Implied Terms in Employment Contracts: Part 1 (Employees)

By Geoff Mason.

Employment contracts come in all shapes and sizes. They vary in terms of detail, style and substance.

There’s one thing they all have in common, however. Every employment agreement is FULL of implied terms.

An “implied term” is best understood when compared with an “express term”, which is a contractual term that two parties explicitly agree to, either orally or in writing. An implied term, by comparison, is a default term that judges have “read into” an employment contract when its express terms are silent on a particular issue.

Even though they are not written down, implied terms have just as much force and effect as express terms, which is why employers and employees alike need to be aware of them.

In today’s post, the first in a two-part series, I discuss some of the key (but less well-known) implied terms governing employees. In part two later this month, I will discuss implied terms that govern employers.

  1. Obligation to Cooperate in Advancing the Employer’s Commercial Interests

This implied term comes from the British case Secretary of State for Employment v. ASLEF (No. 2), [1972] 2 ALL ER 949 9. There, train drivers who were upset with their working conditions protested by methodically complying with their contractual requirements, which ironically resulted in the rail system being rendered effectively inoperable.

The court found that the train drivers’ behavior violated an implied term of their employment.  As Lord Justice Berkley explained:

…an employee must serve the employer faithfully with a view to promoting those commercial interests for which he is employed.

This principle extends to conduct outside the workplace that has a detrimental effect on an employer’s commercial interests.

It’s important to note that this term does not create a positive obligation on employees to promote these commercial interests, but rather an obligation to not act contrary to them.

  1. Obligation to Perform Work Competently

It is a long-standing principle of British common law that every employment contract contains an implied term requiring employees to perform their jobs competently. This principle was incorporated into Canadian law in R v. Arthurs, Ex p. Port Arthur Shipbuilding Co., [1967] 2 OR 49 (CA), where the Ontario Court of Appeal determined that “incompetence” is a form of contractual breach that may give rise to dismissal with cause.

While incompetent job performance may still result in breach of contract, Canadian courts since the Arthurs case have held that “gross” incompetence is required to justify dismissal with cause. (See the BC Supreme Court decision in Kirby v. Amalgamated Income Limited Partnership as an example of this approach).

  1. Obligation to Not Compete and to Protect Confidential Information

Employment lawyers (and their clients) are well-aware of how difficult it can be to draft a valid non-competition clause, as these are notoriously unpopular with Canadian courts. However, what employers may not know is that similar and related protections are actually built into most employment contracts as implied terms.

Every employee is subject to an implied obligation not to secretly compete against their employer, take secret profits, or improperly use the employer’s confidential information to harm its financial interests. Furthermore, ex-employees are bound by an implied “duty of confidence” that restricts their use of their former employer’s information.

  1. Obligation to Provide Reasonable Notice of Resignation

Finally, although Employment Standards legislation does not require employees to give notice of their resignation (as it requires employers to give notice of termination), the common law does – through an implied duty. The purpose behind this implied notice obligation is to provide employers with sufficient time to find a person to replace the outgoing employee. Failure to fulfill this notice obligation is known as “wrongful resignation.”

In practice, wrongful resignation cases are rarely litigated for two reasons. First, even if an employee provides no notice of resignation, their departure rarely results in any significant financial loss to the employer entitling it to seek damages. Secondly, any damages an employer does suffer are typically easily mitigated through a search for a new hire.

However, an employer may consider pursuing a wrongful resignation case in certain circumstances, such as when the employee is key to the business’ bottom line and not easily replaced.

Have questions about an employment contract? Contact us!

 


NOT LEGAL ADVICE. Information made available on the Kent Employment Law website in any form is for information purposes only. It is not, and should not be taken as, legal advice. You should not rely on, or take or fail to take any action, based upon this information. Never disregard professional legal advice or delay in seeking legal advice because of something you have read on this website. One of our lawyers would be pleased to discuss any specific legal concerns you may have.

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