Implied terms of employment contract

Not every term of an employment contract is expressly written down. Employment contracts will sometimes need contractual terms to be implied into them to make them workable and fill gaps where nothing was agreed between the employer and employee. Read this guide to make sure you understand implied terms and the obligations imposed on you even when it isn't in writing.

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What is an implied term?

Implied terms are terms of the employment contract that are not necessarily set out in writing or were agreed orally, but will nevertheless form part of the agreement between the employer and employee. No matter how well drafted the contract of employment is, there will still be implied terms and it is important to know what obligations and duties these impose.

Legal tests for implied terms

As implied terms are not clearly written anywhere, implied contractual terms will only be implied if they meet certain criteria. These are:

  • 'Business efficacy' test - This is where a term is implied in order to make the contract workable. An example of this is the 'duty of mutual trust and confidence', as without this implied term, the contract of employment can't work.
  • 'Officious bystander' test - If a term is so obvious or assumed it will be implied into the contract. For example an implied term that the employee will not steal from the employer is an obvious term that it doesn't need to be expressly written down.
  • Custom and practice - A term can be implied into the contract by virtue of the custom and practice at the workplace or within the industry. An example of this could be where a business closes for a trade holiday and gives staff paid holiday.
  • Terms implied by statute - Some legislation will automatically give employees minimum rights that the employer can't negotiate. If the contract of employment attempts to lower or doesn't expressly give these rights, legislation will automatically imply them into the contract. An example of this is the employee's right to a statutory minimum notice period or equal pay clauses.

Some important implied terms

The duty to maintain mutual trust and confidence

This is the most commonly relied upon implied term and is often cited by employees who claim to have been constructively dismissed. The employer must not conduct themselves in a way that is likely to destroy or damage the relationship with the employee. Examples of this include physical or verbal abuse, sexual harassment and/or imposing unfair conditions. Although it applies to the employee as well, it is typically relied upon by the employee as employers are more likely to rely on express terms in the contract.

The duty of fidelity

This term requires the employee to faithfully serve the employer and must not act against the interests of the employer. This only applies during employment and does not carry on after termination of the employment contract. Examples of this include carrying on a business in direct competition with the employer or misuse of the employer's customer database. Post-employment restrictions must be expressly written down in the contract of employment to be binding on the employee after they have left.

The duty to pay

This implied term is usually set out as an express term. However if the contract does not expressly say or it doesn't give the correct pay, then legislation will imply a term that the worker is entitled to reasonable remuneration or minimum wage for the work they provide.

The duty to take reasonable care for the employee's health and safety

This duty states that the employer must ensure that the employee's physical and mental health is taken care of during employment. This also includes a duty to provide a safe and reasonable working environment.

The duty to take reasonable care in giving references

An employer is not obliged to provide a reference. However if a reference is given, there is an implied term stating that the employer will exercise reasonable care in providing the reference. An individual who loses out on a job because of a careless reference from a current or former employer can recover damages for a breach of this implied term.

Express terms vs Implied terms

It is usually the express terms that override any implied terms. As the contract of employment is personal between the employer and employee, it is unusual for terms to be implied unless necessary from the above legal tests.

However there are certain situations where an implied term will override any express term. An express term which gives an employer a particular discretion (eg bonus payments), must not be exercised irrationally or unfairly. An implied term will be imposed which restricts or qualifies such an express term.

Terms implied by legislation (eg minimum wage, statutory minimum notice period) will always override any express term that seeks to provide lower, or none at all, than what is set by law.

Written contract of employment

It's better to have a written contract of employment with express terms. It'll help set out clearly the duties and obligations the employee and employer can expect from the employment relationship.

However there is an extensive list of implied terms that don't necessarily need to be stated for it to apply and won't always be written down in the contract. If you need help drafting a contract of employment, Ask a lawyer.

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