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Defending Challenges to Pay Terms

Ed Kemp

The
need to review pay terms

In the public sector, it is fair to
say that certain pay terms, longstanding and collectively negotiated,
constitute generous entitlements. As is widely known, following severe cuts in
central Government funding, many local authorities have been forced to make
radical costs savings. If the intention is to restrict the benefit of generous
pay terms, another way of trimming the wage bill and reducing the risk of liability
in the courts is to review the drafting of terms to ensure that they clearly
reflect such intentions.

Identifying
the source of the term

When reviewing contractual terms,
the starting point will be to identify the term in issue. The source of the
term may become relevant, if the term is found in a collective agreement or
policy, because this may have a bearing on whether the term is contractual. A
provision that is clearly non-contractual cannot be relied upon to found a
claim for breach of contract or unauthorised deduction from wages. The source
of the term will also be relevant when it comes to effecting changes to the
term: negotiations with the unions or with affected staff or with both?

Incorporation
of terms

The most straightforward incorporation
cases will be express terms of the employment contract. However, it is
important to be aware that there may be other sources of such terms, hidden in
a corner of some old collective agreement or even orally. One trap to certainly
avoid is making “town hall announcements
of contractual entitlements to staff as the same can be contractually binding
(see: Attrill v. Dresdner Kleinwort [2013] IRLR 548).

If an employee or group of employees
are seeking to rely on rights to pay in collective agreements, check to see if
they are in fact expressly incorporated in their contracts of employment. If
there is no express incorporation clause this may be a knock-out blow to the
claims providing that there is no basis for such agreement to be impliedly
incorporated. As to which, check off factors identified in Albion Automative v. Walker [2002] EWCA Civ 94:-

  • whether
    the policy was drawn to the attention of employees;
  • whether
    it was followed without exception for a substantial period;
  • the
    number of occasions on which it was followed;
  • whether
    payments were made automatically;
  • whether
    the nature of communication of the policy supported the inference that the
    employers intended to be contractually bound;
  • whether
    the policy was adopted by agreement;
  • whether
    employees had a reasonable expectation that the enhanced payment would be made;
  • whether
    terms were incorporated in a written agreement;
  • whether
    the terms were consistently applied.

Even if the collective agreements
are incorporated it may still be argued that the parts of the agreements relied
upon to assert the right are not apt for incorporation. This point arose in Simpson
v. London Borough of Hackney
UKEAT/0104/12/DM, the EAT held that a
right to a job evaluation (with back pay) was contained in the “joint advice sections” of the Green Book
and the Gold Book and, as such, were not apt for incorporation. It will be
worth, then, reviewing the precise parts of any collective agreement relied
upon as a putative source of contractual rights.

How
do the courts construe contractual terms?

In Verma v. Barts and the London NHS
Trust
[2013] IRLR 567, the Supreme Court re-stated the primacy of a
literal interpretation of terms. The courts are to take each word of the term
as they appear on the face of the contract. The court is not to read words into
the term which do not appear or change, take out or move them unless it is
satisfied that there is ambiguity which cannot be resolved otherwise.

In Verma, the term in
question concerned a right to pay protection on re-entry to training. The term
had been in existence in one form or other since 1949. The Supreme Court
interpreted the term on its face to conclude that a doctor, who had been
working on a very part-time basis in the higher grade, should receive pay
protection in the lower grade as if she had worked full-time in the higher
grade on much higher pay. The doctor was therefore entitled to a substantial
sum by way of unauthorised deduction from wages.

Emphasising the importance of
getting the drafting right of pay terms, Lord Carnwath observed in Verma:“It is
disturbing that a condition designed to confer important rights on employees
should be so obscure. The differences of view between such experienced judges,
even after the intense analysis to which the condition was subjected in the Court
of Appeal, is testament enough that the condition is not well drafted, and
requires reconsideration. This would be a matter for real and urgent concern if
there were evidence that it has caused or is causing wider problems in
practice.”

It is only where a term is capable
of more than one meaning that a court will use business common sense in the
construction exercise (see: Rainy Sky v. Kookmin Bank [2012]
1.W.L.R. 2900) but the parties cannot use the test in Rainy to make a contract
say what they wish it had. If a court takes the view that the wording of a
contract, on its face, carries a sufficiently clear meaning, it can and will
hold parties to what they have agreed (see: BMA Special Opportunity Hub Fund
v. African Mineral Finance
[2013] EWCA Civ 416).

A court will also be slow to
conclude that there has been a mistake in the drafting of the contract. The
House of Lords in Chartbrook Ltd v. Persimmon Homes Ltd [2008] AC 1101, confirmed
that a court only has the power to correct an error in the contract where it is
clear that something has gone wrong with the language and that a reasonable
person would have understood what the parties meant. In ING Bank v. Ros Roca[2012] 1 W.L.R. 472, Rix LJ followed this guidance, noting that cases of
mistake are rare and “…judges should not
see in Chartbrook can open sesame for reconstructing the parties’ contract, but
an opportunity to remedy by construction a clear error of language which could
not have been intended
.”

The
pitfalls of loose drafting

EHRC v. Earle UKEAT/0011/14/MC, re-emphasises the
importance of making sure that the drafting of express terms reflects the
employer’s intentions. In that case, the claimant was assured by an HR officer
that she would be granted progression through the incremental steps for her job
if her performance was satisfactory. There were to be annual progression
reviews. However, the terms on their
face provided not that progression was solely dependent on performance but “included” performance.

The EHRC’s withdrawal of progression
and progression reviews, when faced with funding cuts, was held by the EAT to
be a breach of the express terms properly construed. The EHRC only escaped
liability for breach of contract because the EAT was satisfied that, owing to
the crisis in government funding, there was no realistic chance of even a
percentage of the incremental payments sought had progression reviews been
held. Tighter drafting of the express terms might have avoided a trip to the ET
and beyond.

Some
drafting tips

In order to ensure that terms reflect
what is intended and to limit the risk of litigation through the courts, the
following are some suggested basic drafting tips:-

  • Be precise: accurate, complete,
    exact, clear, specific, and focused
  • Use plain English
  • Take care when using syntax
  • Use short and simple sentences if
    possible to avoid complexity of expression
  • Avoid
    the word “entitlement” in policies,
    if this is not what is intended
  • Avoid
    double negatives or double-entendres
  • Define
    important words (clearly), if necessary in a separate clause
  • Take
    a step back to review the draft objectively. Does it achieve the objective?

Effecting
changes to contractual terms: a swift guide

The next challenge will be how to go
about effecting changes to contractual terms. This will typically entail
negotiations with the union if the source of the term is a collectively
negotiated agreement. In respect of individual employment contracts, a
variation clause may permit the change. However, these have been interpreted
restrictively by the courts and may be susceptible to a challenge that they do
not reflect the realities of the positions as per Autoclenz v. Belcher [2011]
ICR 1157. Otherwise, express or implied consent (e.g. acquiescence) from the
employees will be required. Acquiescence can be hard to prove and so obtaining
express consent is preferable to achieve certainty.

It may be relatively easy to obtain
express consent if, for example, variation to pay term(s) is a suitable
alternative to redundancy and the same matters have been consulted upon. In
other cases, dismissal and re-engagement on new terms is an option but carries
with it the risk of an unfair dismissal claim and claims for failure to consult
on redundancies. A sound business case for cost-savings would need to be
advanced and evidenced to minimise the risk of liability. A Tribunal will want
to see that alternatives to changes to pay terms have been considered and the
cost-saving burden shared across the business. The procedure followed in
effecting the change is also likely to come under scrutiny: information
provided, consultation meetings, alternatives considered.

Where attempts to obtain express
consent to the change have been unsuccessful, a third option to effect the
change is to serve a notice of dismissal and agree to rescind the notice in
return for agreement to the change. This method is one of the points for
consideration in a forthcoming case in the EAT in which I am involved. Watch
this space…

If you have any questions please contact EKemp@littletonchambers.co.uk

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