Analyse the implied terms that may apply to employment contracts and, in particular, the 'implied

term of mutual trust and confidence

Terms which are implied into the employment contract and which do not need to be specifically
agreed between employer/employee. This reflects the non-static, evolving nature of the relationship
and also the imbalance of power between the parties. Sometimes referred to as "characteristic
terms", these are not based on the presumed intention of the parties but on a wider test of whether
the term is a necessary part of a particular type of contract (for example, an employment contract

Examples include: the duty to provide work, the duty to respect the employee’s privacy and the duty
to obey reasonable and lawful orders. We are going to focus on the duty of mutual trust and
confidence.

It is often the case that any express agreement between the parties will not be comprehensive.
Consequently, employment lawyers should recognise where terms may be implied.

CASE LAW:

Woods v WM Car Services Peterborough Limited [1981] ICR 666:

“It is clearly established that there is implied in a contract of employment a term that employers will
not, without reasonable and proper cause, conduct themselves in a manner calculated or likely to
destroy or seriously damage the relationship of confidence or trust between employer and employee”.

As affirmed by HL in Malik v BCCI SA (in liquidation) [1997] ICR 606

1. Custome and practice:

Custom should be reasonable, notorious, and certain ,e.g employer
pays an annual bonus for many years.
Test of implied terms :

When the express terms of the contract between the parties fail to deal with an issue, the court will
consider whether a term is implied "in fact" to reflect the parties' intentions at the time that the
contract was made. Whether or not a term is implied will depend on the circumstances of the
particular case and the application of a variety of tests developed by the courts:

2. The "business efficacy" test.

To make sense of it and make it workable. This would occur where it is obvious and necessary. Eg. The
obligation for a lorry driver to hav a driving licence.

3. The "officious bystander" test.

This occurs where something so obvious that it goes without saying, and a third party observer would
agree that it was blatantly obvious.

4. Conduct of parties after the contract has been made: the conduct of the parties after a
contract has been made and employment has commenced can give rise to an implied term
 being incorporated into the agreement; it would be necessary to show an intention by the
parties to include it as a term.
5. Implied by statute:
An example here would be if there is no notice period expfressly mentioned stated in the
contract it is implid that the statitoy notice period will apply.
6. Terms implied by law”
It would include the obligations on the employers’ part to provide work and on the
employees, part to follow reasonable directions and show good faith and loyalty to the
employer.
7. Terms implied by constitution”
Right to join trade union, right to fair procedure, right to earn a living .. GENERALLY
REGARDED TO RESTRIVTIVE COVENENT…. GEOPRAGLY AREA AND TIME SPAN MUST BE
REASONABLE, EHY, BECAUSE THE EMPLOYEE HAS A CONSTITUTIONAL RIGHT OF EARNING
COMES FROM CONSTITUION/
8. COMMON IMPLIED TERMS:

MUTUAL CONFIDENCE TO MAINTAIN CONFIDENCE

DUTY OF LOYALTY

GIVING REFERENCES

GRIEVANCE PROCEDURE.

The conduct of the parties after the contract is made.

The correct tests for implying terms into a contract, to reflect the parties' intentions, have been
developed in a long line of case law. It has been established the courts will not imply a term into a
contract simply because they think it would have been reasonable for the parties to have done so
(Liverpool City Council v Irwin [1976] UKHL 1). The contract must lack commercial or practical
coherence without the implied term..

Traditionally, two tests have been most commonly used:

Business efficacy test. The proposed term will be implied if it is necessary to give business
efficacy to the contract (The Moorcock [1889] 14 PD 64). (See Business efficacy: term must be
necessary to contract as a whole.)

"Officious bystander" test. The proposed term will be implied if it is so obvious that, if an
officious bystander suggested to the parties that they include it in the contract, "they would testily
suppress him with a common 'oh of course'" (Southern Foundries (1926) Ltd v Shirlaw [1939] 2 KB
206). In other words, the proposed term must be so obvious that it goes without saying. (See The
"officious bystander" test: obvious terms.)

CASE LAWS

In Marks and Spencer, the Supreme Court confirmed that the business efficacy test and the "officious
bystander" test are not cumulative, and that only one of these requirements needs to be satisfied.
The courts will often be swayed by the context and the relative impact of the implied term on the
parties.

In some (albeit rare) cases, a term has been implied because the parties' conduct after the contract is
concluded demonstrates that the term must have been intended at the time the contract was made
(Wilson v Maynard Shipbuilding Consultants AB [1977] IRLR 491). (See Conduct of the parties.)

Note that the question of whether a term should be implied in the circumstances is separate from
whether there has been a breach of that term.

Consequently, the officious bystander test cannot be used to imply a term in

relation to something of which one party had no knowledge at the time the
contract was made (Spring v National Amalgamated Stevedores and Dockers
Society (No.2) [1956] 1 WLR 585).

The officious bystander test can also not be used to imply a variation to a
contract after it has been made. In North Lanarkshire Council v MacDonald
and another UKEATS/0036/06, the employees regularly worked 2.5 hours'
overtime per week for over a year. The tribunal found that the parties did not
intend the arrangement to be contractual at the time the employment
contracts were entered into. However, it found that the arrangement had
become contractual a year later, on the basis that, had an officious bystander
suggested it, the parties would have readily agreed. The EAT held that this
was an error of law. The fact that the overtime had been habitual for a year
was not sufficient (in itself) to imply a term into a new contract in fact, let alone
imply a variation into an existing one (see Legal update, Variation of contract:
no implied agreement to make overtime contractual).
As detailed in Business efficacy: term must be necessary to contract as
a whole, the "officious bystander" test often overlaps with the business
efficacy test and cases may not always state which test is being relied
on to imply a term. In the light of Jones and Courtaulds, arguably the
business efficacy test dictates that a term of some kind needs to be
implied and the officious bystander test determines precisely what that
term should be.

Conduct of the parties

It is rare that the way a contract is performed after it has been made will, by
itself, amount to a contractually binding obligation to perform the contract in
that manner.
However, a term may be implied where the parties' conduct demonstrates that
the term must have been intended at the time the contract was entered into
(and does not simply indicate a subsequent change of mind) (Wilson v
Maynard Shipbuilding Consultants AB [1977] IRLR 491). As with all implied
terms, it is the intention of the parties when the contract was first made that is
relevant. This is what the parties' subsequent conduct can be used to
ascertain.
Case law
For example, in Mears v Safecar Security Ltd [1982] ICR 626, whether the
employee was entitled to sick pay was disputed. The employer had never paid
sick pay to employees, and Mr Mears had never asked for it on previous
occasions of sickness absence. The Court of Appeal held that the only term
that could be implied from the conduct of the parties was that there was no
sick pay entitlement.

Terms implied by law

Terms implied by law are also known as "characteristic terms" because the
law regards them as a necessary characteristic of a particular type of contract.
Unlike terms implied "in fact", these terms are not "individualised gap fillers,
depending, on the terms and circumstances of a particular contract" but
"incidents attached to standardised contractual relations" (The Society of
Lloyds v Clementson [1995] CLC 117). They are also not based on the
presumed intention of the parties (Liverpool City Council v Irwin [1976] UKHL
1).
CASE
Although the test is one of necessity, it is wider than the test of necessity
under the business efficacy test (see Business efficacy: term must be
necessary to contract as a whole). A term may be implied in law where it is
necessary to give effect to an incidental benefit (rather than the contract
itself). For example, in Scally, employees could purchase enhanced pension
rights under provisions in a collective agreement but were not informed of the
provisions and so did not take advantage of the right. An implied obligation on
employers to inform employees of a contractual benefit to which they were, or
might be, entitled was not necessary to the working of the contract as a whole
and therefore the business efficacy test did not apply. However, the House of
Lords held that the employers were under a duty to take reasonable steps to
inform the employees of a contractual term of which they could not have been
expected to be aware.
Entire agreement clauses
An "entire agreement" clause in a written contract may be used to prevent
implied terms arising based on custom and practice. In Exxonmobil Sales and
Supply Corp v Texaco Ltd [2003] EWHC 1964 (Comm), the High Court held
that a clause stating that the written agreement "contains the entire agreement
of the parties and there is no other promise, representation, warranty, usage
or course of dealing affecting it" prevented a term based on custom from
being implied (see The relationship between express and implied terms).
However, an entire agreement clause will not prevent terms from being
implied to give an agreement business efficacy (see Entire agreement
clauses).

Mutual trust and confidence

The implied term of mutual trust and confidence had been developed and
applied by the lower courts and tribunals over nearly three decades before it
was finally approved by the House of Lords in Malik and another v Bank Of
Credit & Commerce International SA (in compulsory liquidation) [1998] AC
20 (see Bulletin, PLC Magazine, July 1997):
"The employer must not, without reasonable and proper cause, conduct itself
in a manner calculated and likely to destroy or seriously damage the
relationship of trust and confidence between employer and employee" (Lord
Steyn).

The implied duty of trust and confidence first appeared at appellate level in Woods v WM Car
Services Peterborough Limited [1981] ICR 666 where the Court of Appeal said:

“It is clearly established that there is implied in a contract of employment a term that employers will
not, without reasonable and proper cause, conduct themselves in a manner calculated or likely to
destroy or seriously damage the relationship of confidence or trust between employer and
employee”.

In Malik v BCCI SA (in liquidation) [1997] ICR 606, the House of Lords affirmed the duty (and test)
and referred to the ITTC being a “mutual” duty applicable to both employers and employees.

General principles
"Calculated OR likely", not "calculated AND likely"
The words "calculated and likely to destroy...", as used in Malik, appeared to
depart from the established formulation of "calculated or likely to destroy..."
which was originally set out in Woods v WM Car Services (Peterborough)
Limited [1981] ICR 666 and followed in other cases.
However, the EAT has twice held that it was not Lord Steyn's intention
in Malik to reformulate the test, and that the formulation in Woods remained
good law (Baldwin v Brighton and Hove City Council,
UKEAT/0240/06 (obiter) and Legal update, Treatment must occur for the
purposes of the SDA; claimants do not have to show intention to breach trust
and confidence; affirmed in Varma v North Cheshire Hospitals NHS Trust
UKEAT/0178/07). Consequently, if the employer's conduct is likely to destroy
trust and confidence, the employee does not also have to show that their
employer intended (or calculated) to destroy it.

Entire agreement clauses

An entire agreement clause in a contract may prevent terms based on
custom and practice from arising (Exxonmobil Sales and Supply Corp v
Texaco Ltd [2003] EWHC 1964 (Comm); see Terms implied by custom and
practice). The clause in that case said that the written agreement "contains
the entire agreement of the parties and there is no other promise,
representation, warranty, usage or course of dealing affecting it" (emphasis
added). The High Court held that this prevented a term based on custom from
being implied.
However, the Court doubted whether a clause which is necessary for
business efficacy would be excluded. This view was supported by the Court of
Appeal in Axa Sun Life Services plc v Campbell Martin Ltd and others [2011]
EWCA Civ 133, which held that an entire agreement clause did not prevent
terms from being implied to give the agreement business efficacy, because
such terms were intrinsic to the agreement (see Legal update, Court of
Appeal puts entire agreement clauses under the microscope).
For more information on entire agreement clauses, see Practice note,
Contracts: entire agreement clauses and the drafting notes to Standard
clause, Entire agreement.
Exclusion of mutual trust and confidence?
The extent to which the mutual trust and confidence term (see Mutual trust
and confidence) could be excluded entirely by express terms is a matter of
some uncertainty. There have not been any reported cases in which an
employer has sought to rely on such an express exclusion. It also seems
highly unlikely that a standard "entire agreement" clause would be sufficient to
exclude it (see Entire agreement clauses).
Lindsay J explored the issue in the March 2001 Industrial Law Journal (The
implied term of trust and confidence, Ind Law J (2001) 30(1): 1-16). He raised
the argument that a term implied by law is a necessary incident
of all employment contracts and therefore may be incapable of exclusion
(see Terms implied by law). However, he also pointed out that the main
weakness in this argument is that Lord Steyn in Malik v BCCI [1997] IRLR 462
(HL) suggested that even the trust and confidence term must yield to contrary
express terms. (This point was repeated in Reda v Flag Ltd [2002] UKPC
38, at paragraph 52).