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Employment Law

Legal guidance - compliance - software

27 AUG 2011

The Trust and Confidence test, "reasonable and proper cause" and repudiation

Julian Wilson

The meaning and application of the words "without reasonable and proper cause" in the Malik formulation of the implied term of trust and confidence continue to cause confusion.

In The Hira Company Limited -v- Daly UKEAT/0135/10/RN, the EAT was faced with an appeal by the employer from a majority Tribunal decision where the Employment Judge had been in the minority.  The majority had held that a salesman had been constructively dismissed in breach of the implied trust and confidence term when his ability to earn commission from his customers had been seriously damaged by the conduct of his employer.  

The employer had delivered faulty goods to one of the employee's customers as a result of supplier fault. The employer had made late deliveries to one of the employee's customers because it had delayed an order to avoid an unfavourable exchange rate. The employer had diverted a delivery intended for a customer of the employee to another customer to avoid a penalty. The employer had transferred a major customer account of the employee to his colleague when the customer had requested it.  Each of these acts were done for good business reasons and had not been motivated by any ill will towards the employee but they were seriously damaging to the employee's ability to earn commission. 

The Employment Judge, in the minority, had considered that because there were sound commercial reasons for the employer's conduct and it was not directed against the employee and was not in breach of any express contractual term, there had been no breach of the implied trust and confidence term because the employer's acts had "reasonable and proper cause". The employer argued on appeal that the Employment Judge had adopted the correct approach and the majority had been wrong.

The EAT dismissed the appeal, holding that the Employment Judge had been in error in focusing on the employer's intention and motive. The minority had directed themselves correctly as regards the Malik/Mahmud test and had been right to focus on the objective effect of the employer's acts on the employee and their impact on his remuneration. The Employment Judge had been wrong to find that the commercial reasons for the employer's conduct and absence of any contractual obligation requiring the employer to keep the employee on the major customer account and requiring the employer to pay commission in respect of late deliveries, goods returned as faulty or orders postponed, established "reasonable and proper cause" for the conduct. The Judge had failed to consider objectively the impact of the employer's conduct on the employee.

 

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