Implied terms of employment: rules for employers

The contract of employment is a legally binding agreement between employer and employee, setting out the terms and conditions governing the working relationship between the parties, including their rights and responsibilities.

By understanding the nature of the employment contract, together with its constituent parts, not least the express and implied terms of employment, this will help you to understand the basis and extent of your contractual obligations to ensure that you do not fall foul of these provisions.

Below we look specifically at the implied terms of employment, examining the differences between implied and express terms, and how any breach of contract can impact upon you as an employer.

Under the employment contract both you and the employee will become bound by its terms until it comes to an end through either dismissal or resignation, or where an agreed variation is reached.

Typically, a contract of employment will be in writing although, to be legally binding, contractual terms do not need to be written or even contained within a standard contract. Indeed, the contract can either be written, verbal or even both, and can comprise a number of different documents and oral statements.

That said, it is always prudent to set out the main terms and conditions within a single written document, signed by both parties, so as to provide you and your employee with a record of what has been agreed in the event of a dispute. In this way, the contract offers some security and protection for each of you.

For the employee, it provides a degree of certainty through clearly defined rights, with legal redress where those rights are breached. For the employer, a signed contract can provide you with the confidence that your employees have acknowledged their responsibilities and agreed to comply with those terms.

What are implied terms of employment?

No matter how comprehensive the written contract of employment, in practice all employment contracts will contain implied terms.

Implied terms are not expressly stated, but rather arise by implication in the context in which the contract is entered into, often to reflect the intention of the parties at the time the contract was made or because the contract doesn’t make commercial sense without that term.

These types of terms, although unwritten or unspoken, are often crucial for an effective working relationship, in this context between an employer and employee. Further, notwithstanding that they are not expressly stated, either in writing or otherwise, they are still contractually binding on both parties.

Broadly speaking, terms of employment may be implied into a contract in the following ways:

• Implied by fact
• Implied by custom and usage
• Implied by operation of the law

Implied by fact

Terms of employment implied by fact are ones that are not expressly set out in the contract but which the parties must have intended to include.

Whether such a term is to be implied depends on the wording of the contract and the surrounding circumstances known to both parties at the time they entered into it. In particular, a term can only be implied if the officious bystander would consider inclusion of the term to be so obvious as to go without saying or, alternatively, the term is necessary to give business efficacy to the contract.

This could include, for example, a term requiring an area sales manager supplied with a company car to hold a valid driver’s licence.

That said, it is generally not considered to be the role of the courts or the employment tribunal to rewrite a contract for the parties, and so a term will only be implied into a contract where it is deemed necessary to do so.

Implied by custom or usage

Terms of employment can also be implied by custom or usage where there is clear evidence that a custom operates within a particular trade or industry. However, this practice must be so well recognised and reasonable that the parties must be assumed to have had it in their minds when they entered into the employment contract.

This could include, for example, a term entitling employees to payment of a bonus which has been paid annually over a period of several years and which is well known to employees.

That said, no such term will be implied where the contract evidences a contrary written intention of the parties or, alternatively, if it is deemed unreasonable. By way of example, the payment of a bonus may be considered unreasonable by the courts where this was only paid in previous years based on the business meeting certain targets, and on the occasion in dispute those targets were not met.

Implied by operation of the law

In some instances, even where the terms were not necessarily intended by the parties to be included in the contract, certain terms of employment can be implied by operation of law. These are terms that arise as a legal incident from the nature of the particular contractual relationship.

In the context of the employment relationship, there are various terms that will be automatically implied by statute, for example, the employee’s right to the minimum wage or minimum notice period. Further, whilst the parties are free to agree whatever terms they wish, they cannot contract out of, or vary, any terms implied by statute.

As such, any terms of employment seeking to limit or restrict the employee’s statutory rights will not be enforceable. The employee will still retain the right prescribed by law.

Finally, in addition to those terms implied by statute, certain terms can be implied by operation of common law because they are a necessary part of a particular type of contract. Often these terms are so obvious they are assumed.

These include the duty of either party to maintain mutual trust and confidence, the duty that an employee will serve his or her employer with good faith and fidelity, and the employer’s duty to provide a safe place of work. Each of these implied terms of employment are discussed in more detail below.

How do implied terms of employment differ to express terms?

In contrast to implied terms of employment, express terms are those explicitly agreed between the parties, either verbally or in writing. Typically, these relate to core contractual matters including salary, working hours, sick leave and annual holiday entitlement.

Additionally, you may choose to incorporate provisions relating to disciplinary and grievance procedures, as well as employee pension entitlement, although these can instead be incorporated within documents other than the employment contract, such as the company handbook or on the staff intranet site.

You may, however, want to incorporate certain express terms within the contract to help protect your legitimate business interests where an employee no longer works for you, for example, to prevent them from disclosing confidential information or immediately working for a competitor.

This could include the use of non-disclosure clauses and/or restrictive covenants, ie; where an employee is prohibited post-termination from engaging in a similar business within a specified geographical area for a set period of time.

Main implied employment contract terms

Below we set out three of the main implied terms of employment that employers should be aware of and that will form part of any employment contract, namely:

• The implied duty to maintain mutual trust and confidence
• The implied duty of fidelity
• The implied duty to provide a safe place of work

The implied duty to maintain mutual trust and confidence

The duty to maintain mutual trust and confidence is generally the most well known of the implied contract terms among employees. It is typically relied on where an employee is pursuing a claim for constructive dismissal, ie; where an employee alleges a serious breach of contract on the part of their employer, sufficient to cause them to resign without notice.

In particular, it implies a duty on the part of an employer not to act in such a way that is likely to destroy or seriously damage the relationship of trust and confidence between the parties.

Further, in this context, the duty to maintain mutual trust and confidence does not require malice on the part of the employer, where an honest mistake can still result in the duty being breached.

The implied duty of fidelity

A term requiring the employee to serve their employer with good faith and fidelity will be implied into all contracts of employment. As such, an employee may not act against the interests of the employer whilst working for them.

By way of example, the duty of fidelity may be breached where an employee derives undisclosed profits from the employer’s business or misuses the employer’s property, such as borrowing money without permission.

The duty of fidelity also includes an implied duty not to compete, as well as an implied duty of confidentiality. This means that during the course of their employment, the employee may not work in competition with their employer, nor disclose any confidential information or trade secrets obtained as a result of their employment, or use such information for their own purposes.

Broadly speaking, however, save except for the disclosure of trade secrets, these duties do not extend beyond the end of the contract. As such, express contractual provisions will still be required to restrict competition and/or to protect your confidential information on the termination of an employee’s service with you.

The implied duty to provide a safe place of work

It is an employer’s duty to protect the health, safety and welfare of their employees and other people who might be affected by their business, where employers must do whatever is reasonably practicable to achieve this.

The implied duty to provide a safe place of work means making sure that workers are protected from anything that may cause harm, controlling any risks to injury or health that could arise within their working environment.

Moreover, under health and safety law, employers are under a statutory duty to assess any risks within the workplace that may cause harm, and to take steps to remove or minimise such risks through, for example, the provision of safety information, training and/or protective equipment and work wear.

Consequences of breaching an implied term

The contract of employment sets out legally enforceable terms and conditions that govern the relationship between you and your employee. In circumstances where either party breaks one of those terms, whether express or implied, this is known as breach of contract.

Breach of contract disputes can often be resolved informally, or failing that, by way of any formal disciplinary or grievance procedures. However, where a dispute between you and an employee cannot otherwise be resolved, the matter may result in legal proceedings where the terms of the employment contract will come under close scrutiny by the court or tribunal.

In these circumstances, any ambiguity in the terms of the contract, such as poorly and/or widely drafted express clauses, or any attempts to unreasonably restrict the rights of employees, may be found to be unenforceable in favour of your employee. In particular, you may be found to be in breach of an implied term that has been read into the contract to give it business efficacy, or otherwise in breach of a term that you did not even know existed.

However, by understanding how and when implied terms of employment can come into play, including the statutory rights to which your employees will be entitled, will help to minimise the risk of any breach of contract disputes, not to mention the possibility of paying damages and costs to remedy that breach.

In some cases, in addition to or in lieu of damages, a successful party may also be allowed to treat the contract as repudiated, discharging them from any further performance under it. The court can also compel an unsuccessful party to perform its contractual obligations.

Needless to say, the financial and practical consequences of a breach of contract can be serious for your business. As such, seeking early legal advice from an employment law specialist can minimise the risk of the matter being litigated, helping you to protect your business interests and, where appropriate, enabling you to restore the employer-employee working relationship at the earliest possible opportunity.

Legal disclaimer

The matters contained in this article are intended to be for general information purposes only. This article does not constitute legal advice, nor is it a complete or authoritative statement of the law, and should not be treated as such. Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should be sought.