Example Law Essay
Mutual Trust and Confidence in Contracts of Employment
In order to answer this question one must first assess and consider the law relating to the implied duty of mutual trust and confidence in contracts of employment. This concept will need to be examined in accordance with case law and current working practices.
The idea of mutual trust and confidence is regarded as an implied term that is placed into the contract of employment. It is worth noting that other implied terms exist within a contract of employment. These can be compared and contrasted against the principles of expressed terms. The ideas of an implied terms include the notion of obedience between employer and employee; the duty of co-operation, again between employer and employee; and finally, the duty of fidelity, which is totally influenced by the principles of equity. The idea of the contract of employment is to place both parties to it in a position of bargaining. This is the general principle of contract law and is designed to provide both parties to the contract with mutually beneficial things. It is worth noting though that terms can be implied into contracts of employment when it gives either business efficacy or can objectively viewed by the officious bystander. According to MacKinnon LJ in the case of Shirlaw v Southern Foundries (1926) Ltd, the requirement of inserting an implied term into the contract of employment can be viewed objectively by the officious bystander test. Accordingly, ‘any contract is left to be implied and need not be expressed is something so obvious that it goes without saying; so that, if, while the parties were making their bargain, an officious bystander were to suggest some express provision for it in their agreement, they would testily suppress him with a common ‘Oh, of course!’. Thus, the usage of an implied term could be objectively viewed in accordance with the principles and nature of the contract. Further, according to Bowen LJ’s dictum in the case of The Moorcock, an implied term must be ‘founded on presumed intention and upon reason’. However, this presumed intention is no longer a requirement and therefore does not need to be present once a contract of employment is constructed. This can be evidenced by the case of Courtaulds Northern Spinning Ltd v Sibson and TGWU. It was held by Slade LJ that any court or tribunal does not have to be satisfied that the parties to the contract of employment would only have agreed upon the term if it was reasonable. This test can be compared and contrasted to that of the business efficacy test. According to Scrutton LJ in the case of Reigate v Union Manufacturing Co Ltd, an alternative test is ‘necessary in the business sense to give efficacy to the contract’. Thus, it is arguable that the nature of implied terms may not be expressly desired, but nevertheless are necessary for the effectively and efficient running of a business. Lord Steyn described the general implied terms as being ‘default rules’.
In terms of the idea of the implied duty of mutual trust and confidence, the law has attempted to imply an enforceable term that binds both employer and employee to co-operate with one another. This is an attempt to try and create a harmony within the working practices. This can be seen by the general statement found by in the case of the Secretary of State for Employment v ASLEF (No 2). In this particular case the Secretary of State for Employment was given the legal authority, under the Industrial Relations Act of 1971, to order a cooling off period for industrial action where the employees were in breach of their contract of employment. The trade union that was acting for the employees of British Rail, provided that the employees stance of ‘work to rule’ was not a breach of contract. It was submitted that the employees were following the rule book created by British Rail. Lord Denning, in judgment, identified a potential breach of contract. He held that ‘If the employee, with others, takes steps wilfully to disrupt the undertaking, to produce chaos so that it will not run as it should, then each one who is a party to those steps is guilty of a breach of contract.’ He followed this statement with a ‘homely instance’ of what he regarded as a breach of contract. Lord Denning provided ‘Suppose I employ a man to drive me to the station. I know there is sufficient time, so that I do not tell him to hurry. He drives me at a slower speed than he need, with the deliberate object of making me lose the train, and I do lose it. He may say that he has performed the letter of the contract; he has driven me to the station; but he has wilfully made me lose the train, and that is a breach of contract beyond all doubt’. It is clear from this judgment that Lord Denning cited the fact that an employee must not go out of his way to disrupt the overall business management of the employer. However, Lord Denning did disapprove of this notion taking a further step forward, he provided that ‘a duty to behave fairly to his employer and do a fair day’s work’, was a step too far. He continued to provide that ‘A man is not bound positively to do more for his employer than his contract requires. He can withdraw his goodwill if he pleases’. Clearly, this duty is regarded as an important consideration in the creation of a contract of employment. The basis of mutual trust and confidence was again defined and examined by Buckley LJ, who stated that ‘an employee must serve the employer faithfully with a view to promoting those commercial interests for which he is employed’. It is clear from this statement that the implied term of mutual trust and confidence is an important consideration in the construction of a contract of employment.
The implied term of mutual trust and confidence has been seen in many different situations. According to the case of Robinson v Crompton Parkinson, an employee who had a totally unblemished work record and was of good standing, was accused of theft. At his criminal trial he was acquitted and he sought an apology from his employer. Subsequently, the apology was refused, and the employee terminated his contract of employment. The Employment Appeal Tribunal stated that an implied duty of mutual trust and confidence could exist in cases such as this, however, they found that such a duty did not exist in this particular case. However, the Employment Tribunal did find a serious breach of the duty in the case of Courtaulds Northern Textiles v Andrew. In this case a manager had a row with a foreman of 18 years’ service, stated that ‘You can’t do the bloody job anyway’. This was regarded due to the clear contexts of the argument and the possible future repercussions for a working relationship. It has also been held to be a breach of trust and confidence in cases such as that of Gardner v Beresford. In this case, the Employment Tribunal held that it was arbitrary to refusal to give a pay rise to one employee when every other employee received one. Equally, it was held in the case of the Post Office v Roberts, that a breach of the implied duty of mutual trust and confidence could exist where a senior officer described an employee as wholly unsuitable for a promotion.
The principle of the implied duty was further examined in the case of Malik v the Bank of Credit and Commerce International SA (in liquidation). In this particular case the Bank of Credit and Commerce International collapsed due to fraudulent and corrupt dealings in the past. Subsequently, the employee’s of the Bank attempted to sue for breach of contract amounting from the breach of mutual trust and confidence, and argued that their reputations were tainted due to their association with the fallen Bank. The House of Lords stated that the duty should be followed in these terms, ‘……the employer shall not, without reasonable and proper cause, conduct itself in a manner calculated or likely to destroy or seriously damage the relationship of confidence and trust between employer and employee’. It is finally worth noting that these cases all demonstrate the fundamental requirement that an employer, as-well-as an employee, must not act in a way which destroys the implied duty of mutual trust and confidence. This was the ruling from the case of Woods v WM Car Services (Peterborough) Ltd.
It is worth providing that the concept of mutual trust and confidence is implied into every contract of employment. The consequences of breaching the said term is that the non-breaching party can treat the contract of employment as repudiated. If the non-breaching party is the employee of the company, then they can resign and consequently claim constructive dismissal. The ethos behind breaching the implied duty is seen as a formulation that damages or destroys the working relationship. This responsibility was again examined in the High Court on a point of law. In this case, an independent film company acquired and distributed television programmes. The issues that surrounded this case was were an employee, who joined the company as a director, sold his shares in another company to his present company for almost £2 million. A term in the sale of the shares allowed for restrictive covenants to be inserted into the contract of sale. These provided that the employee was not to work for a competitor for a period of 3 years if he left within the catch period. At a differing period of time, the employee met with a competitor of his present company and was said to have disclosed confidential information to the other company regarding his present company. The employee agreed to join the rival company and stated his ability to bring with him some of the company’s projects and hence clients. Subsequence to this the employee gave 6 month’s contractual notice and sought assistance in obtaining a reduction in the notice period that he was required to give. The company placed the employee on garden leave and sought to enforce the restrictive covenants preventing him from working for a competitor within a said period of time. The existing company informed the press of the employee’s conduct, who informed the Tribunal that he considered the conduct of the company to be ‘poisonous’ and an attempt to damage his reputation, and the comments were founded on mere fiction. The main plank of these allegations included a reference to a £2 million share payment, and quotes such as ‘if you take the money you do the bloody job’ and ‘it’s just so dishonourable’. Consequently the employee claimed to have been dismissed constructively. This was denied by the company and the employee reasserted his claim of unfair dismissal and refused to accept remuneration from the company. The company accepted this letter as a repudiation of contract of employment, and treated the employee as having resigned. Subsequently, the company applied for an injunction enforcing the restrictive covenants in the sale agreement. The employee counterclaimed on the basis of constructive dismissal. It was held by the court that in assessing whether there has been a breach of the implied duty of mutual trust and confidence, the impact of the employer’s behaviour on the employee and not their intention was the relevant consideration. Further, the court held that whether representations made to others could form the basis of a claim of constructive dismissal depended on whether the employer had reasonable and proper cause to make the representations and whether the representations themselves were reasonable and proper. The trial judge further held that in referring to the £2 million payout reported in the press, whilst remaining confidential, were not damaging to the employee per se. Likewise the reference to the non-compete clause in the share sale agreement was factual and thus not damaging to the employee’s reputation. However, the court did believe that one newspaper interview constituted a serious attack on the employee’s character and, whether true or not, constituted conduct beyond what was reasonable and proper, which was designed to destroy the employment relationship between the parties. It is arguable from the above facts that the trial judge was prepared to accept the standing of the duty of mutual trust and confidence. However, the judge found that the employee could not rely on the employer’s breach of the implied term of mutual trust and confidence. The judge further held that the employee’s actions at the meeting with the rival company constituted a prior breach of the implied duty of mutual trust and confidence by the employee. Accordingly, the judge held that the employee’s employment ceased by reason of dismissal and the company were entitled to dismiss him without further notice. The 3 year restriction on working with a rival company was upheld. The judge provided a guide in allowing employers to deal with senior employee’s by providing that the ‘fact that a public statement is true may provide a defence to a defamation claim, but it will not necessarily protect an employer against a constructive dismissal claim. What matters is whether the representations were reasonable and proper and were calculated or likely to destroy the relationship of trust and confidence’. Further that ‘Whilst representations to others by the employer can be the basis of a claim, discussions between the Board of Directors cannot. The Board is the ‘controlling mind’ of the Company and representations between Directors, said the judge, are ‘merely equivalent to the Company thinking aloud to itself.’ The judge continued that, ‘It is not yet the law that an employer is prohibited from thinking even negative and unworthy thoughts about an employee on his payroll’. Thus, the implied duty of mutual trust and confidence is something that is bound by and regarded at the highest level of administration.
It is worth noting that certain websites that identify the nature of mutual trust and confidence provide that ‘You and your employer owe each other a duty not to act in a way that is likely to destroy or seriously damage the relationship of trust and confidence between employer and employee. This is often called ‘the term of mutual trust and confidence’. This is a term which is implied by the law into every contract of employment. The range of conduct that may breach the term is broad. Subjecting an employee to serious verbal abuse, allowing an employee to be sexually harassed by colleagues, seriously undermining the authority of a manager and imposing disciplinary sanctions without any kind of disciplinary procedure have all been held to breach the term. The term may be breached by a failure to act as well as a positive action, for example where an employer gives a benefit to all its employees except one. If your employer breaches the implied term of trust and confidence, this may constitute a fundamental breach of your contract. This will entitle you to resign and treat yourself as constructively dismissed’. Thus, the implied duty of mutual trust and confidence is seen as a factor that is vital ingredient in the construction of the employment contract.
In conclusion, mutual trust and confidence is an important implied term in the contract of employment. It allows for a happy working practice to be achieved between employer and employee. It is a mutually binding obligation, that imposes a positive obligation upon both parties to the contract of employment. Without such an implied term, either the employer or employee would be permitted to act in a way that is not necessarily in strict accordance with the spirit of the contract. The contract of employment is designed to be a fluid substance that allows for mutually beneficial occurrences.
- Textbook on Labour Law, 7th Edition by Simon Honeyball & John Bowers, published by Oxford University Press in 2002.
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- Selwyn’s Law of Employment, 11th Edition by N. M Selwyn, published by Butterworths in 2000.