What are the Implied Terms in an Employment Contract?

Implied terms are terms that are not expressly set out in the contract and can be implied into an employment contract by common law or statute. There are several categories into which these terms fall. Employers might choose to rely on implied terms when the contract is silent or imprecise on a particular matter.

Principles for implying a term

Broadly speaking, terms may be implied into the contract in the following ways

• Terms implied by law – These terms are often referred to as characteristic terms, as the law regards them as a necessary characteristic of a particular type of contract.
• Terms implied by custom and practice – are terms that are customary in a particular trade or locality or at a particular workplace.
• Terms implied or modified by statute – statues sometime introduce rights which are enforceable as terms of an employment contract.
• Terms Implied by fact - There may be situations when the contract between the parties fail to deal with an issue. In such cases the courts will tend to consider if the term is implied in fact, to reflect the intention of the parties at the time the contract was made. In order to determine if a term is implied, the courts have developed a variety of tests, which depend on the circumstances of the particular case.

The courts have developed tests for implying terms into a contract in fact, to reflect the parties’ intentions, through a long line of case laws. However, the courts will not imply a term into a contract simply because they think it would have been reasonable for the parties to have done so.

• The “business efficacy” test – a term is usually implied to the contract if it is necessary to give business efficacy to the contract. Courts often imply the term, if without the term, the contract would lack “commercial or practical coherence”.
• the “officious bystander” test – The proposed term will be implied if it is so obvious that, if an officious bystander suggested to the parties that they include it, they would it do it. In other words, the term is very obvious and goes without saying.
• the conduct of the parties after the contract is made - a term may be implied where the parties’ conduct demonstrates that the term must have been intended at the time the contract was entered into (and does not simply indicate a subsequent change of mind).

An implied term may be of little assistance if an agreement lacks certainty. For example, if a contract imposes an obligation on a party to do something, but does not specify how the obligation is to be performed, an implied term that performance should be reasonable will not give sufficient certainty unless there are objective criteria by which the concept of reasonable performance can be assessed, such as standard industry practice.

Express vs Implied Terms

Generally the courts will not imply a term based on usage or custom, a course of dealing, common law or the intention of the parties where the term would contradict an express term of the contract or the tenor of the contract as a whole.

At common law, an express term will normally preclude a contradictory implied term. However, the courts have, in some cases, implied a term in apparent contradiction to an express agreement. This may occur, for example, where the express term confers a discretion on a party and the implied term restricts the exercise of that discretion. Where statutorily implied terms conflict with the express terms of a contract, the statute will normally provide whether the statutory term takes precedence over any contrary agreement.

Examples of Employee’s Implied Terms

Some general terms implied by law on the part of an employee are as follows:

• Duty of Fidelity – Every employment contract contains an implied term that the employee will serve their employer with good faith and fidelity.
• Duty to exercise reasonable care and skill in performing their duties. Consequently, if an employer suffers loss as a result of the employee’s negligence, it may seek an indemnity or contribution from the employee.
• Duty to obey lawful and reasonable orders - An employee has a duty at common law to obey the lawful and reasonable orders of their employer.
• Duty to be ready and willing to work - Every employee will be paid by the employer for work performed by them. Consequently, a requirement that an employee be ready and willing to work is often treated as an implied term.
• Duty not to act in a position of conflict of interest - An employee must not act in a position where his interest and his duty conflict or may possibly conflict.
• Duty of confidentiality - An employee must not disclose to third parties the employer’s confidential information and trade secrets obtained during the course of, and as a result of, the employment

Examples of Employer’s Implied Terms

Some general terms implied by law on the part of an employer are as follows:

• Duty to pay wages - If an employee is ready, willing and able to perform work in accordance with their employment contract, the employer has an obligation to pay wages unless there is a contractual right not to do so.
• Health and Safety Duties - The employer has a duty to take reasonable care of the health and safety of its employees. Express terms of the contract, such as those relating to hours of work, are generally interpreted as being subject to the health and safety duty.
• Duty to provide a suitable working environment - The employer must “provide and monitor, so far as is reasonably practicable, a working environment which is reasonably suitable for the performance by the employees of their contractual duties.
• Duty to indemnify - Depending on the nature of the employment and the scope of an employee’s authority, there may be an implied indemnity in respect of costs, claims and expenses incurred by the employee in carrying out their duties.
• Redress of grievances - An employer must reasonably and promptly afford an opportunity to its employees to obtain redress of any grievance.
• Duty to give reasonable notice - It is a principle of common law that contracts of indefinite duration can be terminated by either party on giving notice. If there is no specific agreement regarding length of notice, a reasonable notice period will be implied to a contract. However, if there is an express contractual provision, this will always take precedence even if it is unreasonable.

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