Employment Contracts: Express and Implied Terms, Study notes of Law

Download Employment Contracts: Express and Implied Terms and more Study notes Law in PDF only on Docsity! 3 Contract of Employment The following principles in relation to sources of a contract of employment should be noted: 1 The main sources of an employment contract are express terms and implied terms. 2 Express terms are to be found in the contract itself and/or docu- ments expressly or impliedly incorporated into the contract, such as collective agreements or employers’ handbooks. 3 In cases where there is no employment contract, the existence of a written statement of terms and conditions under section 1 of the Employment Rights Act 1996 will assist the determination of what terms were agreed. 4 An express term may in appropriate cases be qualified by an implied term, such as the term not to behave in a way such as to undermine the relationship of trust and confidence between employer and employee. 5 Implied terms will arise where the court or tribunal regards the implication of a term as necessary to give the contract business effi- cacy or reflect what the parties would have agreed had they addressed their minds to the issue. FORMING THE CONTRACT The main source of contractual obligations is the express terms of the contract. This process is assisted by the provisions of ERA, s. 1, which requires employers to give their employees written particulars of many of Hardy-3371-Chapter-03.qxd 1/4/2006 6:37 PM Page 21 22 Employment Law for Business Students the more important terms of their contracts. Terms may be expressly incorporated by a reference in the contract to another document such as a collective agreement, but not all such terms are appropriate for incor- poration; other documents may also be impliedly incorporated. Statutory written statements The main statutory requirements are contained in ERA, ss. 1-7. In effect, the main terms of the contract should be set out in the written statement, covering such matters as pay, hours of work, holidays and holiday, sick pay, notice entitlement and the like. It is not necessary to set out details relating to pensions and pension schemes if the employee’s pension rights depend upon the terms of a pension scheme set up under a provision con- tained in or taking effect under a statute and the provision requires the relevant body or authority to give a new employee information concern- ing his or her pension rights. The statement may be given in instalments but the following particu- lars must all appear in a single document: 1 the names of the employer and employee; 2 the date of the start of employment with the employer; 3 the date of the start of continuous employment; 4 the details relating to pay, hours of work, holiday entitlement, the employee’s job title and the employee’s place of work: see ss. 1(2) and 2(4). The written statement must be given within eight weeks of the start of the employment. Changing terms The Employment Rights Act, s. 4, deals with changes in the terms and con- ditions covered by section 1. Any such changes must be notified to the employee by means of a written statement within one month. It should be noted, however, that this is a procedural requirement: it does not authorise an employer to change an employee’s contractual terms simply by giving notice of change. There must be a variation which is effective in law. As with the original statement under section 1, the statement of change under section 4 may refer to other reasonably accessible documents for the same Hardy-3371-Chapter-03.qxd 1/4/2006 6:37 PM Page 22 6 An express term may in appropriate cases be qualified by an implied term, such as the term not to behave in a way such as to undermine the relationship of trust and confidence between employer and employee. 7 Where interpretation or construction of the contractual documen- tation is necessary, the court or tribunal will apply the ordinary rules of construction for contracts, including the contra profer- entem rule. 8 An apparently wide clause, such as a flexibility clause, will not always give the employer as free a hand as its terms suggest. 9 Clauses which are apparently unreasonable may be subject to the Unfair Contract Terms Act 1977. The Court of Appeal followed this decision in Marley v. Forward Trust Group Ltd [1986] in which the employee’s contract of employment incor- porated the employers’ personnel manual which included the terms of a collective agreement made between the employers and the union. The agreement was expressed to be binding in honour only and included a provision that, if a redundancy situation arose, an employee who accepted redeployment would have six months in which to assess its suitability without prejudicing his right to redundancy compensation. This happened to the employee, who, after two months, informed his employers that his new position was unsuitable and that he wished to exercise his ‘redun- dancy option’. The employers took the view that the employee had been transferred under a mobility clause in his contract and not because of a redundancy situation. They therefore treated him as having resigned. The Court of Appeal held that the terms of the collective agreement had been incorporated into the individual employee’s contract (even though the agreement itself was unenforceable) and that the employers could not rely upon the mobility clause when redeploying the employee. SPECIFIC EXPRESS TERMS Express terms relating to the following matters are considered here: 1 mobility 2 working time 3 pay Contract of Employment 25 Hardy-3371-Chapter-03.qxd 1/4/2006 6:37 PM Page 25 4 benefits in kind 5 holidays 6 ‘gardening leave’ 7 notice and pay in lieu of notice Mobility It is advisable for an employer to include an express mobility term in the employment contract; otherwise, a term will fail to be implied. Clearly, employers who want to save argument later will be well advised to include an express clause. If a term is implied, there is the risk that the term will have a disproportionate effect which could have been avoided. In any case, ERA 1996, s. 1(4)(h), requires the written statement to specify the place of work or ‘where the employee is required or permit- ted to work at various places, an indication of that and of the address of the employer’. The provisions of section 1(4)(k) should also be noted. These come into operation for employees required to work outside the United Kingdom for more than one month. This should not be too diffi- cult for an employer. Working time and holidays The arrangements for working time will depend upon the nature of the employer’s work. For example, the employer may operate a shift system for production staff and flexitime arrangements for administrative staff; field sales staff and managers may have fixed hours. Although theoreti- cally the employer might demand of the employee long working hours, it is possible that this might be subject to an implied restriction, arising from the decision of the Court of Appeal in Johnstone v. Bloomsbury Health Authority [1991]. The effect of the Working Time Regulations 1998 (SI 1998/1833) should be noted. The regulations were introduced to implement Council Directive 93/104/EC, but not before the UK gov- ernment had brought an (unsuccessful) action against the European Commission, arguing that the legal basis upon which the directive was adopted was incorrect: see United Kingdom v. Commission of the European Union [1997]. Until the advent of the Working Time Regulations there was very lim- ited statutory regulation of holiday rights and in practice an employee’s 26 Employment Law for Business Students Hardy-3371-Chapter-03.qxd 1/4/2006 6:37 PM Page 26 entitlement to holiday depended upon the terms of the employment contract. Now regulations 13 and 16 entitle workers to four weeks’ annual paid leave in each leave year (as defined by regulation 13(2)). There are detailed provisions dealing with the dates on which leave may be taken, which entail either party giving notice within prescribed time limits and containing prescribed information. An employer wishing to escape these provisions may do so by having a ‘relevant agreement’, in practice a col- lective agreement or employment contract: see the definition in regula- tion 2(1). Leave may not be bought out unless the worker’s employment is terminated: see reg. 13(9). ‘Gardening leave’ clauses A ‘gardening leave’ clause is a clause found in employment contracts by which the employer reserves the right to require the employee not to per- form his or her duties as an employee but agrees that he or she will con- tinue to be paid. Such clauses have so far given rise to relatively little case law and such case law as there is has tended to be concerned with the principles upon which injunctions are granted. An important case to consider as regards the ‘gardening leave’ clause is Provident Financial Group plc v. Hayward [1989]. The employee’s contract as financial director provided that, during the continuance of his employment, he would not ‘undertake any other business or profession or be or become an employee or agent of any other person or persons or assist or have any financial interest in any other business or profession.’ Another clause provided that the company was under no obligation to provide him with work but could suspend from performance of his duties or exclude him from any premises of the company, but his salary was not to cease to be payable by reason only of the suspension or exclusion. Despite case law recognising the validity of gardening leave clauses, uncertainties do remain, since an excessively long period of notice linked with gardening leave might be held to be in restraint of trade and thus void and unenforceable. It may be that the method of termination may affect the employer’s chances of enforcing restraints against an ex-employee: see General Billposting Co. Ltd v. Atkinson [1909] and Rex Stewart Jeffries Parker Ginsberg Ltd. v. Parker [1988]. It is clear from these cases that an employer who dismisses an employee in breach of contract will not be Contract of Employment 27 Hardy-3371-Chapter-03.qxd 1/4/2006 6:37 PM Page 27 The employee has the following terms implied into their employment contract: 1 Duty to obey lawful and reasonable instructions given by the employer. 2 That the employee is reasonable competent to do the job. 3 The employee impliedly agrees to take reasonable care in the per- formance of his or her duties under the contract. 4 The duty of loyalty and fidelity. 5 The duty not to disclose confidential information. 6 Implied term of mutual trust and confidence. As for the employer, the implied terms include: 1 The duty to pay wages. It must be noted that generally this does not extend to the providing of work. 2 A duty of care in respect of an employee’s health and safety. 3 A duty to take care when producing an employee’s reference. 4 Implied term of mutual trust and confidence. EMPLOYEES’ OBLIGATIONS An employee is under an obligation to obey lawful and reasonable instructions given by the employer. This is a fairly wide obligation, which in effect enshrines the employer’s managerial prerogative. It extends beyond the normal situation of obedience to instructions given in the workplace to such issues as mobility and the need to adapt to changes in working practice, as in Cresswell v. Board of Inland Revenue [1984]. There the employees tried to argue that the Inland Revenue was in breach of their terms of service in requiring them to operate the proposed computerisa- tion of the PAYE system. Walton J held that, although the proposed introduction of computerisation changed the way the employees per- formed their duties, they were still administering the PAYE system and performing the duties of tax officers. He said, however, that this was sub- ject to the proviso that the employer must provide any necessary training or retraining for them. If, however, the nature of the work alters so rad- ically that it is outside their contractual obligations, it will not be rea- sonable to expect employees to adapt. 30 Employment Law for Business Students Hardy-3371-Chapter-03.qxd 1/4/2006 6:37 PM Page 30 It is an implied term in a contract of employment that the employee is reasonably competent to do the job: see Harmer v. Cornelius (1858). Thus a serious act of incompetence may justify the employer in termi- nating the contract summarily at common law. Similarly, the employee impliedly agrees to take reasonable care in the performance of his or her duties under the contract. Although the employer will usually be vicariously liable for the employee’s act of neg- ligence, theoretically the employer may sue the employee for an indem- nity for breach of the duty of care, as in Lister v. Romford Ice & Cold Storage Co. Ltd [1957]. In appropriate circumstances, carelessness may justify summary dismissal at common law, though clearly it would have to satisfy the general principle that it was so serious as to amount to a repudiation on the employee’s part of his or her contractual obligations: see Power v. British India Steam Navigation Co. Ltd (1930) and Jupiter General Insurance Co. Ltd v. Shroff [1937]. In this last case, an act of negligence by a manager was held to amount to serious misconduct justifying summary dismissal. So too in Baster v. London and Country Printing Works [1899] a single act of forgetfulness by an employee which caused damage to a valuable machine used in the employer’s printing business was held to justify summary dismissal. The following points should be noted: 1 An employer may rely upon the implied duty of loyalty and fidelity as an alternative to an express restrictive covenant or in the absence of such a covenant. 2 The implied term may be used against an employee during the currency of the employment or after it has ended. 3 Enforcement is likely to be means of an injunction. It is well established that there is a duty lying on the employee not to dis- close confidential information, but the courts have had difficulty in estab- lishing what amounts to confidential information in any particular case. A distinction must be made between an individual employee’s general knowl- edge or individual skill, which he or she may legitimately put to use in the future, and a trade secret which the employer is entitled to protect. In Printers and Finishers Ltd v. Holloway [1964], at pp. 735–6, Cross J said: The mere fact that the confidential information is not embodied in a document but is carried away by the employee in his head is not of itself a reason against the granting of an injunction to prevent its use or disclosure by him. If the Contract of Employment 31 Hardy-3371-Chapter-03.qxd 1/4/2006 6:37 PM Page 31 information in question can fairly be regarded as a separate part of the employee’s stock of knowledge which a man of ordinary honesty and intelli- gence would recognise to be the property of his old employer and not his own to do as he likes with, then the court, if it thinks that there is a danger of the information being used to the detriment of the old employer, will do what it can to prevent that result by granting an injunction. Thus an ex-employee will be restrained from using or disclosing a chemical formula or a list of customers which he has committed to memory. EMPLOYER’S OBLIGATIONS The general rule at common law is that an employer is not obliged to provide work for the employee to do but only to pay the wages due under the contract. The classic statement of this rule is that of Asquith J in Collier v. Sunday Referee Publishing Co. Ltd, at p. 650: It is true that a contract of employment does not necessarily, or perhaps normally, oblige the master to provide the servant with work. Provided I pay my cook her wages, she cannot complain if I choose to take any or all of my meals out. There are, however, exceptions to the general rule which have arisen in cases where the law has recognised that in certain types of contract it is essential to the contract that the employee is given the opportunity to work. So, for example, it will be a breach of contract to fail to provide work for an employee paid on a piecework or commission basis, as in Devonald v. Rosser & Sons [1906] and Turner v. Goldsmith [1891]. In this last case, the Court of Appeal said that an agent paid on a commis- sion basis was entitled to be sent a reasonable amount of work to enable him to earn his commission. See also Bauman v. Hulton Press Ltd [1952]. Another group of exceptions arises in cases where the nature of the work is such that the opportunity for publicity is as important as the remuneration paid to the employee. This applies to actors, signers and the like. Thus, for example, in Marbé v. George Edwardes (Daly’s Theatre) Ltd [1928], a well known actress was engaged by the managers of a theatre to play a particular part in a play. There was also a collat- eral agreement by which the managers undertook to advertise her name in a prominent position. On the day of the dress rehearsal they refused to allow her to appear in the part. The Court of Appeal held that the con- tract imposed an express obligation upon the managers to allow her to appear in the part as agreed. They also held that damages for breach of 32 Employment Law for Business Students Hardy-3371-Chapter-03.qxd 1/4/2006 6:37 PM Page 32 MUTUAL TRUST AND CONFIDENCE In Wilson v. Racher [1974] Edmund-Davies LJ observed that ‘a contract of service imposes upon the parties a duty of mutual respect’. This case was decided when the law relating to unfair dismissal was in its infancy. Since the decision of the Court of Appeal in Western Excavating (ECC) Ltd v. Sharp [1978], however, which emphasised that constructive dis- missal will take place only where the employer is in breach of an express or implied term in the contract and the breach is so serious as to amount to repudiation of the contract, this implied duty has been considerably refined and developed, particularly as far as the employer’s behaviour is concerned. Subsequent case law has shown that the duty is flexible and will tend to vary with the circumstances of any particular case. The scope of the term was examined by Lord Steyn in Mahmud v. Bank of Credit and Commerce International SA [1997], at pp. 621–2. He approved the formulation of the term as set out by Browne-Wilkinson J above. Subsequently the Court of Appeal made it clear that tribunals should follow that formulation and not use language which might detract from the correct test or suggest that a different test has been applied: see Transco plc v. O’Brien [2002]. In this last case the Court of Appeal held that the employer had been in breach of the implied term in failing to offer an employee a new contract when offering one to all other perma- nent employees, despite the employer’s mistaken belief (arrived at in good faith) that he was not a permanent employee. As Hart J observed in University of Nottingham v. Eyett [1999], the terms in which the duty have been expressed have been ‘in the negative form of prohibiting con- duct calculated or likely to produce destructive or damaging conse- quences, rather than as positively enjoining conduct which will avoid such consequences’. This analysis may be said to underpin the cases considered in this section. Once such a breach of the implied term has been established, the next question concerns the extent of the damages that is available. The case law has left this area rather uncertain and confused, at times being considered not to include non-pecuniary losses (see Addis v. Gramaphone [1909]), and at other times to compensate for non-pecuniary ‘stigma’ damages, such as damage to reputation (see Malik v. BCCI [1998]). Two House of Lords cases sought to clarify this issue: Johnson v. Unisys Ltd [2001] and Dunnachie v. Kingston upon Hull City Council [2004]. These two cases appear to put a halt to the trend witnessed in the Malik Contract of Employment 35 Hardy-3371-Chapter-03.qxd 1/4/2006 6:37 PM Page 35 case towards allowing compensation for damages of a non-economic nature, and returned to the traditional position of Addis. In Johnson v. Unisys [2001] Mr Johnson, following a successful unfair dismissal claim against Unisys in 1994, commenced an action in the county court for damages, claiming that there had been various breaches of the implied terms of his employment contract, including the implied term of mutual trust and confidence. These breaches were alleged to have arisen owing to the lack of a hearing prior to his dismissal, and also because the company did not follow its own disciplinary procedure. Mr Johnson alleged that the manner and fact of his dismissal caused him to suffer a mental breakdown, and also made it impossible for him to find subsequent work. On appeal to the House of Lords, Mr Johnson’s claim was dismissed. The House of Lords affirmed the principle, as previously held in Addis v. Gramophone, that the scope and extent of damages were not such as to include any distress caused by the unfair manner of the dismissal or any harm caused to the employee’s reputation. Their lordships also dismissed the idea that a claim for breach of mutual trust and confidence could be constructed by merely recycling the same facts used for a wrongful dismissal claim. In Dunnachie [2004] there was further examination as to whether a breach of the implied term of mutual trust and confidence would extend to include compensation for non-economic loss. This issue was answered in the affirmative before an employment tribunal. The tribunal inter- preted section 123 of the Employment Rights Act 1996 (that the com- pensatory award for unfair dismissal was to be ‘such amount as the tribunal considers just and equitable in all the circumstances’ having regard to the ‘loss’ sustained by the complainant in consequence of the dismissal in so far as that loss was attributable to action taken by the employer) as including a sum for injury to feelings. The House of Lords, allowing the appeal, held that ‘loss’ in section 123(1) of the Act did not allow the recovery of anything other than eco- nomic loss. First, their lordships considered the origin of the provision in question, which goes back to section 116(1) of the Industrial Relations Act 1971. It was held that section 116(1) excluded non-economic loss and that nothing in the re-enactment suggested that this position had altered. Furthermore, their lordships read the phrase ‘just and equitable’ as a tool of flexibility available for the tribunal to utilise when making an appropriate award, rather than defining the scope of the ‘loss’. 36 Employment Law for Business Students Hardy-3371-Chapter-03.qxd 1/4/2006 6:37 PM Page 36 INTERACTIVE LEARNING 1 List the express and implied terms, giving examples for each. 2 ‘The obligation to maintain mutual trust and confidence ensures fair dealing between the employer and employee in respect of disciplinary proceedings, suspension of an employee and dismissal.’ Consider this statement, using case law to illustrate your answer. Contract of Employment 37 Hardy-3371-Chapter-03.qxd 1/4/2006 6:37 PM Page 37