Your employment contracts may seem watertight but implied terms can cause major headaches if you don’t understand them.
Seb Mattern is InHouse Legals’ Head of HR. He knows from experience that what is not written in your employment contracts can still be legally binding.
While you may have the most detailed employment contract template and you believe that every single issue that could potentially arise is covered by well-worded clauses, often grievances centre around terms that are not stated but are implied. In fact, Tribunal cases are won by disgruntled employees due to breaches of implied terms on a regular basis.
So what are implied terms, what kind of circumstances do they cover and what should you do to ensure you don’t fall foul of these “unwritten” legalities?
Mutual Trust & Confidence
A breach of the duty to maintain mutual trust and confidence by an employer often leads to claims for Constructive Dismissal or Wrongful Dismissal (Breach of Contract).
Examples of damaging or destroying the mutual trust and confidence include:
- Issuing a disciplinary warning when unwarranted or where the disciplinary procedure (either internal or ACAS Code of Practice) is not followed
- Failing to support an employee who has been harassed by a fellow colleague.
- In Clark v Nomura International plc  IRLR 766, the court found that a bonus clause stating “discretionary bonus scheme which is not guaranteed in any way and is dependent upon individual performance” meant that the employer breached the mutual trust and confidence with its employees when it took into consideration other factors in relation to the bonus payment – in this case the overall performance of the business.
Custom & Practice
Custom & Practice means that implied terms have been created over time even though they have never been stated in the contract. Say for instance an employer has always closed the office between Christmas and New Year without requiring its employees to take annual leave. Then one year, it becomes apparent over a packet of office mince pies in early December that this year things are a bit different. Orders are streaming in, clients, it seems, are working through the break and – erm – you’ll be in on Boxing Day won’t you?.
Cue a rapid exit of Tidings of Comfort and Joy. Your employees might well view this as a breach of contract and – yep – the law may well agree with them!
The same thing goes if you were to expect people who have always viewed the business at this time of year as Closed for the Festivities to use their annual leave to cover the time off. It doesn’t matter if it’s not in their contract. If they can show it’s always been this way then they have grounds to go after you for Breach of Contract.
Sick pay is another tricky area in this way – and it doesn’t matter one bit if you have a clause in the contract that says it’s discretionary, if you have always paid in similar circumstances then that discretion no longer exists.
If you want to make changes to the way things have always been done in your business then you need to go about it formally and well in advance.
Playing (and paying) fair
Implied terms also come into play when an employee feels unfairly singled out for the short end of the stick.
The law says that an employer can’t act arbitrarily, capriciously or inequitably towards its employees.
In FC Gardiner Ltd v Beresford  IRLR 6 the Employment Appeal Tribunal (EAT) found that not giving an employee a pay rise without good reason when others received an increase in pay constitutes a breach of this implied term and therefore a breach of contract.
It’s surprisingly easy for these sort of circumstances to crop up in a perfectly friendly, well-run workplace. And often the employee who feels slighted, taken advantage of or overlooked in favour of others is a lynchpin of the business. You know – that stalwart who is never late, works like a horse for you and never moans. Until you find out that when they seemed a bit moody a week or so ago and left early for an appointment – it was with a solicitor.
The moral of this tale of implied terms is, however great your relationships are with those who work for you, if you want them to stay that way – never forget that employment is a formal relationship governed by the law.
People take their livelihoods, and the conditions of their working life very seriously. They want to be fairly treated.
And quite right too.
Keeping it happy
As an employer, it’s easy to feel a bit stressed and worried about these kinds of issues. After all you’ve got enough on your plate dealing with the business and you have a clear conscience – you do your best to be a good boss and be fair and decent to everyone.
Don’t lose sleep over whether you are doing everything right or worse still, feel the law is out to get you, it’s there to keep the crucial relationships, upon which we all depend as we make a living, clear and just.
Good HR management is all about ensuring your relationships with your staff are smooth and worry-free so you can all operate at your productive best.
A happy workplace is a tremendous asset to any business – and employment tribunals are extremely expensive! But humans being what they are a little care is needed. With foresight these situations can be avoided.