Employment Alert No. 121 - Further scope for extension of implied terms in contracts of employment
August 10, 2006
| What is the issue? |
Nearly 10 years ago, the House of Lords confirmed that a term of trust and confidence was implied into all employment contracts. Since then, employees have endeavoured to add to employers’ contractual obligations by arguing for the expansion of the implied duty of mutual trust and confidence and the addition of new implied terms such as a duty of co-operation and a duty of anti-avoidance. In doing so, employees are attempting to erode the principle that an implied term of a contract cannot override its express terms (commonly, the right to terminate employment by giving notice at any time or for loss of a right to receive a bonus in the event of termination of employment).
The latest attempt is the recent High Court case of Takacs v Barclays Services Jersey Limited.*
| What did the High Court decide? |
Takacs was a banker who would have been entitled to a substantial bonus if he achieved specified targets in 2004. Mr Takacs failed to do this and was dismissed. Mr Takacs’ contract included a term making payment of bonus conditional on continued employment. Mr Takacs did not receive a bonus. He said that this was Barclays’ fault because it had (i) recruited other employees who closed him out of a trade; (ii) hampered his ability to close the trade by engaging in a dispute with one of the parties; and (iii) dismissed him in order complete the trade without paying his bonus. He claimed that by behaving in this way Barclays had breached three terms which he said were implied into his employment contract:
- mutual trust and confidence;
- the duty of co-operation; and
- the duty of anti-avoidance.
Barclays applied to the High Court for Takacs’ claim to be struck out on the grounds that it had no reasonable prospect of success. The High Court refused to grant this application.
In doing so, the High Court made the following interesting findings:
- implied term of trust and confidence – Takacs alleged that if Barclays had not behaved as set out above he would have made his target. Therefore, there had been a breach of the implied term. The Court rejected Barclays’ argument that the implied term of trust and confidence could not override Barclays’ express right to terminate Takacs’ employment at any time by giving him notice. The Court found that the two terms were not inconsistent. The alleged breach of the implied term had occurred before the dismissal and therefore was independent of the express term of the contract relating to termination;
- implied term of co-operation – Takacs alleged that it was implied into his contract of employment that Barclays would co-operate with, and not prevent, him achieving his targets. Barclays argued that this went too far - although it did accept that there was probably an implied term that neither party would unduly frustrate the efforts of the other. The Court found that there was a real prospect of Takacs successfully showing that Barclays had breached some kind of implied term of co-operation;
- implied anti-avoidance term – Takacs complained that there should be a term implied into his contract preventing Barclays from terminating his employment in order to avoid paying him bonus. Barclays’ position was that there was no such implied term – it could not sit comfortably alongside Barclays’ express contractual right to terminate on notice. The Court took note of previous cases which had decided that an employer may not dismiss an employee simply to prevent him/her obtaining benefit under a PHI scheme or to avoid paying enhanced redundancy pay. It found that Takacs had a real prospect of successfully showing that this term was implied into his contract and that there had been a breach of it.
| What does this mean for employers? |
We have known about the implied term of trust and confidence for some time. It seems reasonable that an employer should not escape liability for bad behaviour during the employment by dismissing on notice in accordance with the contract. The Court’s finding that Takacs was likely to be successful in establishing the existence of an implied term that Barclays would not terminate his employment in order to prevent him being paid a bonus also does not come as a surprise.
However, of more concern is the Court’s finding that Takacs had a good chance of proving the existence of an implied term of co-operation. There is, of course, a significant difference between implying a term that an employer should not behave perversely or capriciously in taking actions which may prevent or hamper an employee from achieving bonus targets and saying that an employer has an obligation to “co-operate” with an employee in the achievement of those targets.
Claimant solicitors reading this summary judgment may have seen a new arena of bonus claims opening up before them. This means that employers may start hearing assertions that it should have done more to help an employee achieve targets etc. We think that this would, in fact, push the boundaries of the implied term (if there is one) too far. But it is unfortunate that this judgment even allows the argument to be made.
The Takacs case also sends a message to employers about the importance of ensuring that their line managers are properly trained in managing poor performance and disciplinary situations and are capable of handling dismissals sensitively. It emphasises the importance of having clear, legitimate and documented reasons for making management decisions such as the distribution of work and clients, changes to roles and positions, moving employees and dismissing employees, especially where such changes can affect the employee’s commission or bonus.
The substantive part of the Takacs case is due to be heard by the High Court either late this year or early next year, when we should receive some further guidance about the existence of implied duties of co-operation and anti-avoidance and the scope of such duties.
*Takacs v Barclays Services Jersey Limited, case no: 05X03074, 13 July 2006
