It is well established in law that employers have to observe a number of implied, contractual terms - for instance, the duty to maintain a relationship of mutual trust and confidence - with their employees.
These are not set in stone, however, and courts add new duties to reflect changing circumstances. In the case of Scally & Ors v Southern Health and Social Services Board & Anor (1991), the House of Lords said that employers had an obligation to bring a contractual term to the attention of employees if it conferred a valuable right and had not been negotiated with the employee directly.
This did not apply however in the case of Crossley v Faithful and Gould Holdings Ltd (IDS Brief 755). The Court of Appeal ruled that employers do not have a general duty to take reasonable care for the economic well-being of their employees. Specifically, they do not have to warn employees of the effect that their resignation will have on their rights under a disability insurance scheme.
What happened to Mr Crossley?
Mr Crossley was a senior employee and director of the company. He was entitled, as long as he remained an employee, to benefits under the disability insurance scheme. If he left his job, the insurers had a discretion as to whether to pay him or not.
He subsequently had a nervous breakdown and went on sick leave in December 1996. The following April he applied for early retirement on health grounds and in March contacted the insurance broker to make a claim under the scheme. He agreed with his employers that he would be paid until 6 September 1997. The insurer made payments to him until June 1998, and then stopped them, which it was entitled to do under the terms of the scheme.
What did Mr Crossley claim?
Mr Crossley claimed damages against his employers for breach of an implied contractual term to take reasonable care for his economic well-being. In particular, he argued that they should have warned him of the effect that resignation would have on his entitlement to benefits under the scheme.What did the High Court decide?
The High Court dismissed the claim. The judge concluded that there is no implied obligation on an employer to exercise reasonable care for the employee's economic well-being. Mr Crossley had decided to retire on his own initiative and the employers did not contribute to that decision. As a senior employee, he could reasonably have been expected to be familiar with the terms of the scheme.
Did the Court of Appeal agree?
The Court of Appeal agreed with the High Court judge and dismissed the appeal. It said that there is no standardised implied term in all contracts of employment that the employer will take reasonable care of employees' economic well-being. This would impose an unfair and unreasonable burden on employers. It is not the function of the employer to act as the employee's financial adviser. The employee can obtain his or her own advice, whether from a union or otherwise.
The imposition of a general duty on an employer to protect an employee's economic well-being is also wholly inconsistent with the approach adopted by the House of Lords in Scally v Southern Health and Social Services Board. It was not for the Court of Appeal to take a big leap to introduce a major extension of the law in this area when, comparatively recently, the House of Lords had declined to do so.
As a result, the Court said it was not prepared to introduce a major extension of the law in this area. It decided that the duty only applied in 'carefully circumscribed circumstances.'