Following last week’s case summary on the Supreme Court’s decision in USDAW v Tesco, this week’s blog looks at what the case can teach us about the employment contract.
Let’s break it down:
- All contracts, including employment contracts, have both express and implied terms. The parties agree on the express terms, which are usually in the written contract. Implied terms are those which the parties have not expressly referred to in their agreement but which are implied into the contract.
- Express terms hold a lot of weight because they have been clearly agreed between the parties. If a contract of employment includes an express term then this will generally be followed. Express terms must, however, always be looked at through the lens of the implied term of mutual trust and confidence which forms part of all employment contracts. This can be summarised as a duty to act reasonably and fairly towards each other. Even if an employer has an express right to do something, they should take care that they are doing that something in a fair and reasonable manner.
- Terms can be implied into employment contracts in various different ways. They can be implied to reflect the obvious intention of the parties at the time that the contract was made. Second, terms can be implied by custom and practice. This will happen only if the custom and practice in the workplace is ‘reasonable, notorious and certain’. Third, terms are, on occasion, implied by statute. Examples include national minimum wage and working time. Fourth, the law can imply terms that are a “necessary condition” of the employer-employee relationship.
- Courts won’t generally imply a term that requires the employment relationship to continue. They won’t force specific performance. This will only occur in rare cases where the employer wants to terminate but still has confidence in them (Powell v Brent London Borough Council).
- There are some examples of implied terms which have had the effect of stopping the employer from exercising its express contractual right to dismiss on notice. For example, in Aspden v Webbs Poultry, it was held that an employer’s power to terminate the employment contract on notice was limited by an implied term stated the employer could not terminate the contract to deprive the employee of permanent health insurance.
Against this backdrop, the Supreme Court’s decision in Tesco v USDAW is a rare example of a case where the courts have intervened and found that an employer’s express right to terminate the contract of employment was limited by an implied term. Tesco wanted to end the contracts of employees who received a retained pay benefit and to re-hire them on terms without retained pay. The Supreme Court noted the contract defined retained pay as ‘permanent.’ It found that meant it should last as long as employment in the same role continued. To prevent Tesco using fire and re-hire to defeat this intention, it was necessary to imply a term that they could not terminate the contracts specifically to remove the employees’ entitlement to retained pay. In restoring an injunction preventing Tesco from doing just this, the Supreme Court indirectly ordered specific performance.
The Supreme Court’s decision in Tesco v USDAW serves as a useful reminder to employers that the rules of engagement in the employment relationship are not confined to the express terms agreed between the parties and included in the written contract of employment. Implied terms have a very important, and sometimes transformative, role to play too.