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 tha....
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.
Bibliography
1. Textbook on Labour Law, 7th Edition by Simon Honeyball & John Bowers,
published by Oxford University Press in 2002.
2. Employment Law, 5th Edition by Gwyneth Pitt, published by Thomson Sweet
& Maxwell in 2004.
3. Bowers on Employment Law, 6th Edition by John Bowers, published by Oxford
University Press in 2002.
4. Selwyn's Law of Employment, 11th Edition by N. M Selwyn, published by
Butterworths in 2000.