Reviewing and Changing Contracts of Employment

THOROGOOD
PROFESSIONAL
INSIGHTS

A SPECIALLY COMMISSIONED REPORT

REVIEWING AND
CHANGING CONTRACTS
OF EMPLOYMENT
Annelise Tracy Phillips, Paula Rome,
Thomas Player and Tracy Luke


IFC


THOROGOOD
PROFESSIONAL
INSIGHTS

A SPECIALLY COMMISSIONED REPORT

REVIEWING AND
CHANGING CONTRACTS
OF EMPLOYMENT
Annelise Tracy Phillips, Paula Rome,
Thomas Player and Tracy Luke


Published in 2003, updated 2005

Other Thorogood
Professional Insights

Thorogood Publishing Ltd
10-12 Rivington Street
London EC2A 3DU.
t: 020 7749 4748
f: 020 7729 6110

Applying the Employment Act 2002
– Crucial Developments for
Employers and Employees

e:

Audrey Williams

© Eversheds 2003, 2005

w: www.thorogood.ws

All rights reserved. No part

A Practical Guide to Knowledge
Management
Sue Brelade and Christopher Harman

of this publication may be
reproduced, stored in a retrieval
system or transmitted in any

form or by any means, electronic,
photocopying, recording or

HR Business Partners and
HR Outsourcing

otherwise, without the prior

Ian Hunter and Jane Saunders

This Report is sold subject to the

permission of the publisher.

condition that it shall not, by way
of trade or otherwise, be lent,

Email – Legal Issues

re-sold, hired out or otherwise

Susan Singleton

circulated without the publisher’s
prior consent in any form of
binding or cover other than in

Employee Sickness and
Fitness for Work
Gillian Howard

Successfully Defending Employment
Tribunal Cases
Dennis Hunt

which it is published and without
a similar condition including this
condition being imposed upon
the subsequent purchaser.
No responsibility for loss
occasioned to any person acting
or refraining from action as a
result of any material in this
publication can be accepted by
the author or publisher.

Special discounts for bulk quantities
of Thorogood books are available to
corporations, institutions, associations and
other organisations. For more information
contact Thorogood by telephone on
020 7749 4748, by fax on 020 7729 6110, or
email us:

A CIP catalogue record for
this Report is available from
the British Library.
ISBN 1 85418 296 X
Printed in Great Britain
by printflow.com

The authors

Annelise Tracy Phillips
Annelise Tracy Phillips is a Partner in the HR Group at Eversheds. She practices
in all aspects of employment law, including strategic issues such as managing
change and large-scale restructuring. Particular areas of expertise include discrimination law and cross border change management/executive terminations.
Annelise lectures for the CIPD and is the co-author of published works on topics
as diverse as working time, family friendly working, employment tribunals and
race discrimination.

Paula Rome
Paula Rome is a member of the Eversheds HR Training and Development Team
and is involved in providing training for clients on legal and HR issues including
equal opportunities, bullying and performance management as well as writing
and presenting lectures on the training and development public programme.
Paula has also developed and provided training programmes for clients on equal
opportunities, avoiding harassment, performance management and absence
management, as well as participating in pan-European training sessions for international clients.

Thomas Player
Thomas Player is a Partner in the Human Resources Team at Eversheds. He has
a particular interest in industrial relations and collective bargaining. He is an
experienced labour and employment lawyer. He has experience on complex reorganisational issues and collective redundancies. He has drafted collective
agreements and has experience of industrial action, balloting and trade union
recognition issues. He has a particular interest in the working time regulations.

THOROGOOD PROFESSIONAL INSIGHTS

THE AUTHORS

Tracy Luke
Tracy Luke is an HR and Employment law trainer with Eversheds.
Tracy initially worked for the Department of Trade and Industry (within the Statistics Division and the Insolvency Service) for six years before her departure to
commence studies for her Law Degree. She qualified in 1995 and practised for
eight years as a solicitor.
Tracy currently delivers training to a range of different organisations – from
FTSE 100 companies to police forces and housing associations. She has also
delivered training on a pro bono basis to charitable organisations.

THOROGOOD PROFESSIONAL INSIGHTS


Contents

1

CREATING THE CONTRACT OF EMPLOYMENT

1

ANNELISE TRACY PHILLIPS

Introduction..................................................................................................2
Offer ..............................................................................................................2
Invitation to treat .........................................................................................3
Acceptance ...................................................................................................3
Withdrawal of offer .....................................................................................4

Consideration...............................................................................................5
Intention to create legal relations ..............................................................5
Statement of main terms and conditions ..................................................5
Contents of the written statement .............................................................6
The terms of the contract of employment.................................................8

2

REVIEWING AND CHANGING THE
CONTRACT OF EMPLOYMENT

21

PAULA ROME, UPDATED BY TRACY LUKE

Handbook of policies and procedures.....................................................22
Legal status of the handbook ...................................................................22
Maintaining flexibility ...............................................................................23
Common content of the handbook ..........................................................26
HR Policies – Key Policies and Procedures .............................................30
HR Policies – Non-Key Policies ................................................................40

THOROGOOD PROFESSIONAL INSIGHTS


3

COLLECTIVE AGREEMENTS

45

TOM PLAYER

Introduction................................................................................................46
Legal enforceability ...................................................................................47
Incorporation of collectively bargained terms
into individual contracts ..........................................................................48
Express incorporation...............................................................................49
Implied incorporation ...............................................................................51
Incorporation by way of agency ..............................................................51
Provisions restricting rights to take industrial action ...........................52
Trade union recognition............................................................................53
Schedule A1................................................................................................54
Drafting of collective agreements ............................................................61

4

PRACTICAL DRAFTING CONSIDERATIONS

68

TOM PLAYER

Introduction................................................................................................69
Hours of work ............................................................................................71
Role and responsibilities ...........................................................................71
Building flexibility into contracts .............................................................72
Express flexibility clauses .........................................................................72
Place of work ..............................................................................................73
Deductions – protection of wages............................................................75

Right to search ...........................................................................................77
Employee benefits......................................................................................77
Working time .............................................................................................79
Enforcement of the Regulations...............................................................82

THOROGOOD PROFESSIONAL INSIGHTS


5

CONFIDENTIALITY AND POST
TERMINATION RESTRICTIONS

83

PAULA ROME, UPDATED BY TRACY LUKE

Background ...............................................................................................84
Competition whilst still employed ...........................................................85
Post termination restrictions – restrictive covenants ............................89
Enforcement ...............................................................................................93
The effect of wrongful and constructive dismissal ................................95

6

CHANGING THE CONTRACT

98

ANNELISE TRACY PHILLIPS

Introduction................................................................................................99
Consent between the parties ....................................................................99
Union agreement .......................................................................................99
Legal remedies .........................................................................................102
Deductions in wages claims ...................................................................104
Unfair dismissal .......................................................................................104
Remedies for unfair dismissal ................................................................106
Discrimination claims..............................................................................107
Imposing the change ...............................................................................107
The pressing business need....................................................................108
Collective consultation ............................................................................110
With whom should you consult? ...........................................................111
Employee representatives.......................................................................111
Notice ........................................................................................................113
Summary...................................................................................................115

THOROGOOD PROFESSIONAL INSIGHTS


7

INDUSTRIAL ACTION

116

TOM PLAYER

Introduction..............................................................................................117
What is industrial action? .......................................................................117

Definition of a ‘trade dispute’ .................................................................118
The rules on ballots and notification .....................................................119
Information to be contained in notices .................................................119
Sample voting paper ...............................................................................120
Type of ballot ............................................................................................121
Industrial action notices..........................................................................122
Commencement of industrial action .....................................................123
Planning for industrial action.................................................................123
Temporary labour ....................................................................................124
Industrial action and the statutory right to
claim ‘unfair dismissal’............................................................................124
The strike ..................................................................................................126
Picketing ...................................................................................................127

SUMMARY

128

THOROGOOD PROFESSIONAL INSIGHTS


THOROGOOD
PROFESSIONAL
INSIGHTS

Chapter 1
Creating the contract of employment
Annelise Tracy Phillips
Introduction............................................................................................2
Offer ........................................................................................................2

Invitation to treat ...................................................................................3
Acceptance .............................................................................................3
Withdrawal of offer ...............................................................................4
Consideration.........................................................................................5
Intention to create legal relations ........................................................5
Statement of main terms and conditions ............................................5
Contents of the written statement .......................................................6
The terms of the contract of employment...........................................8


Chapter 1
Creating the contract of
employment

Introduction
Technically, a contract of employment does not need to be a written document.
It can be wholly oral (subject to the statutory obligation to provide written particulars discussed below). Given the difficulties of interpreting oral agreements
after some time has passed it is clearly advisable for the written version of the
contract to be agreed between the parties and retained for future reference.
A binding contract of any kind must contain the following elements:
•

Offer

•

Acceptance

•

Consideration

•

Intention to create legal relations

Offer
In legal terms an offer is an expression of intent to enter into a binding contract
with specific terms on acceptance. Offers may be conditional on some other
activity or criterion being achieved so, for example, if an offer of employment
is subject to the receipt of satisfactory references and the employee accepts the
offer, the contract will not be complete and binding until all the conditions are
fulfilled.
An issue which regularly arises is what constitutes a satisfactory reference.
In Wishart -v- National Association of Citizens Advice Bureaus Limited [1990] IRLR
393, Mr. Wishart was offered employment subject to satisfactory references. His
references disclosed significant sickness absence in his former employment. The
job offer was withdrawn and Mr. Wishart sued.

THOROGOOD PROFESSIONAL INSIGHTS

2


1 C R E AT I N G T H E C O N T R A C T O F E M P L O Y M E N T

The question before the Court of Appeal was what constituted a satisfactory
reference. In particular whether the test is objective or subjective. That is, does
the reference have to be satisfactory to a reasonable employer or to that particular employer who may have significantly higher or lower standards?
The Court of Appeal decided the case on a different point but held, obiter (that

is as a matter of guidance rather than by binding precedent), that the use of
‘satisfactory’ in this context meant that an employer is reserving the right to
make up its own mind as to whether the references are satisfactory as opposed
to setting an objective condition.

Invitation to treat
A distinction must also be made between an offer whether conditional or not,
and an ‘invitation to treat’.
The difference is that, if a candidate accepts an invitation to treat, they are, in
fact, making an offer indicating their willingness to apply for a role. It is in this
context that adverts for roles must be seen as should application forms for specific
roles.
Advertisements do not constitute offers capable of acceptance but merely invitations to make applications. It is when a formal offer of employment is made that
an acceptance becomes possible.

Acceptance
Acceptance must be absolute and unconditional. If the acceptance is subject to
conditions or is based on terms other than those in the original offer it will amount
to a counter offer. The employer is free to accept the counter offer if he/she so
wishes.
The counter offer operates to terminate the original offer. If the candidate purports
to accept a varied offer, and this counter offer is rejected by the employer, then
the candidate can no longer go back and accept the original offer unless it is
re-made.

THOROGOOD PROFESSIONAL INSIGHTS

3

1 C R E AT I N G T H E C O N T R A C T O F E M P L O Y M E N T

Withdrawal of offer
A common problem area arises when an offer made in error is accepted by the
candidate. Offers may be withdrawn at any time before they are accepted even
if they have been stated to be valid for a specific period of time and that period
of time has not yet expired. Withdrawal of an offer is valid when it is communicated. Acceptance is valid when it reaches the offeree with one exception, that
is when it is posted. Postal acceptance occurs when it is posted rather than when
it is received.
This means that if an offer is withdrawn by letter and the acceptance is posted
before the withdrawal is received, a binding contract will have been created
between the parties.
In Sarker -v- South Tees Acute Hospitals NHS Trust [1997] IRLR 328 a binding
contract was created but was terminated before Mr. Sarker started work.
The Employment Appeal Tribunal held that the fact that the contract was set to
start at a later date did not mean that termination did not require notice in accordance with the contract which had created the binding agreement.
An individual who claims breach of contract and succeeds is entitled to damages
to compensate him/her for the losses they have suffered. The measure of damages
amounts to the sum the individual would have recovered had the contract been
properly performed.
Normally this would amount to compensation for the proportion of the notice
period during which the contract would have been live, and salary and benefits
would have been paid.
The termination of the contract is a dismissal for the purposes of the Employment Rights Act 1996 and if the reason for it is one of the automatically unfair
reasons set out, e.g. pregnancy, then, because there is no applicable qualifying
period of employment for the automatically unfair categories, a claim for unfair
dismissal can be made.

THOROGOOD PROFESSIONAL INSIGHTS

4


1 C R E AT I N G T H E C O N T R A C T O F E M P L O Y M E N T

Consideration
The doctrine of consideration is one of the most complex legal principles. At
its most basic it means that a benefit must pass from each party to the other. It
is a concept which is often difficult to apply in the employment arena. Usually
the consideration passing to the employee, namely pay, is easy to identify, but
in terms of the consideration which passes to the employer, this is usually said
to be the benefit of work done.

Intention to create legal relations
Without intention to create legal relations, contractual obligations cannot have
legal effect. In situations therefore where benefits are stated to be discretionary,
the parties are making it clear that there is no intention to create legal relations
and therefore they do not intend to be bound by the obligation to provide the
benefit.
In the terms of the exercise of the discretion and the potential breach of trust
and confidence see later (Chapter 4).

Statement of main terms and conditions
The law does not require a contract of employment to be in writing and, during
the first two months of employment, there is no duty on the employer to provide
any additional information as to the terms of the candidate’s employment.
However, Section 1 of the Employment Rights Act 1996 (‘ERA’) requires that the
employee must be given a statement of the main terms and conditions of his
employment not later than two months from the beginning of the employment
(see below).

If an employer fails to provide written particulars and a claim is tagged on to
another claim, for example for unfair dismissal, an employee’s award can be
increased by between two and four weeks’ pay subject to the statutory
maximum of a week’s pay, currently £270 per week.
Technically the statement is not a contract, although it is very strong evidence
of what the terms of the contract are. By contrast, a document which is drawn
up as a contract of employment will provide direct evidence of what the terms
of contract are.

THOROGOOD PROFESSIONAL INSIGHTS

5


1 C R E AT I N G T H E C O N T R A C T O F E M P L O Y M E N T

Contents of the written statement
The statement may be given in instalments during the two month period although
certain particulars must be included in a single document known as the Principal
Statement. These are as follows:
•

The name of the employer and employee; and

•

the date when the employment began; and

•

the date on which the employee’s period of continuous employment
began (taking into account any employment with a previous employer
– for example, where the business has been taken over – which counts
towards that period).

The statement must also contain details of the following particulars of employment which are applicable as at a date no more than seven days before the date
that the statement is given to the employee:
•

Scale of remuneration, or the method of calculating the remuneration;

•

the intervals at which the remuneration is paid (i.e. weekly, monthly
or at another interval);

•

any terms and conditions relating to hours of work such as details
relating to normal working hours;

•

terms and conditions relating to entitlement to holidays, including public
holidays and holiday pay;

•

the job title or brief job description of the work for which the employee
is employed;

•

either the place of work or an indication that the employee is required
to work at various places, and the address of the employer.

THOROGOOD PROFESSIONAL INSIGHTS

6


1 C R E AT I N G T H E C O N T R A C T O F E M P L O Y M E N T

The remaining details which can be provided in instalments are terms and conditions relating to:
•

Incapacity for work due to sickness or injury, including any provision
for sick pay;

•

terms and conditions relating to pension schemes and confirmation
as to whether or not a contracting out certificate is in force (a certificate
may be issued where an occupational pension scheme exists);

•

the length of notice which the employee is obliged to give and is entitled
to receive to terminate the contract of employment. There are statutory
minimum notice periods which apply to all employees employed for

one month or more; these are as follows:
Length of service

Minimum notice

1 month – less than 2 years

1 week (from employer)

2 years

2 weeks (from employer)

3-12 years

3-12 weeks (from employer on
the basis of one week per year
of service)

12+ years

12 weeks (from employer – this
is the maximum)

1 month – 12 + years

•

1 week (from employee)

where the employment is not permanent, the period for which it is
expected to continue or, for a fixed term, on which it is to end;

•

the particulars of any collective agreement which directly affects terms
and conditions including the persons by whom they were made where
the employer is not a party;

•

where the person is required to work outside the UK for more than
one month, the period for which he or she is to do so, the currency
in which the salary will be paid, any additional remuneration or benefits
and any terms and conditions relating to his or her return to the UK;

•

the statement must include a note specifying any procedure applicable
to the taking of disciplinary decisions relating to the employee or to
a decision to dismiss the employee or refer them to the provisions of
a reasonably accessible document which specifies such rules. It is useful
if the note specifically stipulates that the disciplinary procedure is not

THOROGOOD PROFESSIONAL INSIGHTS

7


1 C R E AT I N G T H E C O N T R A C T O F E M P L O Y M E N T

a term of the employee’s contract. This is an important consideration
for employers as a result of recent cases in the Tribunals which have
held that in certain circumstances, employees would be able to claim
damages for breach of contract when a disciplinary procedure
which formed part of the employers contract was not followed (see
later).

The terms of the contract of employment
The parties to the contract may agree (subject to some specific exceptions) any
terms they wish. The terms of the contract may be written or oral, express or
implied.

Express terms
These are the terms which the parties have specifically discussed or agreed either
orally or in writing. They may also be terms which have been agreed by reference to collective documents accepted by the parties (see below). It is thus not
necessary for all express terms of the contract to be contained in a single written
contract.

Incorporated terms
Contract terms may become part of the contract of employment by incorporation where the contract expressly states that it is subject to the terms and
conditions of another relevant source, such as a collective agreement, work rules
or the staff handbook. Incorporation may also be implied by custom or past
practice in the industry. Once a term contained in a collective agreement is incorporated into the contract, then it applies to all employees despite the fact that
a particular employee does not approve of what has been agreed (Tocher -vGeneral Motors (Scotland) Ltd 1990 IRLR 478) and whether or not he is a member
of the trade union.

Collective agreements
Collective agreements are generally made between employers and trade unions
and are not normally legally binding. When the union negotiates on behalf of

its members, it is acting as a principal and not an agent. Terms may, however,
become incorporated into individual contracts of employment if agreed
between the parties.

THOROGOOD PROFESSIONAL INSIGHTS

8


1 C R E AT I N G T H E C O N T R A C T O F E M P L O Y M E N T

A collective agreement is defined in Section 178 of the Trade Union and Labour
Relations (Consolidation) Act 1992 (TULRCA) as ‘an agreement or arrangement
made by or on behalf of one or more trade unions and one or more employers
or employers associations which relates to one or more of the items listed in
Section 178 (2)’. These are: terms and conditions of employment and conditions
of work, hiring, firing and suspension, allocation of work or the duties of employment between employees, discipline, union membership, union recognition,
facilities agreements, procedures and the other machinery of collective
bargaining.
Therefore, even though a collective agreement may not be enforceable between
the collective parties (the employer and the union), it may still be enforceable
between the individual parties (the employer and the employees). This is the case
even where the collective agreement expressly states that it is binding in honour
only. (Marley -v- Forward Trust Group Ltd (1986) IRLR, 1986 ICR 891, CA).
Not all terms will be incorporated into the contract of employment, only those
which are appropriate. Those which are essentially collective in nature will not
be classed as appropriate. Terms relating to pay, hours, holidays etc will be appropriate as opposed to those relating to conciliation schemes.
In National Coal Board -v- National Union of Mineworkers (1986) IRLR 439 (1986)
ICR 736, the judge decided a collective dispute procedure was not contractually
incorporated. In cases of ambiguity, the courts look to the intentions of the parties

to the collective agreement (Adams -v- British Airways plc (1995) IRLR 577).

Staff handbooks
In the same way as collective agreements, staff handbooks may be incorporated
expressly into the contract of employment by reference. Furthermore, where
the court can reasonably infer from the circumstances of the case that the parties
must have intended works rules to have contractual force, then they will be incorporated. For example, in Petrie -v- Mac Fisheries Limited 1940 1KB 258, a notice
about sick pay posted on the factory notice board had contractual effect.
If the principal contract does not expressly incorporate the collective agreement
or staff handbook, then the court will look to see whether the employee has
acknowledged the binding effect of the documents. For example, if they were
signed by the employee then obviously this may be evidence of the parties intention to incorporate the terms as terms of the employee’s contract of employment.

THOROGOOD PROFESSIONAL INSIGHTS

9


1 C R E AT I N G T H E C O N T R A C T O F E M P L O Y M E N T

If there is no signature, then the Court will determine whether the employee
was put on notice of such terms and then assess how widely known and accepted
they are. If the terms are generally well known to the employee they may well
be incorporated into the individual’s contract of employment.

Implied terms
These are terms which form part of a contract although they may not be specifically referred to or stated by the parties. Implied terms have the same effect as
an express term but where an implied term is inconsistent with an express term
the express term will prevail. There are several ways in which terms may be
implied:

•

By conduct.

•

By custom and practice – which must be reasonable, certain and
notorious.

•

For the purposes of business efficacy (Scally v Southern Health and
Social Services Board (1991) ICR 771)

•

By the officious bystander objective test.

•

As a characteristic term.

IMPLIED BY CONDUCT

The term is implied where the conduct of the parties indicates that they are in
general agreement about a particular matter. For example, where at the start
of his employment an employee regularly takes a 15 minute coffee break at
11:00am but there is no express term allowing it, the employee may argue that
the break was an implied term of the contract which the employer had accepted
by conduct. (see Aparau -v- Iceland Frozen Foods Plc (1996) IRLR 119, EAT).

One area of concern for employers is at what point a practice within the business
becomes a contractual right of the employee.
In the case of Quinn -v- Calder Industrial Materials Limited [1996] IRLR 126, this
very point was considered. In that case the employers had issued policy documents
with guidelines on enhanced redundancy payments. Over the years the terms
of the policy became generally known and it was used on four separate occasions.
When the applicant was dismissed by reason of redundancy, he brought a claim
for breach of contract because his employer had not made any payment in respect
of enhanced redundancy entitlements under the policy.

THOROGOOD PROFESSIONAL INSIGHTS

10


1 C R E AT I N G T H E C O N T R A C T O F E M P L O Y M E N T

The Employment Appeal Tribunal held that the key factors in deciding whether
an enhanced scheme has become a contractual right are:
•

whether and how the policy has been drawn to the attention of the
employees

•

whether it has been followed without exception for a substantial period.

In particular the Employment Appeal Tribunal considered whether the
Employers had communicated the policy to the employees in a manner that

supported an inference that the employer intended to be contractually bound
by it.

IMPLIED BY CUSTOM AND PRACTICE

If it can be shown that a term is regularly adopted in the employer’s particular
trade or business the court may decide that such a term has been implied by
custom. Before the court will allow such a term to exist, it must be ‘reasonable,
certain and notorious’ (Bond -v- CAV Ltd (1983) IRLR 360). This has been upheld
more recently by the EAT in Henry -v- London General Transport Services Ltd
([2001] IRLR 132 EAT).
The word ‘reasonable’ has been held to mean ‘fair’ (Devonald -v- Rosser & Sons
(1906) 2KB 728) and ‘certain and notorious’ are interpreted as precise and wellknown. Once a custom is established, it is not necessary that an employee seeking
to rely on the custom knew of its existence.

IMPLIED TO GIVE BUSINESS EFFICACY

In the case of Liverpool City Council -v- Irwin (1997) AC 239 the court held that
a term will be implied into a contract if it is ‘necessary’ to give the contract business
efficacy. In other words, the term is necessary to make the contract workable.
Examples of such terms quite often relate to mobility. For example, an employer
who employs an HGV driver with no express term requiring him to begin his
journey at any one of the employers sites, may imply a term into the contract
to the effect that the driver must begin his journey from any of the employer’s
sites that the employer stipulates depending on the journey the driver is likely
to make.
The courts justify interpreting the contract in such a way by claiming that the
parties must have intended the contract to work properly, and it can only be
capable of working properly by implying such a term. In this way, the courts
can take quite an active role in interpreting the contract. It is, therefore, best

practice to express the terms which are agreed. In Janes Solicitors -v- Lamb

THOROGOOD PROFESSIONAL INSIGHTS

11


1 C R E AT I N G T H E C O N T R A C T O F E M P L O Y M E N T

Simpson 26.6.95 (EAT 323/94 unreported) the Employment Appeal Tribunal
implied a term allowing an employee to be paid in lieu of holiday entitlement
accrued, but not taken.

IMPLIED BY THE OFFICIOUS BYSTANDER TEST

This is an objective test which was first referred to in the case of Shirlaw -vSouthern Foundries (1926) Ltd (1936) 2KB 206. Essentially, the court will imply
a term to exist where the term is ‘so obvious that the parties must have intended
it to apply’. The court supposes that if at the time the agreement was reached,
an ‘officious bystander’ were to suggest some express provision in the contract,
the parties would both say ‘oh, of course that should be included’.

IMPLIED AS A CHARACTERISTIC TERM OF THE RELATIONSHIP

Under the common law, certain rights and obligations are characteristic of the
relationship of master and servant. On this basis, many terms may be held to
exist unless they are modified by expressly agreed arrangements, for example,
the employer’s duty to pay wages and take reasonable care of employee’s safety
and the employee’s duties of fidelity and obedience.

Employee’s implied duties

SERVICE

The obligation of an employee under a contract of employment is to carry out
the service for which he is employed in person, and his responsibility cannot
be delegated to another. A strike will usually amount to a breach of contract
because the employee is not willing to serve (Note: Employees are protected
from being dismissed (for unfair dismissal purposes) within the first eight weeks
of official strike action).

TO SERVE HIS EMPLOYER FAITHFULLY AND NOT ACT AGAINST HIS INTEREST

A term is implied into every contract of employment to the effect that an employee
may not set up a rival business during the period of employment without express
permission. However, preparation to set up a competing business after employment is not necessarily a breach of contract (Adamson -v- B and L Cleaning Services
(1995) IRLR 193). Nonetheless, the submission of a tender for future business to
a customer is unlawful competition, even if the employee was prepared to give
contractual notice expiring before work was due to start. It will also be a breach
of contract to attempt to persuade customers to transfer their business when
the employee leaves. (Wessex Dairies Ltd -v- Smith (1935) 2KB80).

THOROGOOD PROFESSIONAL INSIGHTS

12


1 C R E AT I N G T H E C O N T R A C T O F E M P L O Y M E N T

COMPETENCE

A term is implied into every employment agreement that the employee promises

he is reasonably competent to do the job. Incompetence is therefore a breach
of contract (Harmer -v- Cornelius (1858) 5CBNS 236).

CARE

The employee impliedly promises to take reasonable care in the performance
of his duties. (Lister -v- Romford Ice & Cold Storage Co Ltd [1957] AC555).

OBEDIENCE

The employee should carry out the reasonable instructions of his employer. The
duties of obedience and fidelity are also owed to an employer to whom the
employee is seconded (MacMillan Inc -v- Bishopsgate Investment Trust plc (1993)
IRLR 393).

LOYALTY

Honesty – the employee must be honest in the execution of the service but he
does not have to disclose his own acts of dishonesty (Bell -v- Lever Brothers 1983
ICR 801 AC). Senior employers who are under enhanced fiduciary duties may
have this obligation.

NOT TO MAKE SECRET PROFITS

An employee must not make a secret profit or take bribes. He may be compelled
to account to his employer for the secret profit or bribe (Boston Deep Sea Fishing
& Ice Co -v- Ansell (1888) 39 Ch D 229)

CONFIDENTIALITY AND TRADE SECRETS

Inventions and discoveries made during the course of employment, belong to
the employer in the absence of any agreement to the contrary.(British Syphon
Company Ltd -v- Homewood (1956) 2 All ER 897)
A breach of confidence is an independent equitable wrong irrespective of the
employment relationship (Faccenda Chicken Ltd -v- Fowler (1984) IRLR 61),
however, the duty of confidence is greater during the duration of the employment contract. Current employees are under an implied obligation not to use
or disclose confidential information. Former employees are required only to keep
trade secrets confidential, that is, information so highly confidential it requires
the same protection as a trade secret.

THOROGOOD PROFESSIONAL INSIGHTS

13


1 C R E AT I N G T H E C O N T R A C T O F E M P L O Y M E N T

In Faccenda Chicken, the Court of Appeal set out the test for a trade secret.
•

What is the nature of the employment? Does the employee regularly
handle confidential information? If so, the duty of confidentiality is
greater.

•

What is the nature of the information and is there a need for it to be
protected?

•

Did the employer impress upon the employee that the information was
confidential?

•

Can that information be easily identified and separated from information
which the employee is free to use?

The duty of confidentiality is, in principle, unlimited, however it ends when the
information loses its confidential nature, for example, where it becomes public
knowledge or outdated.

Employer’s implied duties
DUTY TO PROVIDE WORK

In some cases it may be argued that, as long as the employee is fully remunerated, he/she can be kept idle. However, if an employee is paid by commission
or is a piece worker, or if his skills would atrophy through lack of use, there is
an implied duty to provide work. In Langston -v- Amalgamated Union of
Engineering Workers (1974) ICR 180, the Court of Appeal indicated that a skilled
worker has a right to have the opportunity to exercise his skill.
In the case of William Hill Organisation Ltd -v- Tucker (1998) IRLR 313 the Court
of Appeal held that there may be an implied obligation upon the employer to
provide work to an employee during the employee’s notice period, where the
employee’s skills require frequent exercise. In this case the Court of Appeal refused
to enforce a garden leave injunction against a senior dealer.

DUTY TO INDEMNIFY

To indemnify in respect of costs, claims and expenses which arise through the

carrying out of duties.

THOROGOOD PROFESSIONAL INSIGHTS

14


1 C R E AT I N G T H E C O N T R A C T O F E M P L O Y M E N T

DUTY OF MUTUAL TRUST AND CONFIDENCE

There is a duty of mutual trust and confidence owed by the employer and
the employee to each other.
The following are examples of breaches of this term:
•

being accused, without reasonable cause, of theft (Robinson -vCrompton Parkinson Ltd (1978) IRLR 61);

•

exercising an express clause in such a way as to render performance
of the contract impossible (United Bank -v- Akhtar (1989) IRLR 507);

•

In Aspden -v- Webbs Poultry & Meat Group (Holdings) Limited [1996]
IRLR 521 the Court held that the employer was under an implied duty
not to terminate the employee’s contract of employment if, in the
circumstances, this would result in the employee ceasing to be entitled
to payment under a permanent health insurance scheme. The employer

can still dismiss a sick employee in these circumstances if dismissal is
on the grounds of gross misconduct or on grounds of redundancy (Hill
-v- General Accident Fire & Life Assurance Corporation [1998] IRLR 641.

•

If dismissal is due to an employee’s fundamental breach of contract,
for example failure to comply with the necessary internal policies, then
it will not be a breach of trust and confidence to do so Briscoe -v- Lubrizol
Limited, Court of Appeal 2002 EWCA CIV 508.

References
The employer is under no implied duty to provide a reference to employees but
if he or she does then there is a duty of care to the employee about whom they
write to take reasonable care in the preparation of a reference. (Spring -v- Guardian
Assurance plc & Others [1994] IRLR 460).

Honest business
In Malick -v- BCCI [1997] 3 IRLR 1, the House of Lords established that claims
for stigma damages could be brought on the basis that the BCCI’s conduct was
in breach of the implied term not to damage the relationship of trust and confidence. Therefore if the employees can demonstrate that they had a measurably
increased risk of unemployment attributable to the stigma of having worked
for a previous employer, and from which an inference of loss could be drawn
on the basis of a lost chance, then they were entitled to recover in breach of
contract.

THOROGOOD PROFESSIONAL INSIGHTS

15