The Mutuality of Obligations Doctrine and Termination of the Employment Contract: McNeill v Aberdeen City Council (No 2)

Date01 May 2014
AuthorDavid Cabrelli
Publication Date01 May 2014
<p>The decision of the Inner House in <italic>McNeill v Aberdeen City Council (No 2)</italic> <xref ref-type="fn" rid="fn1"><sup>1</sup> </xref><fn id="fn1"><label>1</label> <p><a href="">[2013] CSIH 102</a>, <a href="">[2014] IRLR 113</a>.</p> </fn> underscores the extent to which the doctrine of mutuality of contractual obligations in Scots contract law occupies vital territory in the Scots common law regulating the termination of the contract of employment. As such it has implications both for contract law and for the shape of employment law in Scotland, particularly in relation to an employee's statutory right to terminate the employment contract and claim compensation from the employer pursuant to the statutory concept of constructive dismissal in <span class="vid_spn">section 95(1)(c)</span> of the <a href="">Employment Rights Act 1996</a> (“ERA”). It provides an additional example of a divergence of approach between the common law of the contract of employment in Scots and English law.<xref ref-type="fn" rid="fn2"><sup>2</sup> </xref><fn id="fn2"><label>2</label> <p>In English law, an employer is prevented from curing a repudiatory breach of the contract of employment, whereas this is possible in Scots law: cf <italic>Buckland v Bournemouth University Higher Education Corp</italic> <a href="">[2011] QB 323</a> at 333H-336E with the Scottish decisions in <italic>Barclay v Anderson Foundry Co</italic> (1856) 18 D 1190, <italic>Lindley Catering Investments Ltd v Hibernian Football Club Ltd</italic> <a href="">1975 SLT (Notes) 56</a><italic>, Strathclyde R C v Border Engineering Contractors Ltd</italic> <a href="">1998 SLT 175</a>, <italic>Morrison and Mason v Clarkson Bros</italic> <span class="vid_spn">(1898) 25 R 427</span>, 5 SLT 277, <italic>Millars of Falkirk Ltd v Turpie</italic> <a href="">1976 SLT (Notes) 66</a> and <italic>Magnet Ltd v John Cape t/a Briggate Investments</italic>, Sheriff Evans, Cupar Sheriff Court, 19 July 2007. Moreover, in Scots law the <a href="">Unfair Contract Terms Act 1977</a> applies to exclusion and limitation of liability clauses in employment contracts (<italic>Chapman v Aberdeen Construction Group plc</italic> <a href="">1993 SLT 1205</a>), whereas this is not the case in English law by virtue of the decision of Lord Justice Mummery in <italic>Keen v Commerzbank AG</italic> [2007] ICR 623. These are just some examples of a divergence of approach.</p> </fn> In this article the relationship between the mutuality of obligations doctrine in Scots law and the content of the implied terms of the contract of employment is examined, as are the implications of the decision for statutory constructive dismissal claims.</p> THE FACTS AND THE DECISION

A claim for constructive dismissal under section 95(1)(c) of the ERA entails the application of a curious amalgam of traditional common law doctrine and self-contained statutory techniques. This statutory provision directs that an employee is constructively dismissed by his employer if the employee terminates the employment contract (with or without notice) in circumstances in which he is entitled to terminate it without notice by reason of the employer's conduct. Pursuant to the decision of the Court of Appeal in Western Excavating (ECC) Ltd v Sharp,3

[1978] QB 761.

if an employee is able to show that the employer's conduct amounted to a repudiatory breach going to the root of the contract of employment this will be sufficient for the employee to establish constructive dismissal under section 95(1)(c). As such, the statutory constructive dismissal concept was hung on the coat-tails of orthodox common law principles under the law of contract. Subsequent to Western Excavating, it was held that a fundamental breach of an express term, or a common law implied term, of the contract of employment by the employer would be considered sufficiently serious to entitle the employee to a finding of constructive dismissal.4

M Freedland, The Personal Employment Contract (2003) 155–156; L Barmes, “Common law implied terms and behavioural standards at work” (2007) 36 Industrial LJ 35 at 37–38.

Since the authorities demonstrate that a breach of the common law implied term of mutual trust and confidence (“ITMT&C”) is automatically repudiatory,5

Courtaulds Northern Textiles Ltd v Andrew [1979] IRLR 84 at 86 per Arnold J; Woods v W M Car Services [1981] ICR 666 at 672 per Browne-Wilkinson J; Morrow v Safeway's Stores [2002] IRLR 9; and Amnesty International v Ahmed [2009] IRLR 884 at para 70.

the effect is that a breach by the employer will amount to a statutory constructive dismissal.6

Eastwood v Magnox Electric plc (and McCabe v Cornwall County Council) [2004] IRLR 733 at paras 4–7 per Lord Nicholls); Freedland, Employment Contract 155–156; Barmes (n 4) at 37–38; B Hepple, Rights at Work: Global, European and British Perspectives (2005) 52.

In McNeill the employee claimed that he had been constructively dismissed under section 95(1)(c) on the ground that his employer had committed a repudiatory breach of the ITMT&C of the employment contract. However, the employee was himself in anterior repudiatory breach, having breached the ITMT&C prior to his employer's repudiatory breach. When the employee's conduct breached the employment contract the employer failed to accept the employee's breach and terminate the employment contract. Hence, the employee's own repudiatory breach of contract was still in play when he claimed constructive dismissal. The central issue in McNeill 7

Other legal points were addressed but this note is restricted to considering the mutuality issue. For example, it was held that the rules relating to the statutory concept of constructive dismissal under section 95(1)(c) should be governed by the proper law of the employment contract rather than English contract law at the time of the decision in Western Excavating, see McNeill at 117–118 per Lord Drummond Young (with Lord McGhie dissenting at 129–130).

was whether the employee's failure to come to the court with “clean hands” prevented him from founding on his employer's subsequent repudiatory breach by virtue of the doctrine of mutuality of contractual obligations

In the Employment Appeal Tribunal (“EAT”)8

Aberdeen City Council v McNeill [2010] IRLR 374.

Lady Smith held that the employee

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