What Does the Good Faith Obligation Mean? | LegalVision UK (2024)

Primarily, an employment contract sets out the terms and obligations of the relationship between you and your employees. This may be detailed in express terms and implied terms. Express terms are those you clearly include within the contract, such as work times or pay rate. Implied terms, however, are less obvious and are not clearly written into the employment contract. Therefore, as an employer, it is important that you are aware of both your express obligations and your implied ones. Indeed, implied terms will be less easy to identify. One such implied term is the obligation of good faith.

This article will explain the good faith obligation or the duty to act in trust and confidence.

Good Faith Obligation in Contracts

Generally, the good faith obligation in a contract means that parties to the contract must make and perform their duties within it in good faith. Importantly, there is no general duty of good faith in English contract law. Therefore, where you intend to make this obligation relevant in a contract, you must clearly state it.

Likewise, there is also no firm legal definition of a good faith obligation. However, generally speaking, good faith means acting honestly or with a legal purpose. Ultimately, there is the expectation that parties to a contract will act fairly, transparently and reasonably.

Good Faith Obligation Between Employers and Employees

A good faith obligation is an implied duty in employment contracts. It is commonly known as the implied duty of trust and confidence. As an employer, you have obligations to act in accordance with this duty of trust and confidence. Indeed, this obligation also extends to your employees. However, usually, it will be your employees who raise an alleged breach of this duty rather than you as an employer doing so.

You should note that an employer may act in good faith but still be seen to breach the duty of trust and confidence.

English courts have found a duty of good faith to exist in employment relations regarding the provisions of pensions. Likewise, the court found that the good faith duty applies in two ways:

1. A contractual duty owed by an employer to their employees.

This relates to how you treat your employees and carry out your business. As an employer, this duty requires you to act responsibly and with good faith, being mindful of fairness and trust.

2. An imperial duty.

This concerns you acting reasonably rather than irrationally with regards to your employees.

Breach of the Implied Duty of Trust and Confidence

As an employer, the law can deem that you breached your good faith duty in employment relations if you neglect the reasonable expectations of your employees. Reasonable expectations are those that you create, as an employer, and your employees believe.

For an employer to breach the duty of trust and confidence, it does not matter whether they intend to do so or not. Instead, a court will look reasonably and sensibly at the employer’s behaviour and consider whether an employee should reasonably expect to tolerate the effect of such behaviour.

Where a breach of the implied duty of trust and confidence occurs, the breach of the expectation must be serious for your employees. You must also have had no reasonable or property cause to carry out the action.

Additionally, the implied duty of trust and confidence between you and your employees can cover a wide range of actions. A breach of the duty of trust and confidence can arise through several incidents where the result is a breach of this term.

Therefore, a breach of the duty can cover conduct, unfair practice, and failures in the workplace. The most common causes of a breach of this duty are:

• poor management; and
• bullying type of behaviour.

Further, an employee may suggest that you breached your implied duty of trust and confidence concerning grievances about constructive dismissal cases.

Grievances are when your employee has a complaint about their employment. Constructive dismissal is where you as an employer make a change to your employees’ employment contract or fail to perform as you should, with the intention of causing your employee to end their employment contract.

Importance of Your Duty of Trust and Confidence

As an employer, it is important to be cautious in your relations with your employee. Ultimately, you want to reduce the prospect of a breach. So, you might want to be mindful of the following:

• communicating clearly and accurately;
• immediately looking into any concerns and issues your employees may have to avoid them escalating;
• only making a statement about what you intend to do when you are sure you can live up to it; and
• where you make a statement about what you intend to do, avoid accompanying it with statements about the future such as that you will review it in a couple of years or that you will carry it out where finances allow.

It is also worth noting that although the duty of trust and confidence is one type of implied term in an employment contract, it is possible that where you have breached another type of implied duty, it could affect this one. For example, where you have breached the implied duty to pay wages, the nature of it could cause a breach in the duty of trust and conference.

Key Takeaways

Employment contracts contain many terms and legal obligations for both you and your employees. The implied ones are less likely to be obvious, such as the implied duty to act with trust and confidence in your employment relations. This is a broad duty that you can breach through various actions, such as grievance claims and constructive dismissal. There are also strict rules about what constitutes a breach occurring, such as the result of your actions being serious and the conditions of reasonableness. Ultimately, it is crucial that you understand the implied duty to act in trust and confidence. This will avoid the likelihood of your employee taking you to an employment tribunal.

If you need help understanding your obligations as an employer in England and Wales, our experienced employment lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. So call us today on 0808 196 8584 or visit our membership page.

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