The mutual obligation of Trust and Confidence 

In a recent case the Employment Appeal Tribunal decided the question of whether an employer’s duty of trust and confidence to their employee remains in place even after the employee has acted in breach of their contract.

The Law

Constructive unfair dismissal occurs when an employee resigns as a result of their employer’s behaviour. The employee will allege that the employer is in breach of a fundamental term of their employment contract. That term can be an express term or it can be implied.

A concept that has developed over time is that of the implied duty of trust and confidence which means that employers and employees are bound by an implied term that they will not, without reasonable and proper cause, act in a manner calculated or likely to destroy or seriously damage the relationship of mutual trust and confidence between them.

Due to the nature of the implied duty of trust and confidence, any breach of this duty will be repudiatory which therefore permits the aggrieved party to terminate the contract and sue for damages for loss of earnings.

The Facts

In this case Mr Atkinson was employed as a Director of Resources with the Community Gateway Association (the ‘Employer’), who are a Housing Association. An issue arose in late 2010 when an overspend of £1.8 million was discovered.

Mr Atkinson initially took responsibility for the loss but later changed this and alleged the blame elsewhere. Consequently he was offered the opportunity to avoid disciplinary proceedings and take a settlement package. When Mr Atkinson declined this offer the Employer started an investigation into the allegations and his behaviour.

In the course of the investigation the Employer found that Mr Atkinson had been in a relationship with a lady who worked for another Housing Association. The Employer also found that he had been using the email system to send overtly sexual messages to his friend.  In the course of those emails he had also discussed a number of matters relating to his Employer’s business. In addition Mr Atkinson had been trying to obtain employment for his friend with his Employer’s organisation.

Before the disciplinary procedure could be completed Mr Atkinson resigned from his employment alleging that the way the procedure had been conducted amounted to a repudiatory breach by the Employer.

He subsequently claimed constructive unfair dismissal and detrimental treatment for making a protected disclosure.

At the Employment Tribunal the Employer’s representative made submissions to the Tribunal that Mr Atkinson’s claim should be struck out as having no reasonable prospect of success.

The Employment Tribunal agreed with the Employer’s representative and decided (amongst other things) that the case should not continue as his constructive unfair dismissal claim could not succeed as a matter of law because Mr Atkinson was himself in repudiatory breach of contract.

Mr Atkinson appealed.

The Decision

The Employment Appeal Tribunal decided that the Employment Tribunal had made an error in law by deciding that one party to a contract of employment cannot accept a repudiatory breach of contract by the other if he is himself at that time in repudiatory breach but that repudiation has not been accepted by the other.

The correct way of dealing with the issue would be to establish if the Employer were in breach of contract by their behaviour and then take into account Mr Atkinson’s own contributory conduct (i.e. his own breach) at the time of considering compensation.

Compensation for unfair dismissal can be reduced by up to 100% if the Employment Tribunal decide that an employee has contributed to the situation by their own conduct.

Therefore Mr Atkinson’s case was referred back to the Employment Tribunal to decide the question of whether Community Gateway Association were in breach of contract by their behaviour.

Points to note

As an employer you have an obligation of trust and confidence to your staff and this is crucial to the relationship with your employees.

Just because an employee acts in breach of their obligation does not mean that yours is suspended or ceases, and therefore even where misconduct is obvious you must still behave in a reasonable and fair manner.

Only when you or the employee ‘accepts’ the material breach and brings the contract to an end does the obligation cease.

If you would like to read the full judgement can click here