3) Implied Terms - Lecture notes 3 PDF

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Implied Terms: Authority and Cooperation Lecture: Authority and Cooperation / Implied Terms

OVERVIEW OF LECTURE:  Which implied term(s)?  Derogable or (sometimes) non-derogable? = focus on ‘implied term of mutual trust and confidence’ To what extent is it possible for a CoE to contain a clause about MT + C  does this affect the whole contract  Implied terms fill in cincompleteness Implied terms Fill in gaps of incompleteness; Tool of interpretation ‘[86]. … it is relevant to consider the changes which have taken place in the employer/employee relationship, with far greater duties imposed on the employer than in the past, whether by statute or by judicial decision, to care for the physical, financial and even psychological welfare of the employee’ Spring v Guardian Assurance [1994] IRLR 460 (HL)  More obligations imposed on employer to take care of the psychological needs of employeei

Two different types of implied term:  By fact, or  By law ’12. A clear distinction is drawn in the speeches of Viscount Simonds in Lister v Romford Ice and Cold Storage Co Ltd [1957] AC 555, 576 and Lord Wilberforce in Liverpool City Council v Irwin [1977] AC 239, 255 between the search for an implied term necessary to give business efficacy to a particular contract and the search, based on wider considerations, for a term which the law will imply as a necessary incident of a definable category of contractual relationship. If any implication is appropriate here, it is, I think, of this latter type….’ (emphasis added) Scally and others v Southern Health Board and Social Services Board [1991] IRLR 522 (HL)

One or more implied terms?  For constructive dismissal to occur, the employer would have to point to a repudiatory breach of contract  Lord Denning: use reasonableness requirement at the first stage to make the case easier  Wester Excavating v Sharp: Lord Denning CA  says for constructive dismissal, need a contractual case, then repudiatory breach of contract by employer  what is an applicable implied term? In this context, the EAT and ET are developing an implied term of mutual trust and confidence = repudiatory breach  Courtaulds v Andrew [1979]: there is an implied term in CoE that the employer will not act in a way likely or calculated to destroy or seriously damage trust and confidence o First explicit reference in this case to implied mutual trust and confidence

Sample list of employer’s implied obligations (in law) towards employee(s): • • • •

To take reasonable care of health and safety of employees; Not, without reasonable cause, to act in a manner likely to destroy mutual trust and confidence; Not to treat an employee arbitrarily, capriciously or irrationally in maters of remuneration; and To give reasonable notice of termination of the contract…

Sample list of employee’s implied obligations (in law): • • • • •

To obey lawful (and reasonable?) instructions of the employer; To take reasonable care in the performance of the contract; Fidelity and loyalty towards the employer; Mutual trust and confidence (as ‘mutual’ obligation); To give reasonable notice of termination of the contract…

 Mutual trust and confidence is a mutual obligation  But there is already subordination existing in an employment contract • •

Importance of implied term of mutual trust and confidence, employer’s general duty of care in health and safety, but also of employee’s implied obligation to obey: Eg extensive workplace ‘codes of conduct’, as in Smith v Trafford Housing Trust [2013] IRLR 86 (HC) or SC’s hypothetical example in Tillman v Egon Zehnder [2019] UKSC 32 where contractual term/agreement that employee will not ‘play mahjong’ (outside work)…

Contenders/possible new additions: • • •

(Implied obligation of good faith….) Implied term of fairness (Sanders) Implied term to respect human rights (Hepple)/implied term to respect dignity and autonomy of employees (Collins and Mantouvalou)…

 an employer asks an employee to take out a piercing or change hair  employer acting in their business interest however dignity and autonomy could affect the outcome of this situation  Riley: if it is an instruction in a private life, it doesn’t concern the employment relationship  Smith v Safeways: Trio of HL decisions on implied obligations: • • •

Scally and others v Southern Health Board [1991] IRLR 522 (HL) = implied term, in defined circumstances only, to notify employees of contingent rights Spring v Guardian Assurance [1994] IRLR 460 (HL) = implied term to provide employee with reasonably carefully prepared reference at the request of a prospective employer Malik and another v BCCI [1997] IRLR 462 (HL) = implied term of trust and confidence

Part of one bigger implied term? Judicial and academic possible formulations: ‘Implied term of mutual trust and confidence’; ‘obligation to act fairly’; ‘obligation of good faith’; ‘obligation to act fairly and reasonably’; ‘obligation of fair performance and management’… (Cf rejection of implied term to take care for employee’s economic well-being in Crossley v Faithful and Gould Holdings [2004] IRLR 377 (CA)) View One:

‘50. At the hearing of the present appeals the House did not have the benefit of oral argument on potential scope of the implied obligation of mutual trust and confidence, or what Sir Nicolas Browne-Wilkinson V-C in Imperial Group Pension Trust Ltd v Imperial Tobacco Ltd [1991] IRLR 66, at 70, more simply called “the implied obligation of good faith”. Perhaps it would be conducive to clarity if the latter description is generally used’ (emphasis added) Eastwood v Magnox and others [2004] IRLR 733 (HL) View Two: ‘42. In my view, there are two principal reasons why the implied term proposed by Mr White should be rejected. First, it is not for this court to take a big leap to introduce a major extension of the law in this area when only comparatively recently the House of Lords declined to do so… 43. But secondly and more fundamentally, quite apart from authority, I would not accept the implied term contended for by Mr White. Such an implied term would impose an unfair and unreasonable burden on employers…’ (emphasis added) Crossley v Faithful and Gould Holdings Ltd [2004] IRLR 377 (CA)

Implied term of mutual trust and confidence: ‘13. This implied obligation is no more than one particular aspect of the portmanteau, general obligation not to engage in conduct likely to undermine the trust and confidence required if the employment relationship is to continue in the manner the employment contract implicitly envisages’ Malik v BCCI [1997] IRLR 462 (HL) ‘12. So we come back to the facts of this case. Here is a man, a sensible man, with a long record of satisfactory work in a supervisory capacity whose immediate superior in the management ladder thinks that he is a good workman and thinks that he can do his job properly. Nevertheless, in those circumstances, that manager says to him “You can't do the bloody job”. Now it seems to us that, in those particular circumstances, that is conduct which is likely to destroy the trust relationship which, in the circumstances, is a necessary element in the relationship between this supervisory employee and his employers’ Courtaulds Northern Textiles v Andrew [1979] IRLR 84 (EAT)

‘13. ...if employers do behave in a way which is not in accordance with good industrial practice to such an extent — and this is how it was put in that case — that the situation is intolerable or the situation is that the employee really cannot be expected to put up with it any longer, it will very often be the case, perhaps not always but certainly very often be the case, that by behaving in that way the employers have behaved in breach of contract because it must ordinarily be an implied term of the contract of employment that employers do not behave in a way which is intolerable or in a way which employees cannot be expected to put up with any longer’ British Aircraft Corp v Austin [1978] IRLR 332 (EAT)

Implied term of mutual trust and confidence: examples • • • • • •

Post Office v Roberts [1980] IRLR 347 (EAT) Isle of Wight TB v Coombes [1976] IRLR 413 (EAT) Courtaulds Northern Textiles v Andrew [1979] IRLR 84 (EAT) Transco v O’Brien [2002] ICR 721 (CA) Visa International v Paul [2004] IRLR 42 (EAT) Bournemouth University v Buckland [2010] ICR 908 (CA)...

Notable elements of implied term of trust and confidence in Malik: 1. Test is objective/ objective standard 2. Destroy or seriously damage the employer/employee relationship of trust and confidence 3. ‘Without reasonable and proper cause’

(4. Does not need to be directed at employee in question 5. Employee does not need to know of employer’s conduct during employment 6. Do not need proof of a subjective loss of confidence in employer) Is implied term of mutual trust and confidence mandatory? Yes, no or halfway?  Malik v BCCI: ‘[53] Such implied terms operate as default rules. The parties are free to exclude or modify them.’ ‘[18] The orthodox view is that this implied obligation may be displaced or qualified but only by express agreement or necessary implication: compare, however, a different view in Brodie, 'Beyond Exchange: The New Contract of Employment' (1998) 27 ILJ 79, 82–83.’ Johnson v Unisys Ltd [2001] IRLR 279 (HL)  common law could develop in this way Claimant could be circumventing parliaments rules on implied terms Relationship between implied terms and express terms: • Express terms prevail, but • Reading express discretionary terms subject to implied terms E.g. Johnstone v Bloomsbury HA [1991] IRLR 118 (CA); United Bank v Akhtar [1989] IRLR 507 (EAT) Brakes on common law? Johnson v Unisys Ltd [2001] UKHL 279 (HL); Edwards v Chesterfield Royal Hospital [2012] IRLR 129 (SC)…

CEM, at Chapter 4

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Legal model of employment relation presents a structure of authority Kahn-Freund: CoE = subordination A lot of protective legislation to help those in submission Apart from core terms of the wage/work bargain, the legal model of the contract of employment did not require joint decisions by the employer and employee or even prior consultation about change Capitalist sees labour as a commodity and the wage contract as a bargain pf purchase like no other o Expects wage-earners to render him, not only obedience, but also personal deference o If the wage contract is a bargain of purchase and sale like any other, why is the workman expected to doff his hat to his employer and to say ‘sir’ to him without reciprocity o Leads to abuse of power o Cannot mill over every small term as this is costly and inefficient Taylorism: early 20th century  involved centralised, detailed control over every aspect of factory production  justified the hierarchies, minimisation of worker discretion and the subordination of the worker in every detail of work to authority of management o Aka ‘scientific management’  increased divisions of labour by breaking down job into simple tasks that could be performed by cheap, unskilled labour, with the work co-ordinated and designed by management, using techniques such as ‘time and motion’ studies to create ‘economies of scale’ o for employees, this meant a deskilling of tasks to be performed, removal of work effort and systematic, detailed surveillance of the worker o too much strict hierarchy does not always create a productive labour force o more active co-operation = greater productivity o to achieve productivity, mrore sophisticated and less regimented working relationships must be created… HRM – Human Resource Management: at the Hawthorne plant of the Western Electric Company  experimenters agreed a programme of changes in working conditions with the workers with a view to determining which conditions would produce greater productivity  variables changed e.g. work hours, length, times of the week, lighting, food provisions o Central problem addressed by HRM: hierarchical and authoritarian work relations are unlikely ot achieve work from employees  workers resent their position fo subordination and suspect that their additional efforts will not be rewarded in higher pay o Modern management: encourage teamwork, partnership between management and workforce and create ‘mutual gains’ o Legal perception of employment relation has changed  greater protection o The ‘psychological contract’ is protected further through the law of employment  e.g. implied terms can give legal force to expectations generated within the psychological contract Unions provide a countervailing force against practices by the employer and to his contractual power to direct the workforce Strong union can engage in joint regulation of the workplace with management

Mutual Trust and Confidence  Implied term which protects an employee’s expectations  Employer shall not, without reasonable and proper cause, conduct itself in a manner calculated as likely to destroy or seriously damage the relationship of confidence and trust between employer and employee  Avoids colloquial expression such as a duty to act fairly or reasonably  instead setting a minimum standard of conduct below which the employer should not fall  Williams v Leeds United: o employer justified the summary dismissal of employee for gross breach of contract, but couldn’t refer to the disciplinary code in the express terms of the contract because that had not been communicated to the employee o employer justified summary dismissal instead on a breach by employee of implied term of mutual trust and confidence  forwarded pornographic email to a female colleague 5 years previously

example of where the mutual trust and confidence has been used against the mployee by the employer Mark Freedland: implied term forms a conrnerstone of the legal construction of the CoE and ssumes ‘a central position in the law of the contract of employment’ / ‘undoubtedly the most powerful engine of movement in the modern law of employment contracts’  occurred at a snail’s pace Existence of ITMTC: Mahmoud and Malik v Bank of Credit and Commerce International S A o Stigma damages at HL  won their case  serious damage to their ability to get new jobs Term is implied into all contracts of employment  courts can strike a balance between the employer’s interest in managing the business as it sees fit and the employee’s interest in not being unfairly and improperly exploited Motive of the employer is irrelevant, the impact/effect of their actions or loss is poignant Abuse of power usually calls for the rise of claims under ITMTC o Breach = termination of the contract for repudiatory breach o Then the employee can make claim for unfair dismissal or constructive dismissal Abuse of managerial power is usually the root cause: victimisation, oppressive demands, deceit, scapegoating, unnecessary rigidity, bullying of harsh and foul language Court makes contextual assessments rather than making rigid rules Post Office v Roberts: o junior clerical assistant refused a transfer to a different area  discovered that the reason for refusal of transfer was that Mr . O’Keefe, a senior manager, had written that she was unlikely to qualify for a promotion  he had no grounds for this opinion o senior manager carelessly made this mistake o EAT held: unfair dismissal was a breach of the ITMTC Isle of Wight Tourist Board v Coombes: C was personal secretary to company director  director called her ‘an intolerable bitch on a Monday morning’  EAT found breach Courtaulds Northern Textiles Ltd v Andrew: during an argument, manager said ‘ you cant do the bloody job anyway’  no grounds for the view  term broken Transco plc v O’Brien: employer awarded permanent workforce a new contract on better twems – by mistake, employer failed to offer C one no bad faith by employer but error was a breach Visa International v Paul: whilst on maternity leave, D advertised job for which C would have applied for if known  tribunal held the claim that failure to notify for vacancy = breach Bournemouth Uni v Buckland: professor and co-examiner failed a high number of students in exams so programme director are-marked papers and raised some marks without informing professor  professor resigned and tribunal held there was a breach  CA also said the university’s attempts to hold an official enquiry would not remedy the breach Stevens v Birmingham University: disciplinary investigation into irregularities in Professor’s clinical trials  meeting held in which trade union official was invited  university refused the proposed meeting with someone from the Medical Protection Society which is not a trade union  court held that express terms of the contract were interpreted as consistent with the overriding obligation of trust and confidence o

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Good Faith  HL – Lord Nicholls invoked language of good faith in cases of ITMTC: ‘the trust and confidence implied term means, in short, that an employer must treat his employees fairly. In his conduct of his business, and in his treatment of his employees, an employer must act responsibly and in good faith  Lord Steyn in ITMTC cases: suggested it may be more conducive to clarify if the courts used the terminology of an implied obligation of good faith  Good faith terminology = good tool for stressing the special obligations arising in the COE  Reflects breach of psychological contract  An honest, but careless mistake can be sufficient for breach – Transco v O’Brien  Good faith terminology doesn’t have to be deliberate misconduct of bad faith  necessary to examine the likely effect of the employer’s conduct on the perceptions of a reasonable employee

Arbitrariness and Irrationality in Discretionary Decisions

 Abuse of managerial discretion: to not act arbitrarily, capriciously or irrationally  Malone v BPB Industries plc: o C sought compensation for withdrawal of all his share option entitlements as a resilt of directors’ resolution under a rule of the share option scheme which permitted directors to award share options to employeed whos employment had been terminated in an appropriate proportion o CA: directors breached contract  no incentive provided with improper motive o no reasonable employer under Wednesbury unreasonableness  Braganza v BP Shipping: SC o extended the review of the contractual discretion to replicate the whole of the public law Wednesbury review standard in the context of an employer’s discretionary decision  in public law, unreasonableness measn case is quashed and retried, but In contract law, the employee obtains the expected discretionary contractual benefit o parties don’t have to act in interest of the public but in the interest of their own benefits o this oddity is relieved with reason: contraxtual contracts are, at their core, about conferring power for a purpose so that its in use for an ulterior purpose or is a breach of contract  irrationality stems from expectations of pay and express erms of contract  is the term implied with respect to issues of remuneration? o No legal consequences appear to be attached to this issue o Whichever implied term is used, breach by the employer will be regarded as a serious breach of contract giving rise to damages and will enable the employee to claim constructive dismissal o ITMTC supplies the most general and abstract version of the implied obligation of ghe employer, which can be expressed in relation to particular sorts of issues in slightly different language as seems appropriate in that context An Essential Foundation of the Contract?  ITMTC: groundbreaking development in employment law o Controls abuse of managerial power o Expresses modern views and expectations of employees o Protects psych contract o Socio-political views which reject hierarchical class structures o Treats people with dignity and respect o Sets min. legal standards of managers’ treatment towards employees  Should it be possible any longer for em...