Crossley v Faithful & Gould Holdings Ltd

An employment contract contains no general implied term requiring the employer to take reasonable care of the employee’s economic well-being. Such a duty would impose an uncertain and unreasonable burden, including a potential obligation to provide financial advice.

Courts may instead imply precise duties in carefully defined circumstances. An employer must take reasonable steps to disclose a valuable contractual benefit where the contractual terms were not individually negotiated, action by the employee is required to obtain the benefit, and the employee cannot reasonably be expected to know of the term without disclosure. The last condition is fact-sensitive. The employee’s seniority, experience and access to professional advice may establish that awareness could reasonably be expected.

The claimant, a senior employee and director, ceased work because of depression and applied for benefits under his employer’s long-term disability insurance scheme. Termination of his employment changed his entitlement from benefits payable as of right to benefits payable at the insurer’s discretion. The insurer later discontinued payment.

His Honour Judge Langan QC dismissed the claimant’s contractual claim. The claimant appealed on two grounds. He alleged an implied duty requiring the employer to avoid prejudicing his economic well-being by requesting resignation letters, or alternatively to warn him that resignation would affect his insurance entitlement.

The central issues were whether every employment contract contains a general implied duty to safeguard an employee’s economic well-being and whether the narrower disclosure duty recognised in Scally applied.

1. The appeal was dismissed unanimously. There is no standard implied term in every contract of employment requiring an employer to take reasonable care of an employee’s economic well-being. Lord Justice Dyson gave the judgment, with which Lord Justice Thomas and the Vice-Chancellor agreed.

2. Standardised terms implied by law concern the legal incidents of a class of contractual relationship. Their existence and scope may involve reasonableness, fairness and the balancing of competing policy considerations, rather than an abstract application of necessity alone. Nevertheless, the law should develop through precise duties in carefully circumscribed circumstances.

3. The narrowly defined duties recognised in Scally v Southern Health and Social Services Board [1992] 1 AC 1 and Spring v Guardian Assurance Plc [1995] 2 AC 296 were inconsistent with the proposed general duty. A general obligation would impose an unfair and uncertain burden. An employer may lawfully take business decisions affecting an employee’s finances without investigating the employee’s personal circumstances, and ordinarily has no function as the employee’s financial adviser. Where an employer assumes responsibility for giving financial advice, reasonable care may be required under the Hedley Byrne principle.

4. The employer did not assume responsibility for the claimant’s choice between terminating employment and remaining on indefinite sick leave. The trial judge was entitled to find that the claimant independently decided to retire and that the later correspondence merely assisted with implementing that decision in a tax-efficient manner. The claim based on the requested resignation letters therefore failed.

5. The Scally disclosure duty arises where: the contractual terms were not individually negotiated; a term confers a valuable right requiring employee action; and the employee cannot reasonably be expected to know of that term unless the employer brings it to the employee’s attention. The third condition depends on the circumstances of the individual employee, even where employees share identical contractual terms.

6. The claimant could reasonably have been expected to discover the scheme provisions. His seniority and experience were relevant, and his longstanding insurance adviser had helped him begin the claim and expressly invited further questions. His illness had not prevented him from consulting advisers or examining his employment contract. The third Scally condition was therefore unsatisfied, and no warning obligation arose.

• Court of Appeal (Civil Division): The appeal was dismissed. The court upheld the rejection of both remaining contractual bases of claim.
• Leeds District Registry: His Honour Judge Langan QC dismissed the claim for damages on 30 June 2003. He granted permission to appeal.