IMPLIED TERMS IN THE CONTRACT

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IMPLIED TERMS IN THE CONTRACT
OF EMPLOYMENT
Hugh Collins
1. The Types of Implied Terms in Employment

Terms of contracts may be divided into those expressly agreed by the parties either
orally or in writing and those implied into the contract by judges. Courts often
present implied terms as articulating the unspoken intentions or the tacit agree-
ment of the parties in order to fill gaps left by the express terms. In deference to the
principle of freedom of contract, judges resist the suggestion that they impose
terms on the parties without their consent. Instead, judges usually say that add-
itional terms should only be inserted into a contract if they are necessary to give it
business efficacy and certainly not to render it fairer or more reasonable.1 This
narrow ground for intervention is sometimes even further diminished by a
suggestion that implied terms are merely a technique of interpretation of the
express terms.2 Given the broad, non-literal, approach to the interpretation of
contractual terms currently used in the courts, in which the standard of ‘commer-
cial common sense’ provides a guiding light,3 it is undoubtedly correct that
interpretation can address most problems of incompleteness in contracts.
But it is unrealistic to represent the judicial use of implied terms as confined to the
function of interpretation of express terms, because implied terms often address
an issue that has not been mentioned in the express terms of the contract at all
except perhaps in the broadest of terms. For instance, in Jones v Associated
1 The Moorcock (1889) 14 PD 64 (CA).

2 Attorney-General of Belize v Belize Telecom Ltd [2009] UKPC 10, [2009] 1 WLR 1988.
3 Antaios Cia Naviera SA v Salen Rederierna AB, The Antios [1985] AC 191, 201: ‘business
common sense’ (Lord Diplock); Lord Napier and Ettrick v RF Kershaw Ltd [1999] 1 WLR 756, 763:
‘commercially sensible construction’ (Lord Steyn); Rainy Sky SA v Kookmin Bank [2011] UKSC 50,
[2011] 1 WLR 2900, ‘business common sense’ (Lord Clarke) [30].
471
The Contract of Employment. First Edition. Hugh Collins.
© Hugh Collins 2016. Published 2016 by Oxford University Press
Implied Terms in the Contract of Employment
Tunnelling Co Ltd,4 the terms of a contract of employment did not specify the
place of work. After a few years of performing a job at one location, the employer, a
mining contractor, instructed the employee to work at a different mine nearby. In
the absence of any guidance from the express terms, the court devised an implied
term that granted the employer some necessary flexibility to relocate the employee
in order to comply with the needs of ‘business efficacy’, yet the implied term

also placed a limit on the employer’s discretion in order to prevent unreasonable
hardship for the employee. This implied term may be the application of ‘com-
mercial common sense’ to the contract, but it is hard to describe this process as an
interpretation of the express terms, because they made no mention of the place of
work. These judicial insertions of terms designed to fill gaps in the self-regulation
provided by the express terms of the contract are usually described as terms
‘implied in fact’.5
Implied terms also perform another considerably more ambitious role than inter-
pretation or gap-filling. This kind of implied term provides a default rule that will
be inserted into contracts of a particular type such as a sale of goods or a contract of
employment. These implied terms are default rules in the sense that they apply in
the absence of contrary express agreement. The practice of supplying default rules
is particularly evident in relation to the contract of employment. These implied
terms serve as a regulatory framework that normally applies to and shapes an
employment relationship. These terms ‘implied by law’ provide a legal expression
of elements of the structural principles that shape the normative core of the legal
institution of the contract of employment.6
In Lister v Romford Ice and Cold Storage Co Ltd, Lord Tucker observed:
Without attempting an exhaustive enumeration of the duties imposed in this way
upon a servant, I may mention: (1) the duty to give reasonable notice in the absence
of custom or express agreement; (2) the duty to obey the lawful orders of the master;
(3) the duty to be honest and diligent in the master’s service; (4) the duty to take
reasonable care of his master’s property entrusted to him and generally in the per-
formance of his duties; (5) to account to his master for any secret commission or
remuneration received by him; (6) not to abuse his master’s confidence in matters
pertaining to his service . . . 7
This six-pack of obligations placed by implied terms upon an employee forms part
of the legal framework for the contract of service or contract of employment,
4 Jones v Associated Tunnelling Co Ltd [1981] IRLR 477 (EAT).

5 A term implied in fact is, however, a question of law, like other issues regarding interpretation of
contracts, for the purpose of appeals from decisions of employment tribunals: O’Brien v Associated
Fire Alarms Ltd [1968] 1 WLR 1916, 1923.
6 M Freedland, The Personal Employment Contract (OUP 2003) 119.
7 [1957] AC 555, 594.
472
The Types of Implied Terms in Employment
though the list is incomplete in several respects, perhaps most importantly with
regard to a requirement for the employee ‘to serve the employer faithfully within
the requirements of the contract’.8 A comparable list of standard default rules that
impose obligations on an employer would include a duty to take reasonable care
of the health and safety of employees, a duty to give reasonable notice of the
termination of the contract, and the duty commonly known as ‘mutual trust and

confidence’, which in its most common formula states that ‘an employer shall not,
without reasonable and proper cause, conduct itself in a manner calculated and
likely to destroy or seriously damage the relationship of confidence and trust
between employer and employee’.9
These default rules constitute one of the standard ‘incidents impliedly annexed to
particular forms of contracts’.10 In codified systems of law, these standard incidents
are normally specified in articles of their civil codes, but under the common law
and even sometimes in legislation, they are attributed artificially to the agreement
of the parties as an implied term rather than a rule of law. Acknowledging that
these default rules cannot be grounded in the intentions of the parties, courts
frequently describe them as terms ‘implied by law’.11
In addition to terms implied in fact and terms implied by law, there may be a further
type of implied term based upon a custom in the trade that is ‘reasonable and
notorious’,12 though the role of custom as a source of implied terms is disputed,13
for it often functions more straightforwardly as a tool of interpretation of the express
terms. In some employment cases, custom is used to explain the incorporation of
documents such as a collective agreement into a contract of employment without
the need for an explicit agreement between the parties,14 but this technique concerns
the incorporation of express terms rather than the implication of terms. In Sagar v
Ridehalgh & Son Ltd,15 however, it was held that the evidence based upon the
customary practices of all employers among the mills in the locality established an
implied term under which an employer could make reasonable deductions for poor
workmanship. Today, a court would be more likely to explain this result based upon
8 British Telecommunications plc v Ticehurst [1992] ICR 383 (CA).

9 Malik v Bank of Credit and Commerce International SA [1997] UKHL 23, [1998] AC 20, 45
(Lord Steyn).
10 Equitable Life Assurance Society v Hyman [2000] UKHL 39, [2002] 1 AC 408, 458–9 (Lord
Steyn).
11 Lister v Romford Ice and Cold Storage Co Ltd [1957] AC 555, 579: ‘the implied term is imposed
by law, not in respect of a particular contract but as a legal incident of this kind of contract’ (Viscount
Simmonds).
12 Cunliffe-Owen v Teather & Greenwood [1967] 1 WLR 1421, 1438–9.
13 C Mitchell, Contract Law and Contract Practice (Hart 2013) 79–86.
14 British Crane Hire Corporation Ltd v Ipswich Plant Hire Ltd [1975] QB 303 (CA); Henry v
London General Transport Services Ltd [2002] EWCA Civ 488, [2002] IRLR 472.
15 [1931] 1 Ch 310.
473
the unexpressed intentions of the parties, as in other instances of terms implied

in fact; a judge might say that some kind of implied term regarding defective work
was necessary for this piece-work contract, and that from the context, including
the normal practice of this and other employers, it could be inferred that the tacit
agreement of the parties was to grant the employer the power to make deductions
from pay as a disciplinary measure against careless work. Similarly, appeals to

‘custom and practice’ as a source of implied terms are better understood today as
exercises in establishing the meaning of express terms of the contract by reference to
the context including the employer’s informal assurances and conduct.16 In a typical
case of this kind, where the employer has assured staff that the normal practices
regarding redundancy will apply to impending dismissals and where it has been the
employer’s practice to pay an enhanced redundancy payment, based upon the
reasonable understanding of the employee about what has been promised, a court
may find an express term of the contract that an enhanced redundancy payment will
be made.17 It is therefore probably more accurate to describe implied terms as
comprising only two types: terms implied in fact and terms implied by law.
The two types of implied terms are logically distinct, though not always easy to
separate in practice. The difference between them lies not in their form but in the
regulatory aim of the judicial intervention. For terms implied by law, the aim of
the court is to provide a default rule for a particular kind of contract that will serve
to regulate this type of market transaction for the future. For terms implied in fact,
the objective is a precise surgical operation to determine the allocation of risks in
the context of a particular transaction, without seeking to regulate future analogous
transactions. Because there are two very different types of implied terms, it is
appropriate that different tests should be used by judges to determine their appli-
cation to a contract.
2. Test for Terms Implied in Fact

The test most commonly invoked for terms implied in fact in the law of contract is
probably the one in The Moorcock, where Bowen LJ said:
In business transactions such as this, what the law desires to effect by the implication
is to give such business efficacy to the transaction as must have been intended at all
events by both parties who are business men; not to impose on one side all the perils
of the transaction, or to emancipate one side from all the chances of failure, but to
16 CSC Computer Sciences Ltd v McAlinden [2013] EWCA Civ 1435; Park Cakes Ltd v Shumba
[2013] EWCA Civ 974, [2013] IRLR 800 [26]–[36].

17 Garratt v Mirror Group Newspapers Ltd [2011] EWCA Civ 425, [2011] IRLR 591; Albion
Automotive Ltd v Walker [2002] EWCA Civ 946.
474
Test for Terms Implied in Fact
make each party promise in law as much, at all events, as it must have been in the
contemplation of both parties that he should be responsible for in respect of those
perils or chances.18
In this passage, Bowen LJ stresses both that the implied term must be necessary for
the transaction to be commercially viable and that it is not a technique for
rebalancing the allocation of risks. Likewise, in relation to commercial contracts,

the Court of Appeal currently insists that the test for an implied term is one of
necessity rather than one of reasonableness.19 Tests such as business efficacy or
business necessity unfortunately fail to acknowledge that the problem addressed by
terms implied in fact is a particular kind of incompleteness in contracts, under
which one party has failed to protect itself adequately against a foreseeable risk in
the express terms. An alternative test for terms implied in fact that is regularly
invoked by the courts, the ‘officious bystander’ test,20 has the virtue that it acknow-
ledges the presence of an omission in the allocation of risk by the express terms of
the contract, but its appeal to the tacit agreement of the parties to fill the gap fails to
provide much practical guidance about how that gap should be filled.
How, in practice, do the courts determine whether there is a need to impose a term
implied in fact and how do they devise that term? Whilst it is true that a court will
not imply a term simply to make a contract fairer or to relieve someone from a bad
bargain, nevertheless implied terms are concerned with the equilibrium between
the parties’ obligations. If, as a result of the use of rather general statements or
omissions, the express terms fail to address a particular issue, the contract may
become a potential instrument of unfair treatment because one party, either the
employer or the employee, can apparently rely on that omission to take an unfair
advantage from the other. In Jones v Associated Tunnelling,21 for instance, the
employee was seeking an advantage (a redundancy payment) by claiming that he
did not have to move his place of work, and the employer was seeking an unfair
advantage by claiming that it had a complete discretion to relocate the employee
anywhere based on a statement issued as a ‘written particular’, but not an express
term of the contract, that referred to the possibility of site transfers. Whilst stating
that he would ‘imply a term which the parties, if reasonable, would probably have
agreed if they had directed their minds to the problem’,22 Browne-Wilkinson
J created an implied term that neatly prevented both instances of advantage-taking
by permitting the employer to change the place of work provided it was within
18 The Moorcock (1889) 14 PD 64, 68 (CA).

19 Mediterranean Salvage & Towage Ltd v Seamar Trading & Commerce Inc, The Reborn [2009]
EWCA Civ 531, [2009] 2 Lloyd’s Rep 639; Lomas & Others v JFB Firth Rixson Inc & Others [2012]
EWCA Civ 419, [2012] 2 All ER (Comm) 1076; see also: Baroness Hale JSC in Geys v Société
Générale, London Branch [2012] UKSC 63, [2013] 1 AC 523 [55].
20 Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206 (CA) 227 (Mackinnon LJ).
21 [1981] IRLR 477 (EAT).
22 A test approved in Courtaulds Northern Spinning Ltd v Sibson [1988] ICR 451 (CA).
475
reasonable daily commuting distance for the employee. The implied term is not
intended to make the contract fairer than it was originally constituted, but rather
to prevent opportunism through reliance upon omissions or ambiguities in the
express terms of the contract. The implied term is needed to prevent unfair treat-
ment, exploitation, or what might be described as a bad faith interpretation of the
contract by one party.23

This approach for deciding whether or not to imply a term in fact is clearly
illustrated by Devonald v Rosser & Sons Ltd.24 Under the terms of a contract of
employment, both parties were required to give one month’s notice of termination.
The payment mechanism for the contract was piece-work. During a decline in the
market for the product, the employer decided to close the plant and gave the
employees the required one month’s notice. But the employer refused to pay any
wages during that notice period on the ground that no pieces had been produced, so
no wages were due. The Court of Appeal approved the implication of a term that
required the employer to pay a reasonable sum during the period of notice. There
was no attempt to claim that this was an interpretation of the express terms of the
contract, which stressed the piece-work basis of the transaction. Instead, the Court
of Appeal recognized that there was an omission in the contract to deal with business
closure or suspension, and the court filled that omission with the implied term that
reallocated the risk of the absence of work to be performed on to the employer. Fry
LJ stressed how much the employer was seeking to take an unfair advantage under
the contract: ‘In my opinion it would be eminently unreasonable for the master to
claim the right to say, “I do not consider these prices sufficiently remunerative, and
I will therefore decline to find any further work for the man during the time when
he is bound to hold himself ready to obey my orders”.’25 This reasoning is not an
investigation of business necessity or business efficacy, and it certainly would not
pass muster as a tacit agreement under the ‘officious bystander’ test. Instead, Fry LJ
and the other members of the Court of Appeal concluded that the employer’s
contention about the effect of the express terms of the contract would lead to an
unconscionable result, because it would in effect be the kind of zero-hours contract
where an employee had to be available for work, but, according to the unilateral
choice of the employer, would not be in receipt of any pay for weeks on end. That
interpretation shocks the conscience and the court concluded that it could not be a
good faith interpretation of the bargain that the parties had agreed at the outset.
A similar approach to the implication of a term in fact provides the basis for
decisions regarding the abuse of discretionary powers conferred by a term of the
23 H Collins, ‘Implied Terms: The Foundation in Good Faith and Fair Dealing’ (2014) 67 CLP
297, 315–19.
24 [1906] 2 QB 728 (CA).
25 Ibid, 743–5 (Fry LJ).
476
Test for Terms Implied by Law
contract. In these cases, though the express term apparently confers an unlimited
discretion on one party, a court will readily infer limitations on the exercise of the
power by reference to its exercise for a rational purpose. For instance, where an
employer refuses to pay a bonus on the ground that such payments are entirely
discretionary under the terms of the contract, there is no evident gap in the
contract, but there is an omission to protect against misuse of the power or the

exercise of discretion for an improper purpose.26 A court may decide to remedy this
omission by inserting an implied term that requires the employer not to exercise
the discretionary power capriciously or irrationally. Only in a very loose sense can
this adjustment of risks be described as an interpretation of the contract. The
implied term remedies an omission by one party to protect itself adequately against
a risk that the other would abuse the power conferred by the contract in bad faith.
In Chapter 3 of this work, it was argued that the structural principle described as the
‘exchange principle’ or the wage-work bargain had a normative force in steering legal
reasoning towards analyses of contracts of employment that sought to preserve an
equilibrium between the obligations of the parties or to prevent unfairness. Terms
implied in fact should be regarded as one of the mechanisms that courts use to apply
that structural principle to particular cases. In Devonald v Rosser, for instance, the
implied term served to prevent the disequilibrium of an obligation imposed on the
employee to hold himself ready to work as required whilst not being paid at all for
weeks on end. As in this case and many others, terms implied in fact serve to place
flesh on the bones of the exchange principle in the context of particular contractual
arrangements.
3. Test for Terms Implied by Law

For the standard incidents of contracts that apply as default rules, the terms
implied by law, a court is prescribing the ground rules for typical transactions.
In doing so, a court should normally conform to previous decisions in closely
similar contracts that may be regarded as falling within the same type or kind of
contract. In the absence of such governing precedents, many judges have recog-
nized that this legislative activity requires consideration of a broad range of
factors.27 For example, Dyson LJ said with respect to standardized terms:
26 See e.g. Equitable Life Assurance Co Ltd v Hyman [2002] 1 AC 408 (HL); Horkulak v Cantor
Fitzgerald International [2004] EWCA Civ 1287, [2005] ICR 402 (CA); Socimer International Bank
Ltd v Standard Bank London Ltd [2008] EWCA Civ 116, [2008] 1 Lloyd’s LR 558. Cf. H Collins,
‘Discretionary Powers in Contracts’ in D Campbell, H Collins, and J Wightman (eds), Implicit
Dimensions of Contract: Discrete, Relational, and Network Contracts (Hart 2003) 219.
27 E Peden, ‘Policy Concerns Behind Implications in Law’ (2001) LQR 459; cf. C Riley,
‘Designing Default Rules in Contract Law: Consent, Conventionalism and Efficiency’ (2000) 20
OJLS 367.
477
It seems to me that, rather than focus on the elusive concept of necessity, it is better
to recognise that, to some extent at least, the existence and scope of standardised
implied terms raise questions of reasonableness, fairness and the balancing of
competing policy considerations.28
It seems likely that the two most important considerations in shaping a default rule
will be to find a term that provides both an efficient allocation of risks between the

parties and fair balance of obligations. These considerations are important because
unless they are observed, it seems likely that parties to the relevant kind of contract
would routinely seek to displace the term implied by law by express terms, which
in turn would greatly diminish the utility of the implied term.
Consider, for instance, the implied term of mutual trust and confidence that was
declared by the House of Lords in Malik v BCCI to be a term implied in law in
contracts of employment.29 Because the tasks to be performed by an employee
during the whole period of the contract of service can only rarely be specified in
advance with any precision, the basic structure of the contract of employment is that
employers bargain for the right to direct labour at their discretion.30 As we have
already noted, the contract of employment contains an implied term requiring
employees to comply with lawful instructions of employers, which completes the
basic framework of the performance obligations. The courts have developed a further
implied term that employees are under an obligation to serve the employer faithfully
within the requirements of the contract.31 This implied term is designed to require
employees to use their best efforts to perform their obligations as directed by the
employer and not to harm the interests of the employer by withdrawing from
conscientious service. These implied terms help a contract of employment to
function efficiently, though they leave an employee in a subordinate and vulnerable
position. To prevent misuse of an employer’s contractual powers to manage the
workforce, the House of Lords approved the implied term that an employer should
not ‘without reasonable and proper cause, conduct itself in a manner calculated and
likely to destroy or seriously damage the relationship of confidence and trust between
employer and employee’.32 Lord Nicholls has described the implied term in the
language of good faith: ‘In his conduct of his business, and in his treatment of
employees, an employer must act responsibly and in good faith.’33
28 Crossley v Faithful & Gould Holdings Ltd [2004] EWCA Civ 293, [2004] ICR 1615 [36];
quoted with approval by Baroness Hale JSC in Geys v Société Générale, London Branch [2012] UKSC
63, [2013] ICR 117 [56].
29 Malik v Bank of Credit and Commerce International SA [1997] UKHL 23, [1997] ICR 606,
[1998] AC 20 (HL).
30 H Collins, Regulating Contracts (OUP 1999) 167–72; H Simon, ‘A formal theory of the
employment relationship’ (1951) 19(3) Econometrica 25–44.

31 Secretary of State for Employment v ASLEF (No 2) [1972] ICR 19 (CA): British Telecommuni-
cations plc v Ticehurst [1992] ICR 383 (CA).

32 See n 9.
33 Eastwood v Magnox Electric plc [2004] UKHL 35, [2005] 1 AC 503.
478
Test for Terms Implied by Law
It is possible to justify this implied term partly on the ground of efficiency: conduct
of the kind prohibited by the implied term is likely to diminish the motivation,
commitment, and performance of employees and lead them to quit the job, causing
the employer considerable costs arising from labour turnover.34 Modern human
resources management rejects the autocratic regimes practised under ‘scientific
management’;35 it seeks instead through fair management to build ‘organizational

citizenship behaviour’, performance ‘beyond contract’, and commitment to the
goals of the business, in order to maximize productivity through co-operation or
‘partnership’.36 In addition, however, as Lord Steyn pointed out, the implied term
could be justified as matching the expectations of the parties under modern
employer–employee relationships, in which employers are expected to assume
obligations to care for the physical, financial, and psychological welfare of employ-
ees.37 We might say that this implied term can protect to some extent what has been
called ‘the psychological contract’, which is not a binding contract, but rather
important diffuse reciprocal obligations that might be described in the language of
trust and loyalty.38 Lord Steyn further presented the implied term as a tool for
striking the balance between an ‘employer’s interest in managing his business as he
sees fit and the employee’s interest in not being unfairly and improperly exploited’.39
The implied term of mutual trust and confidence was therefore justified both by
reference to an efficiency criterion and a fair balance of obligations that conform to
the reasonable expectations of the parties.
Terms implied by law support the exchange principle or the wage-work bargain in
some instances, but probably their more important role lies in providing legal
expression for the structural principle described as the ‘reciprocity principle’ in
Chapters 2 and 3. This principle underscores the point that employment requires
subordination of the worker to the direction of the employer or employing organ-
ization and that the expectations of the parties include a degree of co-operation, fair
34 H Collins, K D Ewing, and A McColgan, Labour Law (CUP 2011) 123.

35 FW Taylor, Scientific Management (Harper & Row 1947).
36 D Guest and R Peccei, ‘Partnership at Work: Mutuality and the Balance of Advantage’ (2001)
39 BJIR 207; D Katz, ‘The Motivational Basis of Organisational Behaviour’ (1964) 9 Behavioural
Science 131; CA Smith, DW Organ, and JP Near, ‘Organisational Citizenship Behaviour: Its Nature
and Antecedents’ (1983) 68 Journal of Applied Psychology 653.
37 [1997] ICR 606, 621F, citing Lord Slynn, Spring v Guardian Assurance plc [1994] ICR 596
(HL) 628E.
38 DM Rousseau, ‘Psychological and Implied Contracts in Organizations’ (1989) 2 Employee
Responsibility and Rights Journal 121; A Marks, ‘Developing a Multiple Foci Conceptualization of
the Psychological Contract’ (2001) 23 Employee Relations 454; KVW Stone, ‘The New Psycho-
logical Contract: Implications of the Changing Workplace for Labor and Employment Law’ (2001)
48 UCLA Law Review 519; DE Guest, ‘The Psychology of the Employment Relationship: An
Analysis Based on the Psychological Contract’ (2004) 53 Applied Psychology: An International
Review 541.
39 [1997] ICR 606, 622A; cf. D Brodie, ‘Mutual Trust and the Values of the Employment
Contract’ (2001) 30 ILJ 84; D Brodie, ‘Beyond Exchange: The New Contract of Employment’
(1998) 27 ILJ 79.
479
treatment, and performance of both sides of the bargain in good faith. The terms
implied by law typically spell out in more detail the structure of the contract of
employment, with its duty of obedience and performance in good faith on one side,
and the duty of care and not to destroy mutual trust and confidence on the other.
For instance, in Cresswell v Board of Inland Revenue,40 employees refused to co-
operate with the introduction of new technology in the absence of a guarantee that

its introduction would not result in job losses. The terms of the contracts of
employment only described the jobs in general terms and did not address the
issue of new technologies. Walton J held that the employer’s direction to adopt
the new technology was not a breach of contract but, on the contrary, an employee
‘is expected to adapt himself to new methods and techniques introduced in the
course of his employment’ though ‘in a proper case the employer must provide any
necessary training or re-training’.41 It was argued earlier that the principal consid-
erations that shape terms implied by law concern efficiency and a fair balance of
obligations, but to these considerations should be added a recognition that terms
implied by law also shape the default obligation of subordination—the domination
by the employer over the employee—and in so shaping that human relationship, the
courts must also bear in mind such considerations as civil liberties, human rights,
and the need in civilized societies to treat other human beings with respect.42
4. Confusion in the Use of Implied Terms

It has been argued in section 1 that the two kinds of implied terms are quite distinct,
both because their functions differ, and because the tests for application of the terms
are rather different. Nevertheless, it has to be conceded that the distinction between
the kinds of implied terms has not always been strictly observed or fully understood
for various reasons. We should notice two particular sources of confusion: the
possibility of a metamorphosis, and an instrumental misclassification.
A. Metamorphosis from Fact to Law

It is possible, even likely, that decisions with respect to a particular kind of dispute
are initially resolved by a combination of interpretation of express terms and the
implication of terms in fact, and then, after a succession of similar cases, the courts
may begin to assume that the term has become one implied in law, so that in the
absence of express terms to the contrary, it will be binding on both parties as a
40 [1984] ICR 508 (QB).

41 Cresswell (ibid) 518.
42 See Chapter 9 for the use of implied terms to protect human rights.
480
Confusion in the Use of Implied Terms
standardized default rule. Mark Freedland has suggested that this process has taken
place, for instance, with regard to the duty to provide pay to employees whilst they
are absent on sick leave.43 A similar development seems to be occurring with re-
spect to an implied term that prevents the arbitrary use of an apparently unfettered
discretion to grant a bonus payment.44 What is difficult to know for sure is when a
term that has frequently been implied in fact has metamorphosed into a term

implied in law.
Consider, for instance, the question whether or not there is a term implied in law
under which an employer is required under a contract of employment to provide
work to be performed. The traditional view was that the employer did not promise
to provide work, but merely to pay wages.45 Nevertheless, such a term has occa-
sionally been applied to particular contracts of employment: where the employee
needs to ‘keep his hand in’ by practising his skills;46 where the opportunity to
perform the job will potentially enhance the employee’s reputation or standing in
the profession, such as the opportunity to perform a leading role in a theatrical
production;47 and perhaps, as in Collier v Sunday Referee Publishing Co,48 where
the opportunity to perform a prestigious appointment or office, in this case the
sub-editor of a newspaper, is regarded as valuable in itself. A term implied in fact to
provide work has occasionally been applied also to casual work to construct a long-
term relational contract of employment.49 If there is no general duty to provide
work, can there nevertheless be a default rule to pay remuneration in the absence
of work to be done? The decision in Devonald v Rosser and Sons,50 discussed in
section 2, can be interpreted as providing support for such a term implied by law,51
but it is evident that the judges’ reasoning in the case regarded the dispute as
concerning a term implied in fact, a dispute about the proper interpretation of that
particular contract, not a more general principle applicable to all contracts of
43 M Freedland, Contract of Employment (OUP 1976) 38, citing Marrison v Bell [1939] 2 KB
187 (CA); Petrie v MacFisheries Ltd [1940] 1 KB 258 (CA); Hancock v BSA Tools Ltd [1939] 4 All ER
538; O’Grady v M Saper Ltd [1940] 2 KB 469 (CA); Orman v Saville Sportswear [1960] 1 WLR
1055 (QB).
44 Collins, ‘Implied Terms’ (n 23).
45 Turner v Sawdon & Co [1901] 2 KB 653 (CA); Collier v Sunday Referee Publishing Co [1940] 2
KB 647 (QB): ‘Provided I pay my cook her wages regularly, she cannot complain if I choose to take
any or all of my meals out.’
46 William Hill Organisation Ltd v Tucker [1999] ICR 291 (CA); suggested but not found
applicable in the particular case in Langston v Amalgamated Union of Engineering Workers [1974]
ICR 510 (NIRC).
47 Fechter v Montgomery [1863] 33 Beav 22; Marbe v George Edwardes (Daly’s Theatre) Ltd [1928]
1 KB 269 (CA); Herbert Clayton and Jack Waller Ltd v Oliver [1930] AC 209 (HL).
48 [1940] 2 KB 647 (QB).
49 Carmichael v National Power plc [1998] ICR 1167, 1187, 1196 (CA), though this was
subsequently overruled. See [1999] UKHL 47, [1999] 1 WLR 2042.

50 [1906] 2 KB 728 (CA).
51 S Deakin and G Morris, Labour Law (6th edn, Hart 2012) [4.126].
481
employment. It may be prudent to be guided by the style and purpose of the

judicial reasoning in determining whether an implied term was one of fact or law,
but this is not a reliable guide.
B. Instrumental Misclassification

For there are cases where a term has been described by the court as a term implied
in law, when in reality it only applied to the interpretation of that particular
contract of employment, and the opposite misclassification can also occur. Con-
sider, for instance, Scally v Southern Health and Social Services Board,52 where the
judicial committee of the House of Lords decided to imply a term into a standard
form contract of employment in favour of some junior doctors under which the
employer would be under a duty to provide employees with information about
pension benefits and opportunities contained in some collectively agreed regula-
tions that were incorporated into the contract of employment. Unexpectedly, the
House of Lords described this implied term as one implied in law rather than
describing it as a term implied in fact to address the omission in the contract that
the employer was not obliged to tell the doctors about a valuable benefit that had
been negotiated for them in a collective agreement. Yet the House of Lords then
removed almost any future ramifications for this default rule by confining this duty
of disclosure to a sub-category of contracts of employment where the express terms
confer a valuable right contingent on action being taken by the employee, and
the employee cannot reasonably be aware of the existence of the right because it
has been negotiated by remote parties, unless the employer draws it to his or her
attention. This narrowing of the class of contracts to which the implied term
applied avoided the development of a more general duty placed on the employer of
disclosure of information or a duty to provide employees with advice. Indeed, the
decision seems unlikely to apply to another other kind of situation than pension
benefits and perhaps some other fringe benefits negotiated through collective
agreements at national level.
We can only speculate why the House of Lords chose this complicated route to the
result rather than looking to see whether it would be possible to imply a term in
fact that would be suitable only for this particular standard form contract. Perhaps
they believed it might be difficult to satisfy a test of necessity or business efficacy,
though Mark Freedland is surely correct to say that it would have been a compelling
argument to maintain that the pension benefits at stake would be lost by employees
unless they were told about them, so, to give the contract efficacy, it would be
necessary to inform the employees somehow.53 Alternatively, though describing the
term implied in law extremely narrowly, perhaps the court believed that it was time
52 [1992] 1 AC 294 (HL).

53 M Freedland, ‘Individual Contracts of Employment and the Common Law Courts’ (1992) ILJ
135, 139.
482
Exclusion of Implied Terms
for the common law to begin to consider the possibility of both parties to contracts
of employment having greater duties of co-operation arising from the exchange of
information in order to improve the efficiency of performance of these long-term
relational contracts,54 though that development has not yet taken place.55 Although
the reasons for misclassification of the type of implied term are not always clear, it is
evident that in some instances it will be to the advantage of one or both parties to the

litigation to distort the discussion and secure a favourable outcome by misclassifying
the case as one of a term implied by law or one implied in fact.56
5. Exclusion of Implied Terms

As a default rule, in general, it should be open to the parties to exclude any implied
term by express agreement. We have observed, however, that terms implied by
law are a set of default rules applicable to a particular type of contract, such as a
contract of employment, and that they are devised primarily with a view to
constructing an efficient, functioning exchange and a fair balance of obligations
between the parties to the relationship constituted by this kind of transaction in
accordance with the structural principles described in Chapters 2 and 3 of this
work. That point provokes the question: how can it be possible for express terms
of the contract to purport to exclude an obligation normally implied by law in a
contract of employment that serves to constitute the basic elements of that
relationship? Similarly, with respect to terms implied in fact, if such terms are
inserted on the ground of business necessity or to protect the basic equilibrium of
the transaction against opportunism, how could the contract function if such a
term were excluded?57 Implied terms may not be so easily excluded as is commonly
supposed.
It is clear that the exclusion of some standard default rules raises complex questions
about whether the contract remains a contract of employment or has become some
other kind of contract. Exclusions of basic liberties of the employee to quit by
terminating the contract edge the proper classification of the contract towards
forced labour or a non-contractual kind of servitude. Exclusions or limitations on
the employer’s right to direct the performance of work begin to turn the proper
classification of the contract towards a contract for services. It seems to be an
54 H Collins, ‘Implied Duty to Give Information During Performance of Contracts’ (1992) 55
MLR 556; Aline van Bever, ‘An Employer's Duty to Provide Information and Advice on Economic
Risks?’ (2013) 42 ILJ 1.
55 Crossley v Faithful & Gould Holdings Ltd [2004] EWCA Civ 293, [2004] ICR 1615; Lennon v
Commissioner of Police of the Metropolis [2004] EWCA Civ 130, [2004] IRLR 385 (CA).
56 E Peden, ‘Policy Concerns Behind Implications in Law’ (2001) LQR 459, 461–2, discussing
Reid v Rush & Tompkins Group plc [1990] 1 WLR 212 (CA); Collins, ‘Implied Terms’ (n 23) 306–9.
57 Compass Group UK and Ireland Ltd v Mid Essex Hospital Services NHS Trust [2012] EWHC
781 (QB) [41] (Cranston J).
483
implicit structural principle of a contract of employment that the employee will

perform the contract personally, so where the contract permits the employee to
send a substitute worker instead to perform the job, questions are raised about
whether the contract remains one of employment as opposed to one of a contract
for services.58 Some of these exclusions of the normal incidents of a contract of
employment may be regarded as shams, being designed to persuade a court that the

normal employment protection rights do not apply to a particular work relation-
ship.59 Unless such exclusions can be ignored as shams, however, these terms may
persuade a court to reclassify the contractual relation as one for services rather than
of employment. In that sense, many terms implied by law appear to be constitutive
of the employment relationship, because as a consequence of substantial deroga-
tion from such obligations, the courts may no longer classify the contract as one of
employment.
However, exclusion of a term implied by law does not necessarily change the
nature of the contract. For instance, if the parties agree that the contract will be a
fixed-term contract for six months, and that it cannot be terminated by either
party prior to the expiration of that term, that agreement to exclude the normal
default rule that permits either party to terminate the contract on giving reasonable
notice would not force the contract to be classified as a contract for services.60
There are two variables operating here. The first variable concerns whether the
implied term is fundamental or constitutive of the employment relation. Some
implied terms may be regarded as so fundamental to the nature of an employment
relationship that their exclusion means that the contract has changed its character
entirely. Other implied terms, however, like the requirement to give reasonable
notice, may be less significant, even though they are routinely incorporated into
contracts of employment and give protection to important interests of both
parties. The second variable concerns the degree of exclusion of the standard
implied term. If the normal implied term is excluded but replaced by a similar
protection for the interests of the parties, that kind of exclusion may not be
regarded as altering to any significant extent the character of the contractual
relation. Both of those variables are probably operating in the above example of
a fixed-term contract of six months without the option to terminate on reasonable
notice before that expiration of the contract. Although the term requiring reason-
able notice is normally appropriate for contracts of employment, and its absence
might raise questions about the character of the economic transaction, it is possible
for the parties to replace it with an equivalent protection of their interests,
presumably because that will improve the efficiency of the contract. In such
circumstances, it seems unlikely that the exclusion and replacement of the implied
58 Express & Echo Publications Ltd v Tanton [1999] ICR 693 (CA).
59 Autoclenz Ltd v Belcher [2011] UKSC 41, [2011] ICR 1157 (SC).
60 Emmens v Elderton (1853) 13 CB 495.
484
term would be regarded as having engineered any major change in the character of
the contractual relationship.
English law tends to classify the rules of contract law as either mandatory or default
rules that can be excluded. But as the example of a six-month fixed-term contract
illustrates, this binary classification is rather crude and may not capture what in

reality is a more nuanced approach to the exclusion of implied terms. As is the case
in Germany, there may be an intermediate category of rule, where there are limits
on when or how far the default rule might be excluded.61 For instance, a default
rule may be only excludable if the variation benefits the party who would normally
benefit from an application of the default rule. Alternatively, a legal system might
permit the exclusion of a default rule on the occurrence of a particular contin-
gency. Here an analogy might be that the default rules about termination on giving
reasonable notice seem to be rendered inapplicable when a contract has been
frustrated. A more complex idea could be that although the core or essence of
the default obligation cannot be excluded, some derived aspects of it might be
modified. A general duty to perform a contract in good faith, which is a standard
requirement in civil law systems, is likely to be handled in this way: although the
parties cannot exclude some basic rules of honesty and fair dealing, they may be
able to qualify some obligations such as the extent to which disclosure of infor-
mation is required. In the context of employment, it might also be possible to have
default rules that could only be waived by a collective agreement or some other
kind of agreement between the employer and representatives of the workforce, as
opposed to a simple exclusion in an individual contract of employment.62 Finally, an
analogy might be drawn between exclusion of terms implied by law and exclusion of
human rights by the terms of the agreement, where the general principle is that the
derogation from the protected right will only be permitted where a strict propor-
tionality test can be satisfied.63
Douglas Brodie and Mark Freedland have floated the idea that the implied term of
mutual trust and confidence cannot be excluded by the express terms of the
contract of employment.64 It is indeed hard to believe that an employer would
have the temerity to insert a term into a contract of employment that expressly
reserves the right to behave arbitrarily, irrationally, and extremely unfairly, and
explicitly excludes the implied term of mutual trust and confidence or good faith.
It is more perhaps more likely that the express terms of the contract would include
a sweeping term that excludes ‘any additional implied terms’. Alternatively, an
61 M W Hesselink, ‘Non-Mandatory Rules in European Contract Law’ (2005) European Review
of Contract Law 44, 57.

62 Ibid, 60 discussing the Netherlands.
63 See Chapter 9.
64 Freedland, The Personal Employment Contract (n 6) 164–6; D Brodie, ‘Beyond Exchange: The
New Contract of Employment’ (1998) 27 ILJ 79.
485
employer might insert an ‘entire agreement’ clause under which the parties agree
that the written terms of the contract comprise all their rights and obligations
towards each other, with a view to excluding further implied terms, though in
other commercial contexts such a device has been insufficient to exclude the
normal incidents of the contract or terms implied by law.65 However the exclu-
sionary term may be formulated, is it possible, in principle, to exclude the implied

term of mutual trust and confidence?
Orthodox contract law insists that all implied terms, both those implied in fact and
those implied by law, may be excluded by sufficiently explicit terms in the contract.
In his judgment confirming the existence of the implied term of mutual trust and
confidence, Lord Steyn repeated that orthodoxy in Malik v BCCI.66 On this
standard view of contract law, only Parliament can insist through legislation that a
term cannot be excluded. The Unfair Contract Terms Act 1977 section 2(1)
prevents the exclusion of the employer’s duty of care towards the health and safety
of employees, but Parliament has not passed similar regulations with respect to other
implied terms in the contract of employment. The Law Commission’s proposal to
empower the courts to invalidate unfair and unreasonable terms in contracts of
employment has not been enacted.67 The general law of contract therefore appears
to offer no support for the proposition that the implied term of mutual trust and
confidence cannot be excluded.
Furthermore, that position seems unlikely to change. It may be recalled that Lord
Denning MR tried to help consumers by developing a doctrine that certain
‘fundamental terms’ could not be excluded in standard form contracts,68 or that
a ‘fundamental breach’ disentitled a party from taking the benefit of an exclusion
clause.69 That initiative was rejected by the House of Lords in Suisse Atlantique v
Rotterdamsche Kolen.70 As well as supporting freedom of contract in general, the
House of Lords regarded the proposed rule as unsatisfactory and unworkable: how
could one know across the great variety of contracts which terms were fundamen-
tal and which were not? Ever since, exclusion clauses outside the scope of any
65 Seadrill Management Services Ltd v OAO Gazprom [2010] EWCA Civ 691, [2011] 1 All ER
(Comm) 1077 [27]–[28] (Moore-Bick LJ). ‘To proceed on any other basis would make commercial
life impossible’; AXA Sun Life Services plc v Campbell Martin Ltd, Brendon Partington, Gary Tibor
Hosznyak [2011] EWCA Civ 133, [2011] 2 Lloyd’s Rep 1.
66 Malik v Bank of Credit and Commerce International SA [1997] UKHL 23, [1997] ICR 606,
621A.
67 Law Commission, Unfair Terms in Contracts (Law Com No 292, 2005) Clause 12 of Draft
Bill, 154.
68 See e.g. Levison v Patent Steam Carpet Cleaning Co Ltd [1978] QB 69 (CA).
69 Karsales (Harrow) Ltd v Wallis [1956] 1 WLR 936 (CA).
70 Suisse Atlantique Societe d’Armement Maritime SA v Rotterdamsche Kolen Centrale NV [1967] 1
AC 361 (HL).
486
relevant protective legislation are given their plain and natural meaning.71 The
suggestion that the implied term of mutual trust and confidence cannot
be excluded or qualified by express terms is plainly a heresy under orthodox
contract law.
Nor is there any sign in the case law that the courts might be disposed to protect

the implied term of mutual trust and confidence against encroachments by express
terms of the contract. On the contrary, the courts have embraced that possibility.
In Johnson v Unisys Ltd,72 the House of Lords was invited to permit a claim for
breach of the implied term of mutual trust and confidence in connection with
the manner of a summary dismissal. Rejecting that invitation, the majority of the
House of Lords insisted that the implied term did not apply to the manner of a
dismissal. Part of the reason for that rejection was a concern that Parliament had
already occupied the field of unfair dismissal and that a judicial development of an
action in common law would subvert Parliament’s carefully constructed balance of
obligations between employer and employee.73 But another justification for
rejecting an extension of the implied term to the manner of dismissal was simply
that an express term of that particular contract provided for dismissal on simply
giving notice of termination; that express term was thought to exclude an add-
itional requirement that the employer should act fairly and have a good reason for
dismissal.74 In effect, Johnson v Unisys Ltd permitted the exclusion of the implied
term of mutual trust and confidence by reference to a rather general express term
about giving four weeks’ notice of termination. There is no sign in that majority
decision of any willingness to protect the implied term of mutual trust and confi-
dence from qualification or exclusion.
In contrast, Lord Steyn disagreed with the majority view in Johnson v Unisys Ltd
concerning the exclusion of the implied term by the express term giving the
employer the right to give four weeks’ notice to terminate the contract. He
distinguished between terms implied in fact and terms implied by law. As a term
implied by law, Lord Steyn described the implied term of mutual trust and
confidence as an incident of the contract of employment, or a duty imposed by
law.75 He insisted that, as such an implied term, it would require ‘at least express
words or a necessary implication to displace it or to cut down its scope’.76 He argued
instead that the contractual power to terminate the contract on giving notice could
be read in such a way as to require that the power should be exercised in good faith
without creating any contradiction or conflict. Lord Steyn pointed to other similar
71 See e.g. Mitchell (George) Chesterhall Ltd v Finney Lock Seeds Ltd [1983] 2 AC 803 (HL),
overruling the majority of the Court of Appeal’s construction of the contract.

72 [2001] UKHL 13, [2003] 1 AC 518.
73 Johnson (ibid) [2] (Lord Nicholls); [58] (Lord Hoffmann).
74 Ibid, [42]–[43] (Lord Hoffmann).
75 Ibid, [24].
76 Ibid, [24].
487
examples: an employer’s express contractual right to refuse amendments under a

pension scheme had to be exercised in such a way as not to destroy mutual trust
and confidence between the employees and the employer;77 an employer’s express
contractual right to transfer an employee to another location could be qualified by
the implied term of mutual trust and confidence to the effect that the employer
would have to give the employee reasonable notice of the transfer.78 To those

examples might be added a bank’s sudden withdrawal of a discretionary low-
interest loan from an employee, thereby causing considerable financial hardship,
which was held to be a breach of the implied term of mutual trust and confidence.79
Lord Steyn’s view appears to be that terms implied in fact can easily be displaced
by express terms of the contract. The slightest inconsistency between the express
terms of the contract and the purported joint intentions of the parties that is being
proposed through a term implied in fact will prevent acceptance of the implied
term. In contrast, for terms implied by law that are foundational or constitutive of
the employment relation, perhaps in the sense described earlier, express and
detailed terms will be required to exclude such implied terms altogether. Nor-
mally, a term implied by law will persist in the contract, but may have to be
qualified or modified so as to be able to live together with the express terms of the
contract.
This issue of whether a term implied by law can be excluded by express terms of
the contract has also arisen in the context of the implied term that requires an
employer to take reasonable care of the health and safety of employees. In Johnstone
v Bloomsbury Health Authority,80 a hospital doctor was employed under a contract
that provided for a standard 40-hour week, but also required the doctor to be
available on call for, on average, an additional 48 hours per week. The employee
claimed that the employer’s requirement for long hours of work was damaging to
his health and sought a declaration that the employer could not lawfully require
such long hours as would foreseeably damage his health. A majority of the Court of
Appeal awarded the declaration. Stuart Smith LJ insisted that, as the implied term
regarding the employer’s duty of care was a term implied by law, rather than one
implied in fact, the court must interpret the contract in a manner that reconciles
the two obligations. Here, the employer could require 48 hours of overtime work,
but only if that could be done in a manner consistent with the employer’s duty of
care. Once the employer became aware that the long hours were probably dam-
aging the employee’s health, the employer would no longer be able to exercise its
express contractual right to require the full amount of overtime work. Browne-
Wilkinson VC reached much the same result, but he preferred to describe the
77 Imperial Group Pension Trust Ltd v Imperial Tobacco Ltd [1991] IRLR 66 (Ch).
78 United Bank Ltd v Akhtar [1989] IRLR 507 (EAT).
79 French v Barclays Bank plc [1998] IRLR 646 (CA).
80 [1991] 2 All ER 293 (CA).
488
employer’s contractual right to demand 48 hours of overtime as merely a power or

discretion, which had to be exercised in a manner that was consistent with the
other terms of the contract, including the implied term regarding the duty to take
reasonable care of the health and safety of employees.
A similar question has arisen with respect to the implied term that prevents an

arbitrary, capricious, or irrational exercise of a discretionary power conferred by a
contract. We have noted that it is unclear whether this is a term implied by law or
in fact, but it seems to apply invariably where a term confers a discretion on one
party that involves making an assessment or choosing from a range of options,
taking into account the interests of both parties and perhaps the commercial purpose
of the contract. Where an entire agreement clause was used to claim that this
implied term had been excluded, this argument was rejected by Jackson LJ speaking
for the Court of Appeal: ‘Such a term is extremely difficult to exclude, although
I would not say it is utterly impossible to do so.’81 In this case the exclusionary term
was insufficiently explicit to exclude the implied term.82
Nevertheless, despite the orthodox view being against it, the idea that an employer
cannot exclude the implied term of mutual trust and confidence is undoubtedly
attractive. The term is emblematic of the modern employment relationship in
which workers are no longer automatons, required to obey orders unquestioningly;
now workers deserve to be treated with respect, as human beings not commodities,
with whom managers should deal honestly and fairly. As the law recognizes, once
that term is broken, the relation is irretrievably damaged and can no longer
function effectively. In other jurisdictions, such as the USA and Australia, where
a general requirement to perform contracts in good faith is applied either as a
principle or an implied term, it is generally said that the term cannot be excluded,
though perhaps specific aspects of the duty might be controlled by the express
terms.83 As Mark Freedland suggests,84 that compromise may provide a coherent
way forward: whilst a blanket exclusion of the high level principle of mutual trust
and confidence would not be given much weight in judicial reasoning, more
precise exclusions of implied terms that might be derived from the generic idea
of mutual trust and confidence could be qualified or limited. For instance, an
employer might be able to control its obligations to disclose information to
81 Mid Essex Hospital Services NHS Trust v Compass Group UK and Ireland Ltd [2013] EWCA
Civ 200, [2013] BLR 265 [83].

82 Clause 1.1.5 of the contract: ‘for the avoidance of doubt all other terms, conditions or
warranties other than any terms, conditions or warranties implied by law in favour of the Trust or
the Beneficiaries are excluded from the agreement between the Trust and the Contractor unless
expressly accepted in writing by the Trust’s Representative’. The court ultimately decided that there
was in fact no discretionary power to be exercised.
83 EA Farnsworth, ‘Good Faith in Contract Performance’ in J Beatson and D Friedmann, Good
Faith in Contract Law (Clarendon Press 1995) 153, 166–9; J Paterson, A Robertson, and A Duke,
Principles of Contract Law (4th edn, Lawbook Company 2012) 341–51.
84 Freedland, The Personal Employment Contract (n 6) 164–6.
489
employees by a suitably drafted term, even if the duty of disclosure ultimately rests
on the implied term of mutual trust and confidence.
6. Implied Terms in the Era of Written

Contracts of Employment

Until the last decades of the twentieth century, it was rare for a contract of
employment to be a detailed written document: for most workers, except perhaps
managers and white-collar professionals, the hiring would typically be a brief oral
agreement. In that context, implied terms provided a legal framework of mutual
obligations regarding the payment of wages in return for faithful service. The oral
agreement at the point of hiring added specificity to the obligations of the wage-
work bargain, such as job title, the hourly or weekly rate of pay, and normal hours of
work. In addition, there might be further detailed regulation through the incorpor-
ation of an applicable collective agreement and the employer’s works rules posted on
the factory walls. But the oral agreement and the incorporated documents all
presupposed a particular legal structure for the contractual relationship, which was
provided by the implied terms.
Today, however, it is much more common for contracts of employment to be
expressed through detailed contractual documents. The terms of the contract will
normally have been drafted by the employer or its lawyers. A staff handbook is
likely to provide detailed rules governing the employee’s behaviour at work. In this
context of elaborate standard form contracts of employment, it is harder to conceive
of implied terms as shaping the legal framework for the contract of employment,
since the written contract apparently suffices to describe all the rights and obligations
of the parties. Nor is it easy to think of implied terms as any longer filling the large
gaps left by brief oral agreements, for whatever gaps are left will be the result of
unforeseen or unlikely contingencies. In this era of extensive written contracts of
employment, is there still a significant role for implied terms in the law governing
contracts of employment?
Implied terms may only rarely perform the task of filling a gap in a brief oral
agreement for a job, but they still appear to exert a profound influence on the
interpretation of contracts of employment. For the interpretation of express terms,
implied terms provide the normal context and the ‘guiding principles’ that a
reasonable person would rely upon in order to understand the meaning of the express
terms of the contract of employment.85 Implied terms often serve as the unwritten
assumptions about the basic framework of the legal institution of the contract of
85 Freedland, The Personal Employment Contract (n 6) 124–5; H Collins, ‘Legal Responses to the
Standard Form Contract of Employment’ (2007) 36 ILJ 2, 9.
490
Implied Terms in the Era of Written Contracts
employment, so that when people enter into such contracts and when courts are
called upon to interpret them, the implied terms provide a fixed perspective from
which the content of the agreement will be viewed and any disputes resolved. We
might say that the implied terms are constitutive of the concept of a contract of
employment. In Chapter 2 of this work, three general structural principles were
identified as present in all contracts of employment. All three of those structural

principles find at least part of their legal expression through implied terms: the idea
that the contract of employment involves an exchange of work for remuneration is
reflected in the implied condition that no wages are due till the specified work has
been completed; the legal expression of the employee’s integration into an organiza-
tion can be found in the employee’s duties of obedience, loyalty, and fidelity; and the
principle of co-operation finds its legal expression in the mutual implied duties to
perform the contract in good faith.
491

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1. The Types of Implied Terms in Employment

1 The Moorcock (1889) 14 PD 64 (CA).