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Employers' Liability at Common Law: Two Competing Paradigms

Document Cited authorities 71 Cited in Related
Pages231-258
AuthorMathew Boyle
Published date01 May 2008
DOI10.3366/E1364980908000322
Date01 May 2008

Over the last thirty years or so, there has been a considerable expansion of the implied contractual duties owed by employers to employees. The most significant of these, the mutual duty of trust and confidence, was defined by the House of Lords in Malik v Bank of Credit and Commerce International SAas an obligation on an employer not to “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”.1

[1998] AC 20 at 44 per Lord Steyn.

This “trust duty” (as we may call it) has been applied to a wide range of employer conduct, mainly in the context of tribunal claims for constructive unfair dismissal. In particular it has been applied to: failures to follow proper disciplinary and grievance procedures;2

King v University Court of University of St Andrews2006 SCLR 46; Gogay v Hertfordshire County Council[2000] IRLR 703; Balfour Beatty v Brealey [2003] All ER (D) 355; Bracebridge Engineering Ltd v Darby[1990] IRLR 3.

 stress cases involving bullying3

Horkulak v Cantor Fitzgerald International[2004] IRLR 942; Courtaulds v Andrews[1979] IRLR 84.

 and overwork;4

Hines v St Edmunds of Canterbury High School [2003] All ER (D) 10; Turner Coulston (a Firm) v Janko [2001] All ER (D) 01. See also Marshall Specialist Vehicles Ltd v Osborne[2003] IRLR 672.

 unfounded accusations of dishonesty;5

Holladay v East Kent Hospitals(2004) 76 BMLR 201.

 the provision of information and advice to employees;6

Marlow v East Thames Housing Group[2002] IRLR 798.

 the provision of references;7

TSB Bank plc v Harris[2000] IRLR 157.

 the decision to offer an employee a new contract;8

Transco plc v O'Brien[2002] ICR 721.

 damaging employees' reputations by running a company dishonestly;9

Malik v BCCI SA[1998] AC 20.

 requiring an employee to undergo a psychiatric examination;10

Bliss v South East Thames Regional HealthAuthority[1987] ICR 700.

 discrimination;11

Derby Specialist Fabrication v Burton[2001] ICR 833 (race discrimination); Meikle v Nottinghamshire County Council [2004] 4 All ER 97 (disability discrimination); Reed v Stedman[1999] IRLR 299 (sexual harassment).

 the exercise of discretions in relation to employee remuneration,12

Clark v Nomura International plc[2000] IRLR 766; Horkulak v Cantor Fitzgerald International[2004] IRLR 942; Taylor v Motability Finance Ltd [2004] All ER (D) 341 (payment of bonuses); Clark v BET plc[1997] IRLR 348 (pay increases);Hayes v Charman Underwriting Agencies Ltd [2001] All ER (D) 319 (allocation of shares).

 the payment of sick pay;13

Guthrie v Scottish Courage Ltd[2004] All ER (D) 15.

 the exercise by an employer of rights and powers in relation to a pension scheme;14

Imperial Group Pension Trust Ltd v Imperial Tobacco Ltd[1991] ICR 524 followed in British Coal Corporation v British Coal Staff Superannuation Fund Scheme Trustees[1995] 1 All ER 912.

 and the exercise of powers under job mobility15

United Bank v Akhtar[1989] IRLR 507.

 and job flexibility16

White v Reflecting RoadstudsLtd[1991] ICR 733; BPCC Purnell Ltd v Webb [1992] EAT/129/90. But see Hussman Manufacturing Ltd v Weir[1998] IRLR 288.

 clauses.17

Other circumstances in which the trust duty has been held to apply are: a failure to procure from an insurance company the benefits to which an employee was entitled under an insurance policy maintained by the employer (Marlow v East Thames Housing GroupLtd[2002] IRLR 798); failing to stop a culture in which managers witnessed offensive remarks about a person's mental condition (Garton v Yellow Pages Ltd [2003] All ER (D) 248); and failing to tell an employee on maternity leave of a vacancy which had arisen (Visa International Service Association v Paul[2004] IRLR 42.)

 At the same time as these changes in the content of the contract of employment, there has also been an expansion of the types of contractual damages available to employees. Traditionally, damages had been limited by what had come to be known as the “notice rule.” According to this rule, an employee in a successful action for wrongful dismissal is entitled only to damages equivalent to his earnings during the notice period of his contract or, in the case of a fixed-term contract, the remainder of the contract.18

Addis v Gramophone Ltd[1909] AC 488.

 However, litigation based on the new implied contractual terms has led to a considerable erosion of the notice rule. In Malik v BCCISA19

[1998] AC 20.

 it was held by the House of Lords that the notice rule applied only to wrongful dismissal and so did not limit the damages available for pecuniary loss resulting from damage to an employee's reputation.20

See, in particular, Lord Steyn at 51. The decision in Malik was qualified by the House of Lords in Johnson v Unisys Ltd[2003] 1 AC 518, in which it was held that the trust duty did not apply to the termination of the employment contract.

 Since Malik it has also been established that employees are entitled, at common law, to damages for psychiatric injury caused by a breach of the trust duty.21

Gogay v Hertfordshire County Council[2000] IRLR 703; Holladay v East Kent Hospitals Trust(2004) 76 BMLR 201; Boardman v Copeland [2001] All ER (D) 99; Eastwood v Magnox Electrical plc[2004] IRLR 733.

 And there would seem to be nothing to prevent employees from recovering damages for physical injury caused by a breach of the trust duty, given the availability of contractual damages for physical injury under the general law of contract.22

Summers v Salford Corporation[1943] AC 283; Griffen v Pillett[1926] 1 KB 17. For further discussion of the impact of the trust duty on the contractual remedies of employees, see M Boyle, “Contractual remedies of employees: exploring the boundaries” 2007 JR 145.

These developments have stimulated much debate about the future path of the trust duty and of the law of the contract of employment in general. Douglas Brodie has commented that “it may not be fanciful to suggest that the obligation will come to be seen as the core common law duty which dictates how employees should be treated during the course of the employment relationship”.23

D Brodie, “Mutual trust and the values of the employment contract” (2001) 30 ILJ 84 at 85. For a contrary view, see D Cabrelli, “The implied duty of mutual trust and confidence: an emerging overarching principle?” (2005) 34 ILJ 284. For further discussion by Brodie of the duty of trust and confidence, see: “The heart of the matter: mutual trust and confidence” (1996) 25 ILJ 121; “Beyond exchange: the new contract of employment” (1998) 27 ILJ 79; “A fair deal at work” (1999) 19 OJLS 83; “Legal coherence and the employment revolution” (2001) 117 LQR 604. See also M R Freedland, The Personal Employment Contract (2003) 154-171.

Some writers have sought to relate these developments to developments in the general law of contract. Brodie has said of the trust duty that “Its emergence is also consistent with the trend in contract law as a whole to allow a greater role for good faith”. He adds: “given that the obligation can be depicted as one of the good faith type one might try and gain some assistance by looking to the rights and duties contained in other contracts of that ‘family’ to see how mutual trust might evolve”.24

D Brodie, “Mutual trust and the values of the employment contract” (2001) 30 ILJ 84 at 87. See also D Brodie, “Legal coherence and the employment revolution” (2001) 117 LQR 604 at 605 where Brodie says of the trust duty that “Its emergence is also consistent with the trend in contract law as a whole to allow a greater role for good faith”.

 Freedland has suggested that modern contract law may provide a “positively suitable conceptual apparatus for the development of the law of the employment relationship”.25

Freedland, Personal Employment Contract (n 23) 521-522. Freedland notes how “both in theoretical terms and in terms of positive law, general contract law is evolving from an apparatus primarily for the construction and enforcement of voluntary agreements into a body of law for the regulating of contracting in a wider sense”. For discussion of the potential for modern contractual theory to explain the emergence and development of the trust duty see M Boyle, “The relational principle of trust and confidence” (2007) 27 OJLS 633.

These developments and suggestions in respect of the contract of employment raise important questions about the continuing role of the delictual (tortious) law of the employment relationship, and changes in the delictual law itself have made these questions the more acute. Until quite recently, an employer's delictual duty of care towards its employees was limited to liability for physical injury or to psychiatric injury in the form of “nervous shock”.26

White v Chief Constable of South Yorkshire Police[1999] 2 AC 455.

Over the last decade or so, however, the scope of the duty of care has expanded considerably in the context of the recovery of damages for psychiatric injury and for pure economic loss. That an employer owes a general duty of care to employees regarding psychiatric injury was established in Walker v Northumberland County Council.27

[1995] 1 All ER 737.

 Since Walker, an extensive body of case law has developed regarding the duty of care in this context.28

The definition of an employer's duty of care, regarding psychiatric injury, was considered by the House of Lords in Barber v Somerset County Council[2004] 1 WLR 1089.

 As for pure economic loss, at one time such loss was irrecoverable, in line with the general restriction on the availability of such damages in delict.29

See Deyong v Sherburn[1946] KB 227; Edwards v West Herts Group Hospital Management Committee[1957] 1 All ER 541.

 But the law has now developed so that employers owe employees a delictual duty of care, regarding pure economic loss, in two main areas: the provision of references30

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