What are Implied Terms in Contracts?
An Explanation of Clauses Read Into Contracts in English Law
Nov 5, 2009
Contracts in English law can contain two kinds of terms: express and implied. In the majority of cases, contracts will be laid out in a manner that allows an observer to understand all the contractual obligations placed on both parties, as each obligation will be stated clearly in the contract itself. Such contracts contain only express terms. In other cases, such as a verbal or even unstated contract (which is often the case where goods are purchased in a shop, for example) the contract will be wholly implied; consisting of unstated terms and conditions. Other contracts may be mixed, and it is often these cases where problems over conflicting interpretations arise.
What are Implied Terms?
An implied term is simply a clause which is unstated in the body of the contract itself but which will be acted on as a binding part of the contract by a court or tribunal. They are formed from the circumstances in which the contract was made, or the manner in which it is carried out.
Where present, implied terms are often used to qualify express terms in a contract and may therefore affect how the express terms are applied in practice. Implied terms cannot override express terms, unless the terms are unfair and therefore void.
How are Terms Implied?
Terms may be implied into contracts through common law and statute. The common law has developed a number of presumptions about contracts and will be willing to read such terms into contracts under dispute, where they do not infringe on any express terms.
Employment law presents several examples of the way in which the common law has affected how terms are implied into contracts. In Mears v. Safecar Security [1982], the courts ruled that the manner in which a contract is performed determines whether a term is implied into the contract.
In Mears, the employment contract did not discuss sickness pay, the employer had never paid sickness pay in the past and the employee had never asked for it before. The court therefore implied a term into the contract that no sickness pay was due. Although this particular ruling has now been overridden by the Social Security Contributions and Benefits Act 1992, the principle behind the ruling still stands.
Similarly, terms are automatically part of employment contracts if they are central to the employment relationship. Where terms are necessary to give business efficacy and the issue would have been in the minds of the parties when the contract was signed, the courts will similarly imply the term. In Courtalds Northern Spinning Ltd v. Sibson [1988], for example, the courts held that it was in the interests of business efficacy that an employee who worked mainly “on the road” could be transferred to another depot rather than his “home depot” for assignments, although the contract did not state this.
Finally, where a term is so obvious that the parties must have meant it to be part of the contract, or it is normal practice to include such terms, the courts will imply it; as happened in Jones v. Associated Tunnelling Co. Ltd [1981]. In Jones, the employment contract contained no stipulation regarding where the employee was to work and the court determined that it was correct to imply that he could be required to work anywhere within “daily commuting distance”, i.e. a reasonable distance, of his home.
Statutory Terms
Where statute requires that a contract contain certain terms and conditions, the courts will automatically imply these statutory requirements. For example, all employment contracts will be read as containing a clause bringing the contract into line with the Equal Pay Act 1970's requirements that equal pay will be given for “like work and work of equal value” regardless of the sex of the employee.
However, where a contract contains terms that exceed the minimum requirements of the statute in question, the courts will refrain from implying the statutory term. In this way, the courts give effect to the standard caveat that an implied term cannot overrule an express term.
Implied terms are standard clauses which courts will read into contracts to give effect to basic statutory requirements or standard presumptions developed in the common law. They often qualify express terms or affect the manner in which they will be interpreted and provide a means for basic rights to be enforced even where such rights are not provided for in the original contract.
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