Contracts of employment are binding on both parties but, if changes need to be made by the employer, what is the best way to do this? Usually the first step is to seek employees’ agreement. If no agreement can be reached, the employer can attempt to impose changes unilaterally (risking constructive dismissal and breach of contract claims) or dismiss employees and offer them re-engagement on new terms and conditions (risking unfair dismissal claims). If an employer chooses to impose changes unilaterally, it is not always clear when an employee can be taken to have agreed.
In Abrahall & Others v Nottingham City Council & Anor, Nottingham City Council (NCC) sought to align the contracts of office workers with those of manual workers into a single status and grading system. This included standardised “spinal column points” whereby pay would increase annually until the employee reached the top of that grade. Previously, only the office workers had had contractual annual pay progression (largely regardless of performance).
Because not all unions had yet agreed the changes, in March 2010 NCC decided to introduce new contracts of employments. It offered a cash incentive for employees to agree to new terms and conditions which would ultimately incorporate the collective agreement, when reached. Those who did not accept the cash incentive/variation were dismissed and offered re-engagement on the new terms and conditions. It was not made clear to the office workers that they would be losing contractual annual pay progression in signing the new contract and the language of the accompanying explanatory booklet suggested that annual progression up the spinal column would be automatic. The collective agreement was then agreed in August 2010, and continued to refer to the spinal column points and automatic annual pay progression.
Shortly after this process, as a result of austerity measures, a pay freeze was introduced for 2 years which meant no annual pay progression. The unions strongly resisted the pay freeze initially but there was not enough support to take industrial action. NCC said that the alternative was compulsory redundancies. When NCC sought to continue the pay freeze beyond 2 years, the unions raised a collective grievance and the employees brought Employment Tribunal (ET) claims, claiming firstly that all employees were contractually entitled to the annual pay progression, and secondly that they were entitled to back pay because they had not agreed to the 2 year pay freeze.
ET and EAT decisions
The ET held that the employees did not have a contractual right to pay increases, but it went on to hold that if the pay increases were contractual, the employees had not implicitly accepted the pay freeze. By contrast, on appeal the Employment Appeal Tribunal (EAT) ruled that the new contracts accepted with the cash incentive were not clear enough to remove the office workers’ contractual right to annual incremental pay increases. This had not been discussed with the unions, which of course would have objected strongly. As the purpose was to assimilate the contracts, the manual workers who accepted the changes had also gained the contractual right to annual pay progression. The variation the employees signed referred not only to the contract but to the explanatory booklet, which referred to annual pay progression. However, the EAT had held that those who had been dismissed and re-engaged had surrendered their contractual rights because the contractual documentation was slightly different and did not refer to the explanatory booklet.
Both parties appealed to the Court of Appeal. NCC argued that the employees who had initially accepted the variation did not have a contractual right to pay progression, and the employees argued that those who had been dismissed and re-engaged (or recruited afterwards) did have the contractual right.
Court of Appeal ruling
The Court of Appeal had to decide (1) which employees, if any, had a contractual right to annual pay progression and (2), if the right was contractual, whether any employees had agreed to a 2 year pay freeze. It was clear they had not agreed to a subsequent pay freeze as by that stage grievances were raised and ET claims brought.
The Court of Appeal held that all the employees had a contractual right to annual pay progression. If there had been a deliberate intention to remove this for those who agreed the variation, it would have to have been done much more explicitly. It also found that the explanatory booklet was relevant to those dismissed and re-engaged. Both they and those recruited afterwards had the same contractual right.
The subsequent 2 year pay freeze was therefore a contract variation. However, not a single employee had raised a grievance and, after their initial objections, the unions had not continued in a dispute with the employer, nor had the employees indicated that they were “working under protest” (i.e. continuing to work whilst making it clear to the employer that they did not accept the imposed change to terms and conditions). On the other hand, the unions and employees had not written/said anything to indicate acceptance of the pay freeze.
The Court of Appeal revisited previous case law concerning changes to terms and conditions, namely:
- A case where a number of employees had “worked under protest”. They were held not to have accepted a cut in wages, despite continuing to work.
- A case where an employer purported to introduce a contractual mobility clause. Because the variation did not have immediate practical application (unlike a reduction in pay) the employee could not be taken to have agreed to the variation by continuing to work without objection.
- Another case involving changes to contractual redundancy payments, which did not immediately impact on the employees. The EAT held that acceptance of a change in terms and conditions in a later redundancy exercise could only be inferred where continuing to work was only referable to accepting the new terms imposed by the employer: for example a pay cut or alteration of job duties that the employee goes along with without protest. In such cases the employee would have to make his/her rejection of the new terms clear. Where they do not immediately affect the employee, the fact that the employee continues to work does not mean he/she has accepted a variation to the contract.
- A more recent case from 2010 where an employee was sent a letter by his employers setting out changes to his terms and conditions regarding bonus entitlements and restrictive covenants. Neither affected him straight away, he did not sign the letter and was not pressed to do so. When he was given notice of redundancy he explicitly stated he was not accepting the new terms. The Court of Appeal held he had not accepted the change.
The Court noted that an employee can in certain circumstances be taken to have accepted a change where he/she continues to perform the contract and the employer has made it clear that it wishes to change the terms. However, if the conduct of the employee in continuing to work can be referable to some other explanation, then it cannot be treated as acceptance of the new terms. Employees should have the benefit of any “reasonable” doubt.
The Court agreed with the ET that continuing to work without explicitly protesting an immediately effective contractual breach will not always mean acceptance of a contract variation. It will depend on the circumstances. NCC pointed to the fact it had made it clear that the alternative to the pay freeze was mass redundancies, the employees’ inaction/lack of objection, the unions’ lack of industrial action, and the fact that there were no letters, even with the support of the union, about working under protest. The Court could see some force in this argument, but ultimately concluded:
- The proposed variation was entirely to the employees’ detriment – it was not part of a number of measures, some of which were advantageous to the employee. NCC had not promised not to make redundancies in exchange for the pay freeze;
- The pay freeze was not put to the employees as something to be agreed to, as pay was negotiated collectively. Interestingly the CA noted it would have been open to NCC to tell employees that if they continued to work after a certain date they would be taken to have agreed to the pay freeze – this would not have been decisive of acceptance but would have made the argument for acceptance by conduct stronger;
- The unions had strenuously opposed it at the time. The decision not to take industrial action is not the same as a decision to accept a variation.
Therefore all employees were entitled to arrears of pay in relation to pay progression during the pay freeze. The Court made some additional observations:
- Variations to the employee’s advantage will readily be inferred by conduct (e.g. a pay rise);
- Acceptance of a new contract can be deemed where it is accompanied by a promotion and the employee acts in accordance with that, even if parts of the new contract are disadvantageous (e.g. restrictive covenants);
- In some cases an employee could be taken to have accepted a variation in order to avoid the risk of redundancy but it will depend on the circumstances;
- Whilst there was some force in the argument that after the unions’ initial objections to the pay freeze there had been no protest during a period of 2 years, it did not mean that the employees had unequivocally shifted their position and subsequently accepted the change.
What does this mean for employers?
Despite its slightly unusual facts, there are a number of learning points for employers when looking at introducing changes to terms and conditions:
- The employer must make it absolutely clear what changes the employee is agreeing to;
- There will usually need to be an incentive of some sort to agree to a detrimental change – such as a cash bonus, or an explicit promise that they would not be made redundant. If the change is entirely to an employee’s detriment, a court is less likely to infer that it was accepted if the employee remains silent;
- Inaction by employees is unlikely to constitute acceptance of a change to their pay if pay is determined by a collective agreement;
- Continuing to work without protest after an immediately effective change could indicate acceptance of the change, but it will depend on the circumstances and whether there is another explanation. Protest/objection at a collective level may be sufficient to evidence protest by the employee.
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