, which was incorporated by reference into an employee's contract of employment, was apt to be a contractual term that conferred on the employee an express entitlement to a redundancy payment. → The appellant employee (K) appealed against a decision that he was not entitled to an enhanced redundancy payment on his dismissal for redundancy by the respondent (F). → K's contract of employment incorporated by reference F's staff handbook. → The handbook contained a number of provisions, many of which were expressed in terms of rights and obligations and were typical of contracts of employment between a large employer such as F and individual members of a largely unionised workforce. → A provision in the part of the handbook entitled "employee benefits and rights" provided that employees with two or more years' continuous service were entitled to receive an enhanced redundancy payment from F. → The provision made no reference to the manner of calculation. → The judge, relying upon extraneous material, held that the provisions in the handbook were incorporated into K's contract of employment insofar as they were apt to be terms of a contract of employment, but that the enhanced redundancy payment provision was not so apt. → The judge rejected K's alternative claim that he was entitled to such a payment by way of an implied term of his employment based on custom and practice, holding that no such term could be implied. → K submitted that (1) the judge was not entitled to rely upon extraneous material as an aid to construction of the express enhanced redundancy payment provision; → (2) the provision was clearly apt for incorporation as a contractual term as it was part of K's remuneration package, it used clear language of entitlement and it should be construed in its context in the handbook, in particular its location in the part of handbook entitled employee benefits and rights; → (3) as to the absence from the provision of a formula for its calculation, the reference to "an enhanced redundancy payment" was sufficient identification of the means of calculation, given the evidence of clear understanding by the parties of the minimum applicable formula and F's admission in its defence of that formula. → HELD: o Appeal allowed.

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(1) the issue for the judge was essentially one of construction of an acknowledged contract, the written terms of which were not in issue. The variously expressed views on both sides in the formulation and application of the provision were not admissible on that issue. They were potentially relevant and admissible only in the event of the failure of K's case on construction of the express provision and reliance on K's alternative case based on an implied term (2) Where a contract of employment expressly incorporated an instrument such as a collective agreement or staff handbook, it did not necessarily follow that all the provisions in that instrument or document were apt to be terms of the contract. Some provisions, read in their context, may be declarations of an aspiration or policy falling short of a contractual undertaking It was necessary to consider in their respective contexts the incorporating words and the provision in question incorporated by them. In the instant case, the inclusion of the provision in the part of the handbook entitled "employee benefits and rights" and its language of entitlement were strong pointers that it was intended to have contractual effect. Other sections in the handbook, providing entitlements in respect of annual leave, parental leave and paternity leave, were also part of the context in which the entitlement in the redundancy section fell to be considered. In the redundancy section itself, the provisions for paid time off to look for work elsewhere and the right to appeal against dismissal were close supporting context for concluding that statements of entitlement in that section were intended to have contractual effect. Such matters were clearly to be treated differently from the distinct procedural or discretionary matters in the section going to the selection of employees for redundancy. Accordingly, as a matter of construction, the provision was apt to be a contractual term. (3) The provision was not vitiated by uncertainty with regard to the formula for calculating redundancy payment, since it identified by reference the means by which the redundancy payment would be calculable when such payments fell to be paid.

3. Trade usage or custom –Albion Automotive Ltd v Walker [2002] EWCA Civ 946 Albion Automotive Ltd v Walker [2002] EWCA Civ 946 Where an employer had provided enhanced redundancy terms in six previous redundancy exercises, an employment tribunal had been right to conclude that those enhanced redundancy terms would also form part of the employees' contracts. → Appeal by an employer ('Albion') from the decision of the Employment Appeal Tribunal ('EAT') made on 12 October 2001 dismissing Albion's appeal from the decision of an employment tribunal ('ET') holding that the employees, who had been made redundant by Albion, were contractually entitled to enhanced benefits. → Albion's parent company had conducted six previous redundancy exercises prior to making the employees in the instant case redundant. → The additional terms of the previous redundancies had included enhanced benefit...