The express terms of an employment contract are usually fairly standard, biased towards the employer, and not particularly controversial (unless there is a serious breach of the express terms). However, employment relationships are more fluid and complex than the employment contract might suggest. Therefore, it is often the terms implied into the employment contract that give rise to legal challenges and disputes.
There are several ways in which terms can be implied into an employment contract (please see below) and this is a brief guide to the implied terms employers are most likely to encounter during the employment relationship:
The Employee’s implied duty of fidelity
All employees have a duty to act in good faith and with fidelity towards their employer and this duty is automatically implied into the employment contract. This implied duty is fundamental to the employment relationship and includes (amongst other things) the following obligations:
- Confidentiality obligations relating to the disclosure and use of confidential information
- Obligations not to misuse property belonging to the employer
- Non-compete and non-solicitation obligations whilst an employee
- An obligation to disclose wrongdoing in certain circumstances
Although the above obligations are implied, they are so important that it is also worth reiterating them expressly in the employment contract and through robust internal policies and procedures.
It is also worth noting that some obligations relating to confidentiality and property will survive termination of the employment contract and it is good practice to remind departing employees of these obligations (whatever the reason for termination).
The implied duty of trust and confidence
The implied duty of trust and confidence is another fundamental duty automatically implied into the employment contract and which underpins the employment relationship. Both employers and employees are subject to this duty, however, it is more common for employees to allege a breach of this implied duty in the context of grievances and constructive dismissal cases against their employers than for employers to assert a breach of this duty.
This implied duty is very subjective and covers a wide range of conduct, failures and unfair practices. However, poor management and bullying behaviour are two of the most commonly cited reasons for the breakdown in trust and confidence between employees and their employers.
Any alleged serious breach of this duty usually signifies the end of the employment relationship. Therefore, employers should try to address any concerns and issues raised by employees at the earliest possible opportunity and before they escalate to more serious complaints and a breakdown in the employment relationship. Comprehensive bullying policies, performance management procedures and regular training for those with management responsibilities could help employers prevent allegations relating to a breach of trust and confidence.
Terms implied by custom and practice
For a term to be implied by custom and practice there must be a sense of legal obligation to follow the custom or practice. The custom and practice must also be reasonable, notorious and certain.
For example, an employee has no express term regarding bonuses in their employment contract but their employer has paid them a set bonus every summer for the last 10 years. The employer does this because it believes it is necessary to keep the employee happy in the role and motivated to perform well during the next 12 months. In these circumstances, it could be argued that the bonus has become an implied contractual term through custom and practice.
Employers will need to therefore remain alert to any custom and practice which may become contractual. However, a well drafted contract including a carefully worded entire agreement clause can help to minimise the risk of any custom and practice becoming an implied contractual term.
Terms implied by law/statute
Terms may be implied into the employment contract by statute or case law if they are considered to be a necessary condition of the employer and employee relationship. For example, a minimum notice period will be implied if the employment contract is silent on notice. Parity of terms and conditions between males and females who carry out (1) like work; (2) work of equal value; or (3) work related as equivalent will also be automatically implied into employment contracts.
It is therefore important that all employers carry out periodic reviews of their employment contracts, policies and salaries to ensure that their practises are consistent with current legal provisions and to avoid any inadvertent breach of any provision implied by law or statute.
Terms implied by fact
Terms can be implied into a contract by fact with reference to the intention of the parties. The two common tests the Tribunal and Court will consider when deciding whether or not a term should be implied by fact are:
- Whether the term is necessary in order to give business efficacy to the contract as a whole. For example, where the role requires the employee to live onsite; or
- Whether the term is so obvious that it does not need to be stated. For example, an employer not paying an employee for any unexplained and unauthorised absences.
For a term to be implied by fact, much will largely depend on the conversations, documents and actions between the parties before and during the employment relationship. Therefore, it is always better to consider and include important terms and clearly record intentions when drafting the employment contract rather than leaving them open to challenge and interpretation.
Ultimately, employers should consider as a whole the written employment contract, the reality of the employment arrangements and the implied contractual terms throughout the employment relationship. This note will hopefully serve as a useful checklist of the key implied terms which should be cross-referenced with the express contractual terms.