Implied terms

Many employment contract terms are not expressly agreed and instead are left unsaid. These are known as implied terms. Where an employment contract is silent, there are three circumstances in which contract terms can be implied. These are:

• where a contract term is necessary to give business efficacy to the contract, in other words, to make it workable (Liverpool City Council v Irwin [1977] AC 239);

• where a contract term is so obvious that both parties, if asked by an informed outsider when entering into the contract whether they intended to be legally bound, would have responded “of course!”; and

• through custom or practice.

Sometimes regular and standard trade or industry practices carried out over a long time become implied into the employment contract through custom and practice. In CSC Computer Sciences Limited v McAlinden [2013] EWCA Civ 1435, the Court of Appeal said that the terms “custom and practice” are no longer very helpful. Instead the correct test is always to ask whether, from the perspective of an informed observer, the behaviour of both parties reasonably suggests that they consider themselves legally obliged to act in a particular way, for example, to pay enhanced redundancy pay.

For a contract term to be implied based on custom and practice, it must be widely known among the relevant section of the workforce and there must be widespread expectation that it will be legally enforced. It must be “reasonable, notorious and certain” (Devonald v Rosser & Sons [1906] (2) KB 728). In Garratt v Mirror Group Newspapers Limited [2011] ICR 880, a practice of only paying enhanced redundancy pay to employees who signed a compromise agreement had become a contract term, applying this test.

It is not enough to prove that something has been happening for a long time. There must also be evidence that both parties intended the practice to be a legally enforceable obligation. For example, in North Lanarkshire Council v McDonald [2006] UKEATS/0036/06, the fact that workers had worked half an hour of overtime every day for a year did not make the extra hours a contractual right.

In Park Cakes Limited v Shumba [2013] EWCA Civ 934, a case involving enhanced redundancy pay supported by the Bakers Food & Allied Workers’ Union, the Court of Appeal updated its guidance on incorporation of contract terms through custom and practice, providing the following helpful pointers:

• the more often and the longer a practice has gone on, the more likely it is that employees will reasonably regard the practice as a contractual right;

• always paying the same suggests a contractual right, while varying the amount each time suggests discretion. However, an employer could always bind itself to pay a minimum amount, while at the same time reserving the discretion to top it up;

• publicising a practice generally to the workforce, either directly or via a trade union, suggests that the employer acknowledges a legal obligation;

• clear contractual language such as “shall” and “must” suggests a contractual obligation, whereas vague or discretionary language such as “ex-gratia” or “policy” points the other way;

• no term can ever be implied, whether by custom or otherwise, that is inconsistent with an express contract term, unless there is evidence that the parties intended to vary their contract;

• if an employer’s actions, viewed objectively, can just as easily be explained as exercising discretion rather than performing a legal obligation, the claim is likely to fail.

Where a contract term is discretionary, there is an implied term that the employer will exercise that discretion genuinely and rationally (Horkulak v Cantor Fitzgerald International [2004] IRLR 942).

Well-established implied terms include the implied duty not to destroy mutual trust and confidence and the duty of good faith that bind both employer and employee. For example, an employee who gives away trade secrets would be in breach of these implied duties (Ticehurst and Thompson v BT [1992] IRLR 219).

A fundamental breach of the employment contract can give rise to a right to resign and claim constructive unfair dismissal in the employment tribunal, or wrongful dismissal in the civil courts. For more information see Chapter 10: Constructive dismissal, page 277.

Employers can be in breach of an implied contract term if they negligently misrepresent a situation leading employees to change their position. In Hagen v ICI Chemicals [2002] IRLR 31, employees agreed to transfer under TUPE (see Chapter 12) because they were told their pension rights would be broadly unaffected. This was not correct and some employees lost out substantially as a result. The High Court held that this was a breach of contract and that the employees could sue their old employer for damages.

Here is another good example:

Where a term has not been negotiated individually with employees, the employer has an implied duty to take reasonable steps to bring that term to their attention (Scally and others v Southern Health Board [1991] IRLR 522). This ruling came in the case of four doctors who were unaware of their right to purchase additional years towards their pension entitlement.

The duty to inform does not oblige the employer to advise employees of their best choice (University of Nottingham v Eyett [1999] IRLR 87) or to protect their economic well-being (Crossley v Faithful & Gould Holdings [2004] IRLR 377).

If the employment contract gives the employer the right to choose whether to terminate it at the end of its term or with a payment in lieu of notice, there is no implied term that the choice will be exercised in the way that is most beneficial to the employee, even if this means that the employee loses out on a valuable benefit such as a commission payment or a bonus (Reda v Flag Ltd [2002] IRLR 747). For more on pay in lieu of notice see page 276.

Employers also have an implied contractual duty to provide a safe system of work and a suitable working environment. They also owe a duty not to cause harm through negligence.

Another important implied duty is the duty not to cause reasonably foreseeable psychiatric injury (Walker v Northumberland CC [1995] IRLR 35). A breach of this duty can lead to a personal injury claim for damages in the civil courts. The most important case in this context is the landmark Court of Appeal ruling of Sutherland v Hatton [2002] IRLR 263. In particular, the case established that stress alone is not an injury and that foreseeability of stress is not enough to make an employer liable for psychiatric injury. Instead, foreseeability of actual psychiatric injury is needed.

The basic question to ask each time is:

• would a reasonable employer in this position have foreseen this injury to this particular worker and if so;

• what should this employer have done to avoid it?

To succeed, a claimant must prove that their employer should have known about the risk to them of psychiatric harm. They might, for example, be able to point to past periods of absence that the employer knew to be linked to mental health issues such as anxiety or depression, or the employer might have failed to support their return to work after already taking time off for work-related stress (see for example, Barber v Somerset CC [2004] UKHL 13).

In practice the threshold is set very high. An employer is allowed to take at face value what an employee says about their fitness, and if they return to work after a period of sickness and provide no indication to the contrary, the employer is usually allowed to assume that they are fit to return to their old job. In particular, the fact that an employer knows someone is on medication such as anti-depressants is not in itself enough to alert them to a need to take special care (Easton v B&Q [2015] EWHC 880).

Without evidence pointing to a particular vulnerability, an employer is entitled to assume that an apparently healthy employee with no history of psychiatric ill-health can cope with “even a very serious set-back at work” without developing a depressive illness:

Employers cannot escape liability by offering a counselling service or occupational health services if they already knew or should have known that an employee was at risk of psychiatric harm, for example, because their workload or responsibilities were excessive (Dickens v O2 plc [2008] EWCA Civ 1144).

In a claim based on breach of contract or negligence, an employer will not normally be taken to know of a pre-existing medical condition if it was only revealed confidentially to an occupational health adviser (Hartman v South Essex Mental Health and Community Care NHS Trust [2005] EWCA Civ 6).

Employers can be liable in negligence if their employees cause personal injury to agency workers or other non-employees at their workplace.

In some cases of work-based personal injury, a claim based on disability discrimination is a better option for the member than a claim in the civil courts. However, reps need to be aware that time limits are far shorter in the employment tribunal than in the civil courts — just three months, as opposed to three years for a personal injury claim in the civil courts (see Chapter 6: Discrimination).