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The evolving duty of trust and confidence

14 December 15

Have courts and tribunals gone further than necessary in implying a duty of mutual trust and confidence in a contract of employment? The author believes they have

by William McParland

The purpose of this article is to provide an analysis of the duty of mutual trust and confidence, and to challenge some of the recent cases where courts and tribunals have interpreted the implied obligation in a way that may not have been envisaged 30 years ago. The article is broadly consistent with ideas expressed by Professor Douglas Brodie in his 2008 book The Contract of Employment, but I have advanced a personal opinion that the courts and tribunals have deviated too far.

Since the late 1970s, courts and tribunals have been concerned with the implied duty of trust and confidence. It found its origin in the general duty of co-operation between contracting parties, but has since been developed into a positive obligation that places a greater emphasis on policy and natural justice.

Essence of the duty

The concept is simple. The law imposes an obligation on an employer that it shall not “without reasonable and proper cause, conduct itself in a manner likely to destroy or seriously damage the relationship of confidence and trust between employer and employee” (Woods v WM Car Services (Peterborough) [1981] ICR 666).

That formulation of the EAT was approved by the House of Lords in the well known case of Malik v Bank of Credit Commerce International SA [1997] IRLR 462. The claimants alleged that, in conducting dishonest and corrupt business activities, BCCI had acted in breach of the implied duty of trust and confidence. They further alleged that they were unable to obtain employment because of the stigma which attached to them as former senior employees of the bank.

Lord Nicholls described the implied obligation as “no more than one particular aspect of the portmanteau, general obligation not to engage in conduct likely to undermine the trust and confidence required if the employment relationship is to continue in the manner the employment contract implicitly envisages”. His Lordship also confirmed that a breach of the implied term involves conduct which impinges “on the relationship in the sense that looked at objectively, it is likely to destroy or seriously damage the degree of trust and confidence the employee is reasonably entitled to have in his employer”.

Expanding scope

The use of the words “destroy or seriously damage” would suggest that the requirement is analogous to a repudiatory breach in constructive dismissal cases, but that does not seem to be the case. There has been a steady flow of cases that have arguably transformed the implied duty almost to the point where any unreasonable conduct will constitute a breach.

There are many types of situations that can lead to a breach of the implied duty of mutual trust and confidence. For example: (1) a failure to offer a revised contractual package of pay and benefits to one worker which was offered to others in a similar situation; (2) falsely and without reasonable cause accusing an employee of theft; or (3) a serious breach of the internal disciplinary process, to name but a few.

Gogay v Hertfordshire CC [2000] IRLR 703 marked a widening of the duty. It is authority for the proposition that, if there is no reasonable and proper cause for the suspension of an employee, it will be a breach of the implied term of mutual trust and confidence to suspend. In that case the Court of Appeal upheld the judge’s decision that a local authority was in breach of the implied duty of trust and confidence by suspending a residential care worker from a children’s home pending an investigation of abuse made by a young child at the home. The investigation concluded that when the decision to suspend was made, there had been an insufficiently rigorous assessment of the charge made against the employee. The claimant suffered psychiatric illness and loss of earnings as a result of the suspension.

The recent case of Stevens v University of Birmingham [2015] EWHC 2300 (QB) the High Court applied Gogay and reaffirmed the extent of the implied duty. The refusal of the university to allow Professor Stevens to be accompanied at an investigatory meeting by a representative of the Medical Protection Society (medical defence organisation) was held to be “conspicuously unfair” and constituted a breach of the implied term of mutual trust and confidence. Despite the fact that the university’s disciplinary procedure expressly provided for trade union representation, or representation by a university employee, it was unfair to insist on adherence to the literal terms, so that to deny Professor Stevens the right to be accompanied by a representative of the MPS was a breach of the overarching implied term of mutual trust and confidence.

A step too far?

This development of the implied duty of mutual trust and confidence demonstrates how much the judicial view of the employment relationship has changed from the traditional concept of master and servant. Whilst it has long been recognised that a person’s employment is much more than an occupation, courts and tribunals are now willing to imply natural justice, or to put it another way “fairness”, into contracts of employment. I would respectfully suggest that if this means that there is now a requirement that the employer must act “fairly” or “reasonably”, then this is going too far. The Employment Rights Act 1996 imposes such requirements and it is unnecessary for implied terms to be interpreted any more widely to bolster rights.

Have the courts therefore extended the doctrine of trust and confidence so far that employers are now required to act reasonably? The formulation of the implied duty of trust and confidence now appears to require the assessment of the acceptability of an employer’s behaviour and its adverse impact on the employee; it values fairness and factors in policy considerations. If so, I would suggest that, as such, the requirement has gone too far and that it is unnecessary for the courts and tribunals to raise questions of “reasonableness” or to carry out such a balancing exercise.

Looking comparatively at different jurisdictions, in Australia the implied duty of mutual trust and confidence is not recognised by the courts. In Commonwealth Bank v Barker [2014] HCA 32, the Australian High Court held that in order for a duty of mutual trust and confidence to be implied into Australian employment contracts, it must be demonstrated that in the absence of such an implied term the “contract would be deprived of its substance, seriously undermined or drastically devalued”.

The High Court said that its conclusion “should not be taken as reflecting upon the question of whether there is a general obligation to act in good faith in the performance of contracts. Nor does it reflect upon the related question whether contractual powers and discretions may be limited by good faith and rationality requirements analogous to those requirements”.

But what it does importantly highlight is that the contract of employment can function without policy considerations and value judgments.

William McParland is a trainee solicitor with Clyde & Co, Glasgow
My colleague Stephen Miller was good enough to comment on parts of the article. I am, of course, responsible for the views expressed.  

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