The recent judgment in IBM UK Holdings Ltd v Dalgleish and others provides a salutary reminder to employers to stick to their Core Values or face potential claims that they have breached the implied duty of trust and confidence.
What the law says
Every contract of employment has implied into it a duty on both the employer and the employee to act in a way which preserves trust and confidence between them.
Employees are entitled to rely on their employer's previous conduct, as well as the ethical values which the employer holds itself out as having, to determine what may be a breach of that implied duty of trust and confidence. In this case, IBM was held to have breached the implied duty in its handling of a consultation on pensions, partly due to a failure to stick to its Core Values.
During previous consultations on pensions, scheme members had been given assurances by IBM that there would be no further changes in the short term.
However, in 2009, IBM implemented 'Project Waltz' to cut costs and help meet upcoming targets. The project involved a reduction in some pension benefits such as closing the defined benefit plan to future accrual and imposing a new restrictive early retirement policy.
IBM consulted about these subsequent changes. However, it was found that the consultation process was not carried out by IBM with a receptive mind and the true reasoning behind Project Waltz was hidden by misleading information. Scheme members therefore brought claims for breach of the implied duty of trust and confidence, relying on IBM's previous reassurances as well as IBM's Business Conduct Guidelines and Core Values.
Although there was no express legal obligation on IBM to consult its employees on the proposed changes to the scheme (with the exception of termination of future accrual), IBM was unable to use the defence that it was already going over and above its statutory obligations to protect it against the deception found to exist in the consultation. The High Court decided that having embarked upon a consultation, IBM was under a duty to do so honestly, openly, transparently and in accordance with its own Core Values.
The Court singled out IBM's Core Value relating to misrepresentation which stated that one should 'never make misrepresentations or dishonest statements.honesty based on clear communication is integral to ethical behaviour.' Employees were entitled to expect that the consultation would be carried out in accordance with such statements of principle.
Over and above any legal duty to consult with employees, it is crucial that employers ensure that they do not breach the implied duty of trust and confidence. In particular, when implementing changes to employee benefits it is important to consider:
- the employer's own standards of ethical conduct; and
- the employees' 'Reasonable Expectation.' This will depend partly on the employer's past conduct (for example any assurances given) and partly on the values it espouses.