Be aware of the limits to implied mutual trust

A court decision highlights the fact employers must be clear about how far the duty of trust in a contract goes


Most employers are aware of the duty of trust and confidence implied in the employment relationship. If either employer or employee acts in a way that breaches this duty, it can mean the end of the employment contract. For example, a breach by the employee can lead to their dismissal; a breach by employer may result in the employee’s resignation, followed by a claim for constructive dismissal.

The question is how far does this implied duty extend in

the employment relationship? Employers often take the view that employees have a duty to act in the interests of the company. However, the case of Nottingham University v Fishel makes it clear that the duty of mutual trust and confidence does not go that far. It is not implied in the employment contract that either party must act in the interests of the other.

This court decision is important, not least because it emphasises that if employers want to restrict the activities of employees from, for example, under-

taking outside work, or even require employees to disclose that fact, they will need to draft a provision in the contract.

Dr Fishel worked part-time for Nottingham University as head of its infertility unit. He also undertook work for overseas clinics, being paid directly by them. The university had not consented to Dr Fishel undertaking other paid work, although it was aware of it. His contract stated that he was required to seek permission for any outside work.

When Dr Fishel’s employment ended, the university brought a claim against him, arguing he was in breach of contract by undertaking outside work without

consent, and that he was in breach of fiduciary obligations.

The court rejected the argument that the implied duty of mutual trust and confidence required him to inform the university he was being paid for outside work; there is no general principle that an employee must disclose they are doing outside work in breach of contract.

The court then considered whether the employment relationship could be categorised as a fiduciary relationship, requiring disclosure of outside interests. A likely scenario is one in which a party undertakes or acts in the interests of the other, or places themselves in a position where he or she is obliged to act in the interests of the other, such as company directors and trustees. Having considered this, the court held that the employment relationship cannot be equated with this sort of fiduciary relationship. There is no implied duty on the employee to act in the interests of the employer.

The employee’s freedom of action and the scope of his or her powers is regulated and determined by the express or implied term of the contract.

As the court stated, the implied terms of mutual trust and confidence in the contract do not extend to creating a fiduciary obligation on the employee.

 


Key points


Employers should not assume that activities are prohibited by the duty of mutual trust and confidence.

If the employer wishes to prevent outside work, this must be set out clearly in the contract.

 Similarly, contracts should contain a specific clause requiring employees to disclose details of outside work.

 With senior employees who are not also directors, employers should include specific clauses in the contract where they want activities to be circumscribed, or want a positive duty of disclosure.

 


Sarah Lamont is a partner at Bevan Ashford


 

 

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