Implied Terms in Employment Contracts

Implied terms fill gaps in employment contracts and impose obligations beyond what's written. Understanding them helps you avoid breaches.

What Are Implied Terms?

Terms that exist in every employment contract, whether written or not:

• Imposed by law
• Necessary to make the contract work
• Based on custom and practice

Key point: You're bound by them even if your written contract is silent.

Types of Implied Terms

Terms Implied by Law

Apply to all employment contracts:

• Mutual trust and confidence
• Duty of care
• Duty to pay wages
• Employee duties (fidelity, obedience)

Terms Implied by Custom

Based on accepted practice in:

• Industry sector
• Specific workplace
• Must be "reasonable, certain, and notorious"

Terms Implied by Necessity

Necessary to give the contract business efficacy:

• What the parties must have intended
• "Officious bystander" test

The Implied Term of Trust and Confidence

The Most Important Term

Employers must not:

"Without reasonable and proper cause, conduct themselves in a manner calculated or likely to destroy or seriously damage the relationship of trust and confidence between employer and employee"

What Can Breach It

• Unjustified criticism
• Bullying or harassment
• Failing to investigate complaints
• Undermining authority
• False accusations
• Unilateral contract changes
• Threatening behaviour
• Excluding from meetings

The "Last Straw"

A series of lesser acts can cumulatively breach trust and confidence:

• Final act triggers the breach
• Final act needn't be serious itself
• Must contribute (not trivial)

Consequences of Breach

• Employee may resign and claim constructive dismissal
• No qualifying period needed for the breach
• But 2 years needed for unfair dismissal claim

Employer's Duty of Care

What It Covers

Take reasonable care for employee's:

• Physical safety
• Mental health and wellbeing
• Safe working environment

Examples

• Provide safe equipment
• Protect from harassment
• Address reported concerns
• Risk assessments
• Training on safety
• Not overwork to point of harm

Overlap with Statutory Duties

Also owe duties under:

• Health and Safety at Work Act 1974
• Various regulations

Duty to Pay Wages

The Basic Duty

Must pay agreed wages:

• On time
• In full
• At agreed rate

What "Wages" Includes

• Basic salary
• Guaranteed overtime
• Commission (if structured correctly)
• Bonus (if contractual)

Deductions

Can only deduct if:

• Required by law
• Authorised by contract
• Employee has consented

Duty to Provide Work

When It Applies

Not automatic for all employees. More likely for:

• Skilled workers whose skills may atrophy
• Commission earners (pay depends on work)
• Employees with public profile
• Senior roles requiring engagement

Consequences

If duty applies, you can't:

• Simply send home on pay
• Refuse to give work (without garden leave clause)

Garden Leave

Express garden leave clause allows you to:

• Pay but not provide work
• Override any implied duty

Employee's Implied Duties

Duty of Fidelity (Loyalty)

Employee must:

• Act in employer's interests
• Not compete during employment
• Protect confidential information
• Not make secret profits

Duty to Obey Reasonable Instructions

Must follow lawful, reasonable instructions:

• Within scope of job
• Not dangerous or illegal
• Consistent with contract

Duty of Care and Skill

Perform work with:

• Reasonable competence
• Due care and attention
• Required skill level

Duty to Account

Report to employer:

• Wrongdoing by others (in some cases)
• Own mistakes affecting employer

Other Implied Terms

Duty to Cooperate

Both parties must:

• Not prevent performance of contract
• Cooperate in performing contract
• Act in good faith

Duty to Exercise Discretion Reasonably

When contract gives discretion (e.g., bonus):

• Must exercise reasonably
• Not in bad faith
• Not capriciously
• Not irrationally

Duty to Give Notice

If contract doesn't specify:

• Reasonable notice required
• What's reasonable depends on circumstances
• Seniority, length of service, payment frequency

How Implied Terms Interact with Express Terms

Express Terms Prevail

Written terms generally override implied:

• Clear express term takes priority
• But can't contract out of trust and confidence entirely

Trust and Confidence as "Floor"

Even express powers subject to trust and confidence:

• Discretionary bonus: can't exercise in bad faith
• Mobility clause: must give reasonable notice
• Disciplinary: must follow fairly

Example

Contract says: "Company may transfer you to any location."

Express term: Allows transfer.

Implied term: Must not exercise in way that breaches trust and confidence.

Result: Can transfer, but must give reasonable notice, consider circumstances, not use as punishment.

Incorporating Documents

Handbooks and Policies

May become contractual terms if:

• Expressly incorporated
• Clear intention to be binding
• Employee agrees

What's Usually Not Contractual

• Statements of policy
• Aspirational statements
• Guidance documents
• Unless clearly stated as contractual

Custom and Practice

Requirements for Custom to be Implied

Must be:

• Reasonable
• Certain (clear and consistent)
• Notorious (well-known)
• Not contradicted by express terms

Examples

• Longstanding practice of paid overtime at specific rate
• Consistent application of bonus scheme
• Traditional holiday arrangements

Breach of Implied Terms

Consequences for Employer

Breach can lead to:

• Constructive dismissal claim
• Breach of contract claim
• Discrimination claim (if related)
• Personal injury claim (safety duties)

Consequences for Employee

Breach can justify:

• Disciplinary action
• Summary dismissal (gross breach)
• Damages claim

Practical Implications

For Employers

Avoid breaching trust and confidence:

• Treat employees fairly
• Follow proper procedures
• Act reasonably
• Communicate properly
• Don't undermine or humiliate

Exercise discretion properly:

• Consider all relevant factors
• Give reasons
• Act rationally
• Apply consistently

For Contract Drafting

Include express terms for:

• Garden leave (to avoid work duty)
• Mobility (with safeguards)
• Flexibility (with boundaries)
• Confidentiality (specifics)

Make clear:

• What's contractual vs policy
• How discretion will be exercised
• Scope of duties

Key Cases

Malik v BCCI (1997)

Established breadth of trust and confidence term. Employer's corrupt operation damaged employees' career prospects.

Johnson v Unisys (2001)

Trust and confidence term doesn't apply to manner of dismissal itself (that's covered by unfair dismissal).

Horkulak v Cantor Fitzgerald (2004)

Discretionary bonus must be exercised genuinely and rationally, not perversely.

Crossley v Faithful & Gould (2004)

No implied duty to advise employee about their own financial interests.

Checklist

Managing the Relationship

• Treat employees with respect
• Follow fair procedures
• Address concerns properly
• Communicate clearly
• Exercise discretion reasonably

Contract Drafting

• Include key express terms
• Clarify contractual vs non-contractual policies
• Consider implied term implications
• Include garden leave if needed
• Specify how discretion works

When Problems Arise

• Consider implied term position
• Act reasonably and proportionately
• Document decision-making
• Seek advice if uncertain