Implied terms and disciplinary processes – the importance of being reasonable

When dealing with serious disciplinary allegations against an employee, employers must balance robust action with fairness to the individual concerned.   

A common mistake is to focus only on the express contractual terms and overlook important implied terms which also apply, such the duty of trust and confidence and the duty to act in good faith.  

This article considers the different implied terms which are likely to be relevant to employers undertaking disciplinary processes.  We summarise the recent case law on this topic, explain some of the risks in ignoring these implied terms and suggest measures to mitigate them.

Relevant implied terms and principles arising from case law

The following terms have been implied in case law into employment contracts and have been found to be relevant to disciplinary decisions. Similar obligations will typically be implied in partnership and LLP agreements. 

Trust and confidence – the employer has an implied duty not to behave in a manner calculated or seriously likely to destroy or seriously damage the relationship with the employee. 

Duty to conduct disciplinary processes fairly – case law has suggested that, in some cases (this is very much an evolving area of law) employers may have an implied contractual duty to conduct disciplinary procedures fairly, as a separate duty to the implied term of trust and confidence.

Duty to act in good faith – this is a common implied term in partnership agreements.

Duty to make discretionary decisions rationally – otherwise known as the Braganza duty, this is an implied duty on employers to exercise a discretion in good faith, not arbitrarily or capriciously, and not for an improper purpose.

What conduct may amount to a breach of an implied term?

The following behaviours by employers have fallen foul of the above implied terms, and others, in relevant case law:

• Undue delay in disciplinary proceedings has been held to amount to a breach of the duty to conduct disciplinary processes fairly, so employers who delay without good reason could find themselves in breach of contract, as well as the ACAS Code on Disciplinary and Grievance Procedures.

• Lack of flexibility around issues such as an employee’s choice of companion at a disciplinary hearing could amount to a breach of the implied term of trust and confidence. This is more likely to be the case where there is no credible reason for the failure to accommodate the employee’s request to be accompanied.

• Disproportionate non-dismissal sanctions, such as onerous warnings for conduct which does not merit it, may also amount to a breach of trust and confidence. This is often forgotten by employers who fall into the trap of thinking that sanctions short of dismissal carry negligible risk. A heavy-handed sanction could give the employee grounds to argue that they had been constructively dismissed.   

• Suspensions which are imposed in a knee-jerk manner or without good reason, or which are overly long and not kept under review.  In those circumstances, a court or tribunal could find that the suspension is effectively a sanction on the employee – even if it is stated to be a neutral measure – and therefore amounts to a breach of the implied term of trust and confidence.

• Unfair disciplinary processes which do not allow the employee an opportunity to be properly heard may breach the implied terms of trust and confidence and/or good faith. This may include:

1. Not allowing the individual to provide a defence at all;
2. Constructing a disciplinary case against the individual on incomplete or one-sided evidence; or
3. Not sufficiently explaining the allegations against the individual or failing to give them full evidence relevant to the allegations, so that they are unable to respond properly or fully.

Unfair disciplinary processes are particularly vulnerable to challenge when there is a lot at stake for the individual, such as where the outcome of the process might impact their regulatory reference in a financial services context, or remuneration awards. 

• Failure to provide adequate support to a whistleblower has been held to an amount to a breach of the implied term of trust and confidence.

Ultimate risks to employer

Case law has determined that individuals may not claim damages for breaches of the above terms where they have led to a dismissal. An employee must instead rely on statutory unfair dismissal protection (provided the two years’ service requirement is met).  

However, there are other risks from an employer’s breach of the employment contract in the course of disciplinary processes:

• Employers may face applications to the court for injunctive relief in situations where they have breached one of the above implied terms, particularly where it is very important for the individual to stay employed up until a certain date.  For example, an employee may apply to the court to prolong their employment in order maintain a right to deferred remuneration. In other cases, employees have been known to seek injunctions where their suspension has impacted on their career (for example because of restrictions on their professional activities during the period of suspension). The complex nature of such applications means that they are very expensive to defend.

• Constructive dismissal claims and damages claims may still be brought on the basis of an unfair disciplinary process where dismissal is not the ultimate outcome, particularly in cases involving unfair suspension or demotion.

• An interesting question is whether and to what extent employers might face damages claims in respect of investigations after termination of employment which have been conducted unfairly. This might arise where an ex-employer investigates previous conduct during a process to determine outstanding remuneration entitlements or to update a regulatory reference for a departed employee. Case law has suggested that a duty of good faith might survive termination of employment in certain circumstances.

What can employers do to mitigate these risks?

• Transparency is key – sometimes employers take decisions for legitimate reasons, but their conduct can appear underhand or dishonest because it is not properly explained to the individual. There is a particular risk of this happening when trust has already broken down between the business and the individual.Adequate consultation with the individual, whether or not in the context of a formal disciplinary process, can help to avoid this risk.

• Communication around delays – delays can be difficult to avoid in disciplinary processes, but they can often lead to allegations of a breach of trust and confidence. If the employer is unable to avoid a delay in a disciplinary process, it must take care to explain this to the individual; the case law demonstrates that arbitrary, unjustified delays create far more risk of employee challenge.  

• Give some thought to a process for “quasi-disciplinary” decisions such as decisions around remuneration or the content of a regulatory reference; failure to make such decisions fairly and without appropriate consultation with the employee could potentially lead to a breach of an implied term, and the heavy consequences of such decisions could motivate an employee to seek injunctive relief.

• Process and decision-making must be consistent as between different employees – if not, then employers are far more vulnerable to alleged breaches of the Braganza duty, on grounds that the employer has been capricious and arbitrary in the exercise of its decision-making powers.  However, employers may be able to justify treating different categories of employees differently (such as following a different disciplinary process for those employees with under two years’ service for the purposes of an unfair dismissal claim).

• Find a balance between having a clear process in place (which helps employers to justify their decisions) and applying appropriate flexibility where possible. As can be seen from the case law, an overly rigid approach can land an employer in legal difficulties. It can also give rise to other risks such as indirect discrimination in relation to protected characteristics (such as sex or age) and failure to make reasonable adjustments where an employee is disabled.

• Disciplinary action must be proportionate – this is particularly the case in the context of warnings and suspensions. If the particular action taken is disproportionate to that risk, it will be more difficult to argue that the employer’s discretion has been properly exercised, meaning trust and confidence is more likely to be undermined.