Why Are Implied Terms Important in Employment Contracts?

An employment contract sets out the agreement between you and your staff. But not every term of the contract needs to be documented in writing—or even spoken out loud.

Some contract terms can be implied. This is when the term hasn’t been expressly agreed by either party.

Making sure you follow the right legal method for terms you aren’t aware of can be difficult. But failing to do so can lead to tribunal hearings, and costly legal fees.

But how are they legally binding if they aren’t written or spoken of? And do you need to add them to finalised contracts?

Find out through our guide on implied terms in employment contracts. And read about how they legally stand and the consequences for breaching them.

What’s an implied contract term?

An implied term is a term that hasn’t been agreed expressly by either party, but that has been implied by the other terms of the contract.

The terms are unwritten and are presumed to be agreed to. They’re non-verbal and unwritten but still legally binding.

Terms may be implied into a contract of employment in a number of ways:

• In order to reflect the presumed intention of the parties.
• By custom and practice.
• By common law.
• By statute.

How is an express contract different from an implied contract?

In contract law, there are two types of terms that link to legally-binding contracts, express and implied terms.

Whilst an express contract is based on the words of a contract, an implied contract is based on the actions of those involved.

Express terms are normally outlined either verbally or in writing. Any overlapping implied term is voided once an express term is agreed.

Examples of implied terms in contract law

Irrespective of the business, employers need to comply with vital implied terms in contracts law. Examples for these include:

• Duty of care.
• Employee health & safety.
• Duty to pay.
• Mutual trust and confidence.
• Business loyalty.

Are implied terms legally binding?

Yes, despite not being expressly included in the contract, implied terms are legally binding and can hold as much weight as an express contract in the courts.

As they aren’t always clearly outlined, they can only be applied if they meet certain standards.

The courts will use different tests when assessing whether an implied term is valid.

• Business efficiency tests: The implied term is used to make a contract workable. For example, without a term on ‘duty of mutual trust,’ the contract won’t work.
• Officious bystander tests: The implied term is assumed ‘so obvious it goes without saying’. For example, not stealing from the workplace doesn’t necessarily need to be documented, as it’s an obvious act of misconduct.
• Customs and practices: The implied term is placed in the contract because of workplace practices. For example, closing the business on public holidays.
• Terms implied by statutes: Some laws automatically give employees minimum rights that can’t be ignored by employers. For example, statutory minimum notice.

Breach of implied contract elements

The elements of a contract breach can lead to consequences like:

• A condition: most important part of the contract that needs to be performed.
• A warranty: a written term for promises or guarantees.
• An innominate or intermediate term: terms that sit between a condition and warranty.

The guilty party can be found liable for damages and could face an injunction perform the contract terms.

Here are things to consider when faced with a breach of contract:

• Does the contract exist: You need to be sure the contract exists (through an agreement, intention, and consideration).
• Proof a breach has been made: You’ll need to provide evidence the opposing party didn’t fulfil their terms or did to an unsatisfactory level.
• Proof the breach caused damages: You must prove the amount of loss caused, whether it’s financial or through business disruptions.
• Does it need to be resolved in court: You need to decide whether the case needs to go through the courts. Cases can easily become expensive, so make sure this decision has been thought about well.

Compensation for breaching contract terms

If someone’s found guilty of breaching an implied term of contract, the opposition could be awarded compensation. Before doing so, the court will decide whether:

• The loss was directly caused by a contract breach.
• The loss was caused by a reasonable person.
• The person making the claim can mitigate their losses.

Get expert advice on implied terms in employment contracts

Using implied terms can provide additional clarity and agreement for your employment contracts.

As well as protection for your business, employees will appreciate a clear outline for all the contract terms you both have agreed on.

Peninsula offers expert employment contract and documentation services for all types of businesses.

Speak to our expert HR consultants today. They can help with all kinds of employment queries and provide the best contracts to fit your business perfectly. We also have a free employment contract template for you to download now.

Call us for further help with contracts on 0800 028 2420.