In this article, Stuart Chamberlain, senior employment consultant and author at Croner-i, considers the development and scope of the implied term of trust and confidence.

Introduction

It would be unusual for an employer faced with a claim for constructive dismissal not to find that it is also alleged to have acted in breach of the implied term of mutual trust and confidence. The term of trust and confidence (the “implied term”) is implied into all contracts of employment and case law in the 20th century defined as follows.

The employer shall not:

“without reasonable or 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”.

Note: In Baldwin v Brighton and Hove Council [2007] IRLR 231, the Employment Appeal Tribunal (EAT) confirmed that the original formulation of “calculated andlikely” set out in some early cases, including by the House of Lords in Malik v BCCI in 1997, was an error. The EAT confirmed in Leeds Dental Team v Rose [2014] IRLR 8 that the test for breach of the implied term is objective; intention to damage the relationship is not a requirement.

Although the implied term places reciprocal duties on employer and employee, its main impact has been in the particular obligations it places on the employer.

This article focuses on the following.

  • The origins of the implied term.

  • The extension of its scope in the late 20th and early 21st century.

  • Its application in courts and tribunals.

  • Examples from case law.

  • Recent limits on the term.

  • The implied term and the question of reasonableness and fairness.

It closes with some practical advice to employers.

Origins of the implied term

The implied term of trust and confidence derives from common law. However, it also went hand in hand with the emergence of the statutory concept of constructive dismissal. In 1978 the EAT held in Courtauld Textiles Ltd v Andrew [1979] IRLR 84 that a breach of the implied term was sufficient for the employee to resign and claim constructive dismissal. As we shall see, throughout the 1980s (in particular, the EAT’s decision in Woods v WM Car Services Peterborough Ltd [1981] IRLR 347 where the definition on of the implied term was first fully articulated) and 1990s a slew of cases decided by the EAT and Court of Appeal acknowledged the existence of the implied term. Finally, in 1997, in Malik v BCCI [1997] IRLR 462, when employees raised a formal action for damages against their employer on the basis that the bank had breached the implied term by running a corrupt and dishonest business, the House of Lords took the opportunity to implicitly recognise the implied term. In his judgment in this case, Lord Steyn described the implied term as a fact and its development as “sound”. He said that its major importance lay in its impact on the obligations of the employer. The implied term covers the great diversity of situations in which:

“a balance has to be struck between the employer’s interest in managing his business as he thinks fit and the employee’s interest in not being unfairly and improperly exploited”.

He concluded that the term had proved a “workable principle in practice”.

Application of the implied term

The implied term has been the centre of judicial activism in employment law and has caused a flood of comment and interpretation in academic circles.

That an employer shall not:

“without reasonable or 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 has been described as:

  • an overarching obligation implied by law in employment (the House of Lords in Johnson v Unisys [2003] IRLR 279

  • forming the cornerstone of the legal constitution of the contract of employment and the most powerful engine of movement in the modern law of employment contracts

  • most practically, constraining the exercise of discretionary powers under the contract; for example, in Stevens v University of Birmingham [2015] IRLR 899 breach of the implied term was used successfully against the university’s bureaucratic and inflexible reliance on an express term — Dr Stevens was denied the right of accompaniment by a person of his choice at an investigatory hearing; the university insisted that the companion at the hearing had to be a trade union official or an employee as per its disciplinary rules it had agreed with the union.

Operation of the implied term in courts and tribunals

As already outlined, there is a general obligation on the employer not, without good reason, to engage in conduct likely to undermine the trust and confidence required if the employment relationship is to continue in a manner that the employment contract implicitly envisages.

The major impact of the implied term has been on the obligation of employer not to act in an arbitrary, capricious or abusive exercise of managerial power so that trust and confidence have been lost (Gogay v Hertfordshire County Council [2000] IRLR 7030).

There are a number of legal points that a claim for breach of the implied term has to satisfy and the tribunal or court has to consider in such a case. These are summarised below.

A repudiatory breach

  • There must be a repudiatory breach of contract by the employer, entitling the employee to resign and claim constructive dismissal. A contract is repudiated if either party shows that they are no longer willing to be bound by it for the future. For example, if the employer tells the employees that they will not be paid again or unilaterally reduces wages, then this will usually amount to a repudiation. Furthermore, the EAT in Greenaway Harrison v Wiles [1994] IRLR 380 held that there had been an anticipatory breach of contract entitling an employee to resign and claim unfair constructive dismissal when the employer warned her that she would be dismissed if she did not agree to new working hours.

  • Where there has been conduct which amounts to a breach of the implied term of trust and confidence it will automatically follow that there has been a fundamental or repudiatory breach going to the root of the contract, entitling the employee to resign and claim constructive and unfair dismissal (Morrow v Safeway [2002] IRLR 9). In this case Miss Morrow was employed as a production controller at Safeway Stores in Swindon. Her relationship with the store manager had been poor for some time and, in August 1999, the store manager criticised Miss Morrow in front of her fellow colleagues and at least one customer. He told her “if you cannot do the job that I pay you to do, then I will get someone who can”. Miss Morrow then resigned and successfully brought a claim that she had been constructively and unfairly dismissed.

  • It is not enough for the employee to find the employer’s actions upsetting or to feel that they are unreasonable or merely to show that they have done some damage to the employment relationship. They must amount to a fundamental breach and are so serious that the employee cannot be expected to work any longer for the employer. In Jones v The Collegiate Trust [2010] UKEAT/0011/10 claims of constructive dismissal and disability discrimination were rejected. Any shortcomings at the school fell well short of a fundamental breach of contract. Indeed, there was no evidence of unreasonable decisions by the school, which was generally supportive of Ms Jones who suffered from clinical depression.

  • Where the conduct complained of is not serious enough to amount to a breach of the implied term, action by the management can prevent the situation escalating to an actual breach and thereby defeat a constructive dismissal claim (Assemoi v Spirit Pub Company Services[2011] UKEAT/0050/10). In this case the claimant’s immediate manager had acted in a way that was likely to amount to a fundamental breach of the implied duty of trust and confidence that every employer has towards its employees; it had suspended the claimant from duty for failing to report for work on a day when he had not been required to do so and subsequently failing to attend a disciplinary meeting, which had been called on a day when he was due to be on holiday. At an investigatory meeting three days later, senior management accepted that the claimant had not been at fault and asked him to attend a “return-to-work” meeting. After two subsequent meetings, the claimant resigned. He alleged constructive dismissal. The EAT agreed with the employment tribunal that the investigatory meeting had, in fact, prevented a serious breach of contract from taking place so the client was not entitled to rely on his manager’s earlier actions to claim constructive dismissal.

  • However, once a breach has occurred, this cannot be “cured” and the employee is entitled to choose whether to treat the breach as terminal even if the employer upholds the employee’s grievance and attempts to make amends. This was established by the Court of Appeal in Buckland v Bournemouth University[2010] IRLR 445, confirming the “orthodox” contractual view that it cannot. In the Court’s opinion, to introduce an exception to the general law of contract, whereby an employer could unilaterally make amends for a fundamental breach of contract, would open a multitude of cases to an evaluation of whether the amends constituted an adequate cure of the breach and was not justified.

The “final straw”

A fundamental breach may be based on the cumulative effect of a series of acts — whereby the last act is the “final straw” justifying the employee’s resignation. The last straw must contribute, in some way, to the breach even if that contribution is relatively insignificant. The final straw, viewed in isolation, need not be unreasonable or blameworthy conduct. The claimant in London Borough of Waltham Forest v Omilaju [2005] IRLR 35 lost his case because an entirely innocuous act by the employer (it refused to pay his salary when he was absent without leave at the tribunal — he could have applied for unpaid or annual leave in accordance with the council’s rules but chose not to do so) could not be the final straw, even though Mr Omilaju genuinely, but mistakenly, interpreted the act as hurtful and destructive of his trust and confidence in the employer. In Kaur v Leeds Teaching Hospitals NHSTrust [2018] IRLR 833 the Court of Appeal struck a different note and raised the bar higher for the claimant; in “last straw” cases, where constructive dismissal is asserted, the claimant needs to show that the employer conducted the disciplinary process “seriously unfairly”.

The tribunal’s task

  • A tribunal will look at the employer’s conduct as a whole and determine whether or not its effect, judged reasonably and sensibly, is such that the employee cannot be expected to put up with it. The employee’s reaction is irrelevant to the breach.

  • An employee may be able to claim constructive dismissal on account of conduct that amounts to a breach of trust and confidence even where the conduct in question is not directly targeted at him or her — for example, where an employee is witness to a manager’s regular bullying of other staff (Hunter v Timber Components (UK) Ltd [2009] UKEATS/0025/09).

The tribunal will take into account all circumstances insofar as they have bearing on an objective assessment of the intention of the breaker of the contract and, thus, whether it was likely to destroy or seriously damage the relationship of trust and confidence. It does not have to make a factual finding of what the actual intention of the employer or employee was; the subjective intention is irrelevant (Leeds Dental Team Ltd v Rose [2013] UKEAT/0016/13).

As the House of Lords said in Malik v BCCI [1997] ICR 606):

“In assessing whether there has been a breach, it seems clear that what is significant is the impact of the employer's behaviour on the employee rather than what the employer intended. Moreover, the impact will be assessed objectively”.

“Range of reasonable responses” test is not applicable

  • In determining whether there has been a fundamental breach of contract, including a breach of the mutual trust and confidence term, there is no room for the tribunal to embark upon a “range of reasonable responses” assessment, rather it should apply the “unvarnished” binary test in Malik, ie whether the employer without reasonable and proper cause, conducted itself in a manner calculated or likely to destroy or seriously damage the relationship of trust and confidence between employer and employee.

  • A tribunal will not consider the two limbs of the test for breach of the implied term (ie, first, whether the employer’s conduct was calculated to destroy or seriously undermine the employment relationship; and, second, whether the employer had reasonable and proper cause for its conduct) as separate sequential steps. They should be treated as intertwined, mutually reinforcing each other.

  • This defence of “reasonable and proper cause” should be considered objectively (RDF Media Group v Clements [2008] IRLR 2017.

No damages for manner of dismissal

The obligation is confined to matters arising during the employment relationship. Damages sustained by reason of the manner of dismissal will not be recoverable as the implied term of trust and confidence is concerned with the continuation rather than the termination of employment and simply will not apply (Johnson v Unisys Ltd [2001] IRLR 279 — often known as “the Johnson exclusion zone”. In any case, questions on the unfairness of a dismissal are contained in the unfair dismissal regime provisions of Part X of the Employment Rights Act 1996 (ERA).

Case law examples

The following are leading cases involving breach of the implied term “without reasonable and proper cause” by the employer, entitling the employee to resign and claim constructive dismissal.

  1. Unjustified (and abusive) criticism of the employee and his or her performance (Courtauld’s Northern Textiles Ltd v Andrew [1979] IRLR 84).

  2. Persistently attempting unilaterally to vary an employee’s terms and conditions (Woods v W M Car Services (Peterborough) Ltd [1981] IRLR 347).

  3. Severely reprimanding a supervisor in front of other employees and thus undermining her authority (Hilton International Hotels (UK) Ltd v Protopapa [1990] IRLR 916).

  4. Failing to investigate complaints of sexual harassment (Bracebridge Engineering Ltd v Darby[1990] IRLR 3 and Bull Information Systems v Reed [1999] IRLR 949).

  5. Deceiving the employee by operating a business in a dishonest and

    corrupt manner (Malikv Bank of Credit and Commerce International SA [1997] ICR 606).

  6. Revealing in a reference to a prospective employer a number of complaints against the employee of which she was unaware of(TSB v Harris[2000] IRLR 197).

  7. Suspending an employee prior to an investigation of alleged sexual abuse — the allegation proved unfounded and the employee consequently suffered psychiatric illness (Gogay v Hertfordshire County Council [2000] IRLR 703). This decision of the Court of Appeal and other judgments in Mezey v South West London and St George’s Hospital Mental Health Trust[2010] IRLR 512 and Agoreyo v London Borough of Lambeth [2017] EWHC 2019 (QB) establish that while it is possible to suspend an employee it is, nevertheless, not a “neutral act” as it changes the nature of the employment relationship from work to no work and casts a shadow over the employee’s competence.

  8. Failing to offer a contractual benefit — the right to an enhanced contractual redundancy scheme (BG plc v O’Brien [2001] IRLR 496).

  1. Public reprimand from a manager who is angry with an employee in the presence of both customers and members of staff (Morrow v Safeway Stores [2002] IRLR 9).

  2. A managing director’s use of foul and abusive language which undermined the contract of employment (Horkulak v Cantor Fitzgerald International [2003] IRLR 756).

  3. Where an employee had made it clear that she considered a senior colleague had a conflict of interest regarding her grievance, his subsequent inclusion on the grievance panel raised the question of apparent bias and breached the implied term (Watson v University of Strathclyde[2011] UKEAT/6021/10).

  4. The employee received by mistake a copy of an email from her manager which questioned her leadership qualities (Hardie Grant London Ltd v Aspden [2011] UKEAT/0242/11).

  5. Imposing an organisational change that diminished a football manager’s role without prior notice, consultation or discussion. It was no defence that this autocratic style of communication was not unusual in the world of football (McBride v Falkirk Football and AthleticClub [2012] IRLR 22).

  6. Procedural unfairness in dealing with allegations of mistreatment of staff and inappropriate behaviour (Yapp v Foreign and Commonwealth Office [2015] IRLR 354).

  7. A failure to address a grievance by denying a proper appeal against the employer’s decision — contrary to the employer’s own procedure, the regional manager heard both the original grievance and the subsequent appeal (Blackburn v Aldi Stores Ltd [2013] IRLR 846).

  8. An employer’s failure to allow the employee to be represented at a disciplinary hearing prior to which there had been no investigating interviews (Leeds Dental Team Ltd v Rose [2014] IRLR 8).

  9. An employer’s failure to consult over proposed pension changes (Dalgleish v IBM [2014] EWHC 980).

  10. Unilateral demotion without a contractual right to impose such a sanction (British Airways plc v Higgins [2015] UKEAT/0016/15).

  11. A failure to permit a clinician to be accompanied at a pre-disciplinary investigation by a representative with relevant technical knowledge (Stevens v University of Birmingham[2015] IRLR 899).

  12. An employer’s letter to a disabled employee on sick leave with depression and anxiety which raised matters of concern about her performance (Private Medicine Intermediaries Ltd v Hodkinson [2016] UKEAT/0134/15).

  13. Misleading an employee about the real reason for dismissal (Rawlinson v Brightside Group Ltd [2017] UKEAT/0142/17).

  14. A unilaterally imposed pay cut (of £20,000) in basic salary following a decline in sales performance (Mostyn v S and P Casuals [2018] UKEAT/0158/17).

Limits on the use of term

At one time it seemed that there were few barriers to the expanding scope of the implied term; indeed, the requirement that a party should not “destroy or seriously damage” means that only unreasonable conduct appears to be needed to engage the term — far less than what is required for a “normal” claim of constructive dismissal.

However, there have been some checks on this seemingly inexorable progress. In McFarlane v Relate Avon Ltd [2010] ICR 507, which involved a counsellor who refused to counsel same sex couples about sexual issues on grounds of his religious beliefs and was consequently dismissed, the EAT drew attention to “a tendency” for the terminology of the implied term to be used more and more outside the context of constructive dismissal. This “mission creep” should be avoided.

In 2012 the Court of Appeal stressed in Leach v Ofcom[2012] EWCA Civ 959that employers should not rely on “breakdown of trust and confidence” as a reason for dismissal without careful consideration of their true reasons and whether these are sufficient to justify dismissal. “Breakdown of trust” is not a mantra that can be mouthed whenever an employer is faced with difficulties in establishing a more conventional conduct reason for dismissal. It is not a convenient label to stick on any situation in which the employer feels let down by the employee or which an employer can use as a valid reason for dismissal whenever a conduct reason is not available or appropriate.

In Frankel Topping v King [2015] UKEAT/01606/15, where the employer discussed with the mother’s son without her knowledge, her performance and ability to do the job, the EAT again emphasised the high threshold of misbehaviour by employers that is required to establish a breach. The test is “demanding” and “stringent”; simply acting unreasonably is not sufficient. A balance has to be struck between the interests of the employer and the employee.

Further, the House of Lords strongly stressed in Johnson v Unisys Ltd [2001] IRLR 279 that the employer’s ultimate sanction of dismissal was not subject to control or regulation by the implied term.

More recently, the Supreme Court in 2018 in James-Bowen v Commissioner of the Police of the Metropolis [2018] IRLR 959 refused to extend the scope of the implied term to litigation. This appeal considered whether a person who is sued in civil litigation for alleged misconduct by his employees (or others for whom he is vicariously liable) owes those employees a duty of care in the conduct in his defence.

In this case the Supreme Court unanimously rejected the argument for a duty of care and allowed the appeal. The Court considered that, as police officers have no contract of employment, although they relied heavily on the analogy of the implied term in employment contracts of mutual trust and confidence between employer and employee, they did not refer the Court to any decided case in any jurisdiction which holds that the duty of care for which the officers contend can be derived from this mutual implied term.

The Court concluded that it could not derive such an obligation. It rejected the argument that a duty of care could be derived from the mutual implied term. The law for determining the existence of a duty of care should proceed incrementally and by analogy with previous decisions in the tort of negligence.

Reasonableness and fairness

The court and tribunals have traditionally fought shy of implying that an employer must behave reasonably or fairly towards an employee. The argument is that it would have the effect of the courts adjudicating in every workplace dispute. The implied term, therefore, is not concerned with the reasonableness or otherwise of the actions of the employer or employee. The question is whether these actions, without reasonable or proper cause, destroy or seriously undermine trust and confidence in the relationship. For example, in The Post Office v Roberts[1980] IRLR 347 the EAT stated that there is no implied contractual term that an employer will treat an employee in a reasonable manner. Such a term would be too wide and too uncertain. This was confirmed in Bournemouth University Higher Education Corporation v Buckland [2009] IRLR 606. In Brown v Merchant Ferries Ltd [1998] IRLR 682 the Northern Ireland Court of Appeal stated that “the correct approach” to constructive dismissal is to ask whether the employer was in breach of contract and did not act unreasonably. It added, however, that if the employer’s conduct is “seriously unreasonable”, then that may provide “sufficient evidence” that there has been a breach of contract.

There is no contractual obligation, therefore, for the employer to treat its employees reasonably. Too often some unreasonable behaviour by the employer is said, erroneously, by the claimant to be a breach of the implied term. The alleged conduct must go to the root of the employment relationship.

If the implied term is not a test of reasonableness, is it moving towards a test of fairness? In Eastwood v Magnox Electric plc; McCacbe v Cornwall CC [2004] IRLR 733, the House of Lords established that the trust and confidence implied term means that an employer must treat its employees fairly. In the conduct of its business and in its treatment of its employees, an employer must act responsibly and in good faith.

It appears that serious unfairness in disciplinary matters is increasingly recognised by courts and tribunals as a breach of the implied term entitling the employee to resign and claim unfair constructive dismissal. For example, a refusal to allow the employee to be accompanied at a disciplinary hearing (Leeds Dental Team v Rose [2014] IRLR 8);a manager hearing a grievance against his own original disciplinary decision (Blackburn v Aldi[2013] IRLR 846) and a failure in redundancy consultation (Gebremariam v Ethiopia Airlines [2014] IRLR 354). The case of Yapp v FCO [2015] IRLR 112 illustrates this growing interest in developing contractual fairness. The Court of Appeal held in this case that the suspension of a diplomat represented a breach of contract and caused personal injury.

Advice to employers

  1. The workplace can provide a fertile ground for potential breaches of the implied term of trust and confidence. For example, take four important areas that can result in such a claim.

    a. Grievances — the employer should ensure that these are always taken seriously and dealt with promptly. The grievance policy, modelled on the Acas example, should always be followed.

    b. Disciplinary procedures — again, the employer should follow the policy and always take care to evaluate the risks before suspending an employee. A knee-jerk response to a problem by suspending an employee is usually a breach of the implied term.

    c. Working arrangements — do not unilaterally impose detrimental change to an employee’s working patterns. Consider the business reasons for the change but always consult and seek the employee’s consent to the change.

    d. Bonuses — misplaced expectations can always lead to workplace problems. Be open and transparent about the process and the selection criteria used. And document the arrangements to avoid future misunderstandings.

  2. Poor communication is often at the heart of workplace disputes.

  3. Ensure policies and procedures (eg anti-harassment) are up to date.

  4. If you consider that the breach justifies dismissal, you will need to show that the employment relationship has irrevocably broken down and that the dismissal for “some other substantial reason” is genuine and not covering up any other reason. Act reasonably and fairly throughout the process. In Adamson v Mitchells and Butlers Retail Ltd, a manager’s behaviour undermined the employer’s trust and confidence in him to such an extent that it warranted summary dismissal. Adamson was the pub manager of one of the employer’s flagship venues and was recorded on CCTV being pushed around in a wheelie bin by a female worker. He fell out the bin, damaged a door and embraced the worker. Although the manager admitted that “it was a ridiculously stupid act” the employment tribunal found that this dismissal was fair because the employer had lost all trust and confidence in him to do his job.

Conclusions

The implied term of mutual trust and confidence underpins all employment relationships. Despite the frequency with which breach of the implied term figures in cases of constructive dismissal, the case law shows that the judicial climate favours avoiding too high a standard for employers. Further, the “Johnsonexclusion zone” (see above) restricts the potential for damages through a claim of a breach of the implied duty.

Although the courts and tribunals have consistently rejected the idea that an employer must act reasonably towards an employee, more recently they do seem to embrace, to a limited degree, the concept of fairness. It will be interesting to see if this continues to be reflected in the case law.

Last reviewed 16 January 2019