The Continuing Conceptual Crisis in the Common Law of the Contract of Employment

Publication Date01 May 2004
AuthorLizzie Barmes
The Continuing Conceptual Crisis in the Common Law
of the Contract of Employment
Lizzie Barmes
The e¡ects on the common law of the contract of employment of the decision of the House of
Lords in Jo hnson vUnisysLtd are cons idered.The focus is on l iability rather than remedies. It is
argued that the case createdco nceptuali nstability in the common lawunderstandi ngof a breach
of a contract of employment.The logical consequence of the majority reasoning is that in some
cases the existence or not of a breach by an employer is contingent on an employee’s reaction.
Relevantcase law history and developments since the Johnson decis ion inform a detailed critique
of the arguments that underpinned it. A solution is suggested according towhich, prima facie,
contracts of employment would be requiredto be performed in accordance with terms thathave
been implied by law.
This article is concerned with evaluating the e¡ect on the common law of the
contract of employment of the leading decision of the House of Lords inJoh nson
vUnisys L td,
including asit has been interpreted and applied since it was made in
March 2001.The focus is on the consequences of that decision for the rules on
liability, as opposed to remedies, for breach ofa contract of employment. Central
to my thesis is that the majority reasoning has instilled a profound illogicality,
which I term‘the liability problem’, at the heart of this area of law. Moreover
a survey of subsequent case law i ndicates that this problem continues to be
Johns on created conceptual instability in the common law understanding of a
is the most natural one, its e¡ect is that where an employee alleges a repudiatory
breachof contract on the basis of a term impliedby law, the possibilityof showing
there has been a breach depends on how the employee reacts. If the employee
a⁄rms the contract and carries on working, the implied term may be relied on
for the purposes of a contractual claim. If the employee purports to accept the
repudiation, the apparentlybizarre consequence is that this possibility disappears.
The correct contractual analysis becomes that the employe e has repudiated the
contract by leavi ng the employment without cause. In e¡ect, therefore, the em-
ployee who a⁄rms the contract has a potential claimfor breach ofcontract, while
the employee who treats the contract as at an end is a contractual wrongdoer.
UniversityCollege London. I am verygrateful to Claire Kilpatrick and to the anonymousreferees for
helpful comments on this paper.
1 [2001] UKHL 13; [2003]1 AC 518.
rThe Modern LawReview Limited 2004
Published by BlackwellPublishing, 9600 Garsington Road,Oxford OX4 2DQ,UK and 350 Main Street, Malden, MA 02148, USA
(2004) 67(3) MLR 435^464
Moreover, in the latter situation logic also dictates that the employee would have
di⁄culty satisfying the statutoryde¢nition of dismissal for the purposes of unfair
dismissal, and may thereby alsobe disquali¢ed from pursuing that type ofclaim.
These propositions seem so extraordinary that careful exposition of how they
may be said to have come about is required.This necessitates a rather lengthy ex-
ercise in scene-setting. First, it is important to explore the distinction between
contractual terms implied by fact and those implied by law. Secondly, the e¡ects
of this distinction on the common law of the contract of employment prior to
Johns on need to be examined. Only then will it be possible to discern the true
e¡ects of that decision and to show how these have become manifest in more
recent case law.
Contrasting common law implication of terms in fact and in law
Terms implied in fact are terms whose implication results from application of
either the‘o⁄ciousbystander’or the ‘businesse⁄cacy’tests.
Such terms aremeant
to do justice between the parties by giving e¡ect to intentions they plainly had
but that were not stated nor reduced to writing.They cover matters that were so
obvious as not to need sp elling out or that were incide ntal to the parties’ overall
business purposes. A number ofconsequences follow. First, these terms are easily
reconcilable with the notion of freedom of contract because, at least in theory,
they record the parties’unexpressed intentions. Secondly, as the phrase‘terms im-
plied in fact attests, they are speci¢c to particular contracts. Finally, they may be
expected to be straightforwardly reconcilable with the express terms of the con-
tract,since those are normallythe best indication of what the parties had in mind.
Terms implied by law diverge from all three of these positions. They are not
easily reconcilablewith freedom of contract because they are implied as necessary
legal incidents of a class of contracts. In Scally vSouthern Health and Social Services
Board Lord Bridge, with the concurrence of Lord Roskill, Lord Go¡ of Chieve-
ley, Lord Jauncey of Tullichettle andLord Lowry, summarised the lawas follows:
A clear distinction is drawn in the speeches of V|scount Simonds in Lister vRomford
Ice yand Lord W|lberforce in LiverpoolCity Council vIrwin ybetween the search
for an implied term necessary to give business e⁄cacy to a particular contract and
the search, based on wider considerations, for a term which the law will imply as a
necessary incident of a de¢nable category of contractual relationship yI fully
appreciate that the criterion to justify an implication of this ki nd is necessity, not
2 Termsmay also be implied by statute.A notable example is the equality clause that is central to the
Equal PayAct1970.
3 Termsimplied by custom and practice mayalso be categorised as terms implied in fact.
4 [1992] 1AC 294, 307. See for the origins of this exposition of the law, Liverpool City Council vIrw in
[1977] AC 239,254 per LordW|lberforce; 579per V|scountSimonds; 266 per Lord Edmund-Davies
and 270 per Lord Fraserof Tullybelton.Lord Salmon at 262 indicated that his criterion for imply-
ing a termwas whether its absence would render the contract‘ine⁄cacious, futile and absurd’. Lord
Conceptual Crisis in the Common Law of the Contractof Employment
436 rThe Modern Law ReviewLimited 2004

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