Essay: The implied duty of trust and confidence in employment contracts

Contracts of employment can comprise of both express and implied terms.   Express terms are those set out in the contract, and implied terms are those read into the contract by operation of common law and statute[1], as a result of the employer/employee relationship, which is one of trust.

Arguably the most important[2] implied term is the duty of trust and confidence, also known as the duty of good faith or fidelity when referred to in the context of the employee[3]. This is a duty not to undermine the employer/employee relationship by unreasonable behaviour[4]. The duty was first formulated in Courtaulds Northern Textiles Ltd v Andrew[5], and was later confirmed in Malik v BCCI[6].

In the context of an employer, a two fold objective test exists, in assessing whether a breach of the duty has occurred:

Whether the employer conducted themselves in a way that was calculated to destroy or seriously damage the relationship of trust and confidence between the parties; and, if so,

Whether the employer did so with reasonable and proper cause[7].

The conduct may be a one off incident or a series of events over a period of time[8].  The employer may not set out to intentionally undermine its relationship with the employee – the test simply asks if their conduct, in fact, had that effect[9].  The test applies to both acts and omissions – so, for example, failure to award a bonus could be a breach[10].

Other examples of breaches of the implied duty by employers include issuing a warning with an invitation to resign which has been held to amount to a vote of no confidence in the employee.  The use of foul language by managers in dealing with their staff, and attempts to vary the terms of service with the aim of getting rid of the employee would similarly constitute a breach[11]. The Malik[12] case provides a further example – in that case, the employing bank had breached the duty by running a wholly corrupt business.

Employees may breach their duty by working for a competitor, although the Courts will only recognise this imposition on what employees do in their spare time in limited circumstances[13].  In Hivac Limited v Park Royal[14], five employees were prevented from working for a rival firm, the sole competitor in the area.  There was scope for confidential information to be passed to the rival firm by the employees. Similarly, acts such as making lists of customers or memorising the list prior to leaving[15], or enticing customers or other employees away from the employer would be a breach of trust[16]. However, restrictions on the use of information that is not confidential, such as industry knowledge acquired in the job, cannot be restricted[17] and generally, implied terms offer little protection to an employer so it is better to include express terms such as those contained in the Harvey template contract of employment[18].  These must not go ‘too far’ in protecting the employer’s legitimate interests or they will be held void.

[1] Slapper, G & Chapman, K (2008) W221: Employment Law and Practice (5th Edition) Oxford University Press, Oxford, p.93

[2] Slapper, G & Chapman, K (2008) p.100

[3] Slapper, G & Chapman, K (2008) p.97

[4] Slapper, G & Chapman, K (2008) p.97

[5] Courtaulds Northern Textiles Ltd v Andrew [1979] IRLR 84

[6] Malik v BCCI [1997] ICR 606; Painter, R & Holmes, A (2008) p.150

[7] Woods v WM Car Services (Peterborough) Ltd [1982] IRLR 413

[8] Slapper, G & Chapman, K (2008) p.97

[9] Slapper, G & Chapman, K (2008) p.98

[10] Slapper, G & Chapman, K (2008) p.98

[11] Slapper, G & Chapman, K (2008) p.98

[12] Malik v BCCI [1997] ICR 606

[13] Per Nova Plastics Limited v Froggett [1982] IRLR 146; Painter, R & Holmes, A (2008) p.157

[14] Hivac Limited v Park Royal Scientific Instruments [1946] Ch 169; Painter, R & Holmes, A (2008) p.157

[15] Roger Bullivant Ltd v Ellis [1987] ICR 464; Robb v Green [1895] w QB 315

[16] Sanders v Parry [1967] All ER 803

[17] Faccenda Chicken Ltd v Fowler [1986] IRLR 69

[18] Service Agreement (Contract of Employment) for senior executive – Harvey, Division U, LexisNexis Butterworths Commentary, Clauses 14 and 15

Bibliography

Painter, R & Holmes, A (2008) Cases and Materials on Employment Law (6th Edition) OUP, Oxford

Service Agreement (Contract of Employment) for senior executive – Harvey, Division U, LexisNexis Butterworths Commentary

Slapper, G & Chapman, K (2008) W221: Employment Law and Practice (5th Edition) Oxford University Press, Oxford

Cases

(i) Aparau v Iceland Frozen Foods [1996] IRLR 119

(ii) Courtaulds Northern Textiles Ltd v Andrew [1979] IRLR 84

(iii) Faccenda Chicken Ltd v Fowler [1986] IRLR 69

(iv) Hivac Limited v Park Royal Scientific Instruments [1946] Ch 169

(v) HSBC plc v Mrs C Drage CSRC vol 27 iss 17/3

(vi) Malik v BCCI [1997] ICR 606

(vii) McClory & Others v The Post Office [1992] ICR 758; [1993] IRLR 159

(viii) Nova Plastics Limited v Froggett [1982] IRLR 146

(ix) Robb v Green [1895] w QB 315

(x) Roger Bullivant Ltd v Ellis [1987] ICR 464

(xi) Sanders v Parry [1967] All ER 803

(xii)  United Bank Ltd v Akhtar [1989] IRLR 507

(xiii) White v Reflecting Roadstuds Ltd [1991] IRLR 331

(xiv) Woods v WM Car Services (Peterborough) Ltd [1982] IRLR 413

Source: Essay UK - http://lecloschateldon.com/essays/law/essay-the-implied-duty-of-trust-and-confidence-in-employment-contracts/


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