Abrahall & Ors v Nottingham City Council & Anor

In March 2011 Nottingham City Council, together with a company owned by it to which some of its employees had been transferred under TUPE, decided not to award so-called incremental pay increases to their employees over the following two years; and a similar decision, albeit affecting fewer employees, was made in 2013. Several hundred affected employees have brought proceedings in the Employment Tribunal for unlawful deduction of wages under Part II of the Employment Rights Act 1996, on the basis that they had a contractual entitlement to such increases. The claims of six such employees were chosen as lead cases. They were intended to cover five groups whose circumstances differed in what were arguably material respects, though we are now concerned only with the first three. It is unnecessary for our purposes to distinguish between the two employers, and for convenience I will refer to them both as “the Council”.

By a judgment sent to the parties on 12 August 2015, Employment Judge Camp, sitting at Nottingham, dismissed the claims in their entirety. The Claimants appealed. By a judgment handed down on 11 May 2016 the Employment Appeal Tribunal (Mitting J, sitting alone) allowed the appeal in relation to group 1 but dismissed it in relation to the remaining groups. What is before us is the Council’s appeal as regards the group 1 Claimants and a cross-appeal by the group 2 and 3 Claimants.

The Claimants and the Council have been represented at all stages by Mr Oliver Segal QC and Mr James Laddie QC respectively. Their written and oral submissions have been of very high quality.

Traditionally, the terms and conditions of employment of local government employees have been governed by collective agreements between local authorities and the trade unions representing their workforces – being, latterly, the GMB, Unite the Union (“Unite”) and UNISON. The principal terms and conditions have been negotiated nationally, albeit with some scope for local agreements. Until the changes discussed below, terms have differed as between employees doing, broadly, manual work and those doing “administrative, professional, technical and clerical” (“APT&C”) work and were incorporated in compendia known respectively as the White Book and the Purple Book.

One difference between White Book and Purple Book terms was in their pay structures. APT&C employees were paid an annual salary. The jobs done by them were assigned to grades, each of which covered a “band” of points on a “spinal column”, each spinal column point (“SCP”) denoting a particular level of salary. It is common ground that employees were contractually entitled to move each year up to the next pay point in their grade until they reached the grade maximum, subject only to “satisfactory service” (Footnote: ¹). Systems providing for progression by annual increments of this kind (“pay progression” for short) are of course extremely common in the public sector. Manual employees, by contrast, were paid on a weekly or monthly basis by reference to grades which attracted a particular fixed level of pay, without any provision for progression. (There was in both cases also an expectation that the pay attracted by each SCP or payable to each grade would increase annually to reflect inflation – so-called “cost of living increases” – but that is a separate matter and immaterial for our purposes.)

The differences between the two groups became an increasing source of tension, particularly because of the equal pay issues to which they gave rise, and in 1997 agreement was reached between employers and trade unions at national level on a detailed framework for the implementation of so-called “single status” for all local authority employees. However, the implementation of single status had to be achieved by negotiations at local level. This proved a very slow process, but eventually a deadline of 2010 was agreed nationally.

One of the fundamental changes to be effected by the introduction of single status was that the grading and pay structure for manual employees should be assimilated to that of APT&C employees, with the creation of a new and simplified single spinal column and a revised system of grades to which the jobs of all employees were allocated on the basis of a job evaluation exercise. It is, to anticipate, the Claimants’ case that under those new arrangements, as under the predecessor contracts of the APT&C employees described at para. 5 above, there was a contractual right to progress from SCP to SCP within a grade by annual increments.

In the case of Nottingham, agreement on the implementation of single status was reached in early 2010 between the Council on the one hand and the GMB and Unite on the other. However, agreement with UNISON did not prove possible at that stage, and the agreement of all three unions was necessary to achieve a comprehensive collective agreement which could be incorporated into the contracts of individual employees. The only alternative way to achieve implementation was to obtain the agreement of the employees individually to the necessary changes in their contracts of employment. Accordingly, in March 2010 the Council’s Appointments and Conditions of Service Committee (“ACOS”) agreed to take that course. On 21 April the Council wrote to all the affected employees inviting them, as what was described as “option 1”, to agree to new terms and conditions, reflecting the single status agreement reached with the GMB and Unite, which would take effect from 1 November 2010. The letter enclosed various documents explaining the new terms. A cash incentive was offered to those employees who agreed by a specified date. The letter also informed them that if they did not agree the Council proposed to dismiss them and offer them re-engagement on the same terms as were offered in the letter: this was described as “option 2”.

Over the following months the great majority of employees – 90% by the beginning of August – agreed to the new terms. Those who did not do so were on 4 August 2010 sent a further letter which, in effect, implemented option 2 by giving them notice of dismissal with effect from 31 October, coupled with an offer of re-engagement on the new terms with effect from 1 November. Some agreed to the new terms at that point. Of those who did not, virtually all were dismissed but re-engaged on (subject to the issues which I have to consider below) the new single status terms.

It might appear that there was no difference in substance between the two options (apart from the cash incentive): whichever was taken, the end result would be that the employee would remain in the Council’s employment (Footnote: ²) on the single status terms. But it is clear that to some employees there was an important difference in principle between positively agreeing to a change of which they disapproved and submitting to it quasi-involuntarily as imposed by the dismissal and re-engagement route.

In the meantime negotiations with the trade unions had continued; and at the end of July a collective agreement was reached with all three unions. The agreement covered most, though not quite all, of the matters in the new terms which had been sent with the April letter. The final signature to the agreement is dated 2 August 2010. I will refer to it as “the Collective Agreement”.

Employees recruited on or after 1 November 2011 were likewise of course employed on the basis of the new single status arrangements – though, again, I subject to the issues arising in this appeal.

Following the 2010 General Election there was a new climate of austerity in the public sector. At its budget consultative meeting in December 2010 – thus only a few weeks after single status had come into effect – the Council announced to the trade unions a proposal for “freezing incremental progression for two years” – that is, that employees would not move up the spinal column in either 2011 or 2012. A formal decision was made on 8 March 2011 and the freeze took effect from 1 April.

The unions did not agree to the proposed freeze, but it was implemented nonetheless, and there were accordingly no incremental pay increases in either 2011 or 2012.

At the end of the two-year period, in early 2013, the Council resolved to extend the freeze for a further period, but not for the totality of the workforce: I need not give the details. On this occasion the unions responded by activating in April 2013 a formal collective grievance procedure. This did not produce a resolution.

The first claims in the litigation were made in or about July 2013, following the failure of the grievance procedure. As a result of one or more case-management hearings the six lead Claimants were chosen to represent five groups of employees, as follows:

The Claimants’ case is, straightforwardly, that the employees in each of the groups had a contractual right to an annual increment in each of the years 2011-2013. The Council’s answer is two-fold:

WAS THERE A CONTRACTUAL RIGHT TO PAY PROGRESSION ?

The question of which documents embody the terms and conditions of the Council’s employees as regards pay following the implementation of single status on 1 November 2010 is complicated by the circumstances of its introduction as outlined at paras. 7-9 above. If the Council and the unions had remained unable to reach agreement it would be sufficient to consider the documentation to which individual employees agreed following the Council’s letter of 20 April (option 1) or on which they were re-engaged in accordance with the letter of 4 August (option 2) – “the individual documents”. But the Collective Agreement, which was finally concluded on 2 August and which the individual contracts to some extent incorporate, also contains provisions about pay, and it is necessary to consider the effect of those provisions on what the employees agreed individually. I will start by setting out the relevant provisions of each.

The Council’s letter to all employees of 21 April 2010 attached five documents: (a) a “proposed core contract”, which set out the main terms and conditions that would apply if the employee accepted the proposed variation (“the Core Contract”); (b) a booklet entitled “Single Status 4 (Footnote: ³)”, which was intended as a guide to how the new single status agreement would apply (“the Booklet”); (c) a response form to be returned saying which option was accepted; (d) an individualised statement giving each employee’s job title, grade and spinal column point; and (e) a compromise agreement under section 203 of the 1996 Act.

For the group 1 Claimants the correct formal starting-point is the response form, because that is the actual acceptance document that they signed. It reads, as regards that option:

“I agree to accept the changes to my terms and conditions of employment as outlined in the letter dated 21^st April 2010, associated booklet and the example core contract enclosed with this letter.”

In the case of the group 2 Claimants, the relevant form of words appears in a document which they signed following receipt of the notice of dismissal dated 4 August 2010. It reads:

“I do not want to accept the changes to my terms and conditions of employment as outlined in the letter dated 4 August 2010, associated booklet and the contract(s) enclosed with this letter. I understand that I am not eligible to receive any payment. I do wish to accept the offer of re-employment and I enclose a copy of my signed contract(s).”

The “offer of re-employment” was described in the covering letter as being “on the terms of the new contract of employment enclosed”, the contract in question being the Core Contract.

I turn to the relevant material in the Core Contract and the Booklet.

I need to refer first to clause 5 of the contract, which is headed “Terms and Conditions of Employment” because it is this which provides for the incorporation of terms agreed collectively. It reads (so far as material):

“The terms and conditions of your employment are governed by the National Joint Council for Local Government Services National Agreement on Pay and Conditions of Service (the “Green Book”), as amended, superseded, overridden or supplemented by:

•

the contractual provisions contained within the Council’s People Management Handbook; and/or

•

such local agreements reached between the Council and the recognised trade unions as amended from time to time or other terms and conditions (including but not limited to the terms of this statement) as amended from time to time which, in each case, the Council has expressly stated are to have contractual effect.”

This is important because it is common ground that, as I have already trailed, the Collective Agreement of 2 August 2010 was an agreement of the kind described in the second bullet point, and its terms were accordingly expressly incorporated in the employee’s contract to the extent that they were said to have contractual effect.

The clause dealing with pay is clause 8. It begins:

“Your starting salary is … accordance with Band … spinal column point (SCP) …”.

I need not set out the rest of the clause, which is concerned with the mechanics of payment etc. Mr Laddie points out that, although it specifies that pay will be in accordance with the rate for the specified SCP, there is no explicit reference to a right to pay progression.

Section 1.1 of the Booklet is headed “Introduction” and reads (so far as material):

“This booklet has been produced to accompany the letter you have received asking you to vary your contract of employment. In some cases, the new contract will contain new pay and grade. In all cases the new contract will contain other changes to your terms and conditions of employment. This booklet will provide you with much of the information you will need to help you make this decision.

The booklet is aimed at all those employees who are covered by this process…

Included in this booklet is an explanation of why you are being asked to vary your contract of employment and accept a new one, what this means and how you would be affected by this. As the Single Status proposals have changed slightly, this booklet also contains details of the proposed new arrangements, including a summary of the revised terms and conditions and the new pay and grade structure.”

Section 1.2 summarises the background to the introduction of single status and makes the point that consultations with the trade unions are ongoing. It ends with the rubric:

“NOTE: The new arrangements that you are being asked to agree are also subject to consultation with the trade unions throughout the consultation period and although you are being asked to agree to the new arrangements as proposed in this booklet and associated documents, should the trade unions agree alternative arrangements in relation to any part of the package these collectively agreed terms will replace those that you may have already individually agreed.”

That is of course consistent with clause 5 of the contract: see para. 23 above.

Section 2 is headed “Pay and Grade”. It begins:

“The following section includes details about the proposed pay and grading structure and explains how you will be placed on your new grade. Although the pay and grade model remains unchanged under the revised arrangements, this section also contains important information on changes to pay protection and pay compensation.”

Part 1 of Section 2 is headed “Your Grade and the Proposed Pay Structure in Detail”. It begins:

“The proposed pay and grading structure uses the current Spinal Column Points (SCPs) system from point 4 to 55, split into new grades containing four or five Spinal Column Points.

Under the new pay and grade system, all employees will gain a Spinal Column Point each year until they reach the top of the grade (the maximum Spinal Column Point) [emphasis supplied].

New grades are shown by a letter (from A to K) and assigned to a ‘tier’ which refers to the level of the job within the organisation. The tier system stretches across the whole organisation – for example, Directors fall into tier 2 and Heads of Service into tier 3.”

The second paragraph in that passage, which explicitly provides for pay progression by annual increments, is of course central to the Claimants’ case. A table then sets out various grades, from A-K, and the SCPs that they cover, from 4-55, giving the minimum and maximum values (in terms of annual salary) for each grade.

The second part of Section 2 is headed “Your New Grade” and explains how employees will be allocated to a grade, and more particularly to a SCP within that grade, under the new system. Examples are given covering the three possible variants – (1) where the new grade results in an increase of salary; (2) where it results in a reduction; and (3) where the salary will be the same. I take them in turn.

The example where the new grade results in an increase in salary reads:

“Tom’s job is currently Scale 5.

He is paid on SCP23 and would earn an average salary of £20,198 this financial year.

His job is Tier 6 F on the new pay structure. The minimum Spinal Column Point for Tier 6 F is SCP 27 (£22,958).

Tom will therefore commence on SCP 27 (the minimum SCP for his new grade). His new salary is £22,958. Tom’s salary will then increase by one increment each financial year until he has reached the top of the grade, SCP 30 [emphasis supplied].”

The “reduction” example reads:

“Jeff is currently on Scale SO1, SCP 30 and would earn a salary of £25,472.

His job is now a Tier 6 E on the new pay structure. The maximum Spinal Column Point for this new grade is SCP 26 (£22,221).

Jeff will therefore commence on SCP 26 (the maximum SCP for his new grade).

The reduction to Jeff’s salary will be immediate. His salary will not increase by an increment each financial year as he is now at the maximum Spinal Column Point for his grade, although he will continue to receive the annual cost of living pay award on his new basic pay [emphasis supplied].”

The “no change” example reads:

“Pam is currently on Scale SO2, SCP 33 and her salary is £27,849.

Her job is now a Tier 5 G on the new pay structure. The minimum Spinal Column Point for her new grade is Spinal Column Point 31 (£26,276) and the maximum Spinal Column Point is 35 (£29, 236).

As Pam’s current salary matches Spinal Column Point 33 which falls within the new grade, she will be transferred onto this Spinal Column Point and her salary will not change. Pam’s salary will increase by one increment each financial year until she has reached the top of the grade, Spinal Column Point 35 [emphasis supplied].

Pam’s current salary £27,849 (Spinal Column Point 33).

Pam’s new salary £27,849 (Spinal Column Point 33).

Although Pam’s salary has stayed the same, she has actually gained ‘headroom’ as she is able to progress through the grade to the maximum Spinal Column Point, which is higher than the maximum Spinal Column Point for her old grade. Please see below for further details.”

The “further details” promised at the end of the last example appear under the heading “Headroom Explained” and read:

“‘Headroom’ is the term used to describe the number of Spinal Column Points left in a grade to move through, before you reach the top of your grade. As a result of the move to a different pay structure, some employees will experience a change to the amount of headroom in their grade.

Typically, you will move an increment of one Spinal Column Point a year until you reach the top of the grade [emphasis supplied].”

The Claimants of course rely on the statements in the three examples, which I have italicised, about the employee’s pay increasing annually until he or she reaches the top of the grade (or, in the case of Jeff, not doing so because he is already there). Mr Laddie draws attention to the word “typically” in the explanation of “headroom”. I will return to these points in due course.

The Collective Agreement begins by reciting that the Council and the three unions have now reached agreement on most aspects of the implementation of single status; and that, as regards the elements where they have not done so, the Council will be proceeding in accordance with the March ACOS decision. It then identifies a number of agreed changes to the package on which ACOS had originally agreed to proceed and which had accordingly been reflected in the offers to employees. These are irrelevant for our purposes. I need only set out (part of) item 3, which begins:

“Those policies and procedures in the People Management Handbook that currently have contractual effect will, where they remain in existence, continue to have contractual status following the date of implementation. These policies are: …”

There follows a list of policies, schemes and procedures relating to such matters as annual leave, flexible working hours and disciplinary and grievance procedures. It goes on:

“In addition, paragraph 3 ‘Pay System’, paragraph 6 ‘Allowances’ and paragraph 9 ‘Pay Protection’ of the new Pay Policy will have contractual force where they are applicable. The remaining paragraphs of the Pay Policy will remain non-contractual.”

The “Pay Policy” there referred to is a document negotiated between the Council and the trade unions as part of the single status process. In the ET both parties asked the Judge to have regard to the negotiating history, which I should accordingly briefly summarise. A first draft was produced in October 2008 (“the 2008 version”) and discussed at a negotiating meeting on 14 November. A later version was produced in July/August 2009 (“the 2009 version”). Its content was not significantly different from the 2008 version, but some of the provisions had been moved around. That version was agreed and “signed off” by the unions on 7 August and will have been the version referred to in the Collective Agreement. We were in fact referred, no doubt because it was the version current at the time to which the claims relate, to a further version produced in November 2010; but we were were told that the two versions are in the material respects substantially identical.

For reasons which will appear, I need to refer to paragraph 3 of the 2008 version. This is headed “Pay System” and gives an overview of the intended grade structure for single status. It starts with a table identical to that which later appeared in the Booklet (see para. 28 above), with a short explanation of how jobs would be assigned to grades as a result of job evaluation. It then continues:

“Pay Progression

Employees will normally start in a new grade on the on the minimum SCP for the grade. Each year, subject to satisfactory performance, they will move up to a SCP until they reach the maximum SCP for their grade. No employee will be allowed to move above the maximum for their grade. New recruits who start between the 1^st April and 30^th September will receive an increment on 1 April the following year. For those who join between 1 October and 31 March will receive an increment after six months employment. Thereafter they will receive increments on 1 April each year until the maximum of the grade is reached.”

The ET found that the crossing-out of the second sentence reflected a request made by the unions at the meeting on 14 November 2008, because they did not believe that the “satisfactory performance” condition for pay progression could be justified in the absence of a sufficiently robust performance assessment framework (see para. 43 of the Reasons). Paragraph 4 deals with the grading of new posts. Paragraph 5 is headed “Appointments to New Grade” and provides that where such appointments are made, whether internally or from outside, the normal starting point will be the minimum SCP for the grade, though provision is made for exceptions.

I return to the 2010 version. This begins with the rubric:

“Paragraphs (3) (6) and (9) of this Pay Policy are, where applicable, incorporated into individual employees’ contracts of employment.”

That of course reflects the terms of the Collective Agreement itself (see para. 34 above). I will take in turn the paragraphs relevant for our purposes.

Paragraph 3 – which is one of those specified in the rubric as being incorporated into individual employees’ contracts of employment – is headed “Pay Systems”. It specifies the job evaluation method used in allocating jobs to grades, and then sets out the grades, with their SCP ranges, in the same form as they appear in the booklet. Paragraph 3.3 reads:

“Each grade contains a range of spinal column points (scp) which defines the minimum and maximum pay range for each grade. The current values of each scp are available on the intranet and in Appendix 1 of the Pay Policy.”

Appendix 1 sets out the pecuniary values for each SCP.

Paragraph 5 – which is not one of those specified in the rubric as incorporated into individual contracts – is headed “Appointments to new grade”. It begins:

“5.1

Subject to paragraph 5.2, employees will normally start in a new grade on the minimum scp for the grade. No employee will be allowed to move above the maximum for their grade. New starters in grade who start between the 1^st April and 30^th September will receive an increment on 1 April the following year; new starters in grade between 1 October and 31 March will receive an increment after six months’ employment in that grade. Thereafter, they will receive increments on 1 April each year until the maximum of the grade is reached.

Sub-paragraph 5.2 begins:

“In seeking to recruit from outside the organisation it is possible that there may be the need to offer more than the minimum of the grade.”

It goes on to specify, in elaborate terms which I need not set out, that managers should be able to justify exceptional treatment of this kind according to stringent criteria.

It will be seen that the structure of paragraphs 3 and 5 has changed between the 2008 and 2009/2010 versions. As to this, the ET said, at para. 44 of its Reasons:

“The next version of the Pay Policy that has been made available to me dates from around July/August 2009. It is very similar to the final version and also, in terms of relevant content, to the first draft. Apart from the removal of the sentence just mentioned, the material differences between the July/August 2009 version and the first draft are: that a few sentences and paragraphs have been moved around; the phrases ‘New recruits’ and ‘those who join’ in what, in the first draft, was the ‘Pay Progression’ paragraph have been changed to “new starters in grade’; the phrase “after six months employment” has become, ‘after six months’ employment in that grade’. The relevant paragraph and sentence moved around are: the paragraph that was headed “Pay progression” in the first draft appears in the July/August 2009 version without a sub-heading and in section 5 rather than in section 3; the sentence ‘All jobs are assigned to a grade following a job evaluation’ has been moved from section 3 to section 4 (‘Grading of posts’). There is nothing in the evidence to which I have been taken to explain why things were moved around. In the absence of specific evidence on the point, I think it is reasonable for me to assume (in as much as I need to form a view) that this was done purely for stylistic reasons. The July/August 2009 version was accepted by the Unions at a Single Status meeting on 7 August 2009 and is described in the minutes of that meeting as having been ‘signed off”.”

I will return to the significance, if any, of those changes in due course.

Since the ultimate issue is one of law I need not give the reasoning of the ET and the EAT in a lot of detail.

The ET’s Reasons are full, thoughtful and well-structured. I need not address the findings of primary fact, which contain a full review of the documents which I have outlined above, save that I should set out some important general findings that the Judge made at the end of that review. These read:

“69.1

The aim of the parties was that the implementation of Single Status would result in all employees having the same core terms and conditions of employment, including the same rights – or lack of rights – to incremental pay rises;

69.2

All employees had, from 1 November 2010 onwards, a contractual right to participate in an SCP scheme based on a specific range of SCPs. This right – which the respondent concedes employees had – arose at least in part from paragraph 3 of the Pay Policy, incorporated into contracts of employment by virtue of the incorporation clause and the Collective Agreement;

69.3

The only SCP system that had ever, prior to the implementation of Single Status, been used by the respondent or discussed between the parties was one under which each year employees (in practice) automatically moved up one SCP until they reached the top SCP for their grade;

69.5

Before the implementation of Single Status there were no discussions between the parties specifically about making the respondent’s SCP system, which had been contractual for APT&C employees, non-contractual;

69.5

Before the implementation of Single Status, the parties’ intentions (objectively ascertained) were for all relevant employees to get incremental pay rises post-implementation, with the first such pay rise taking effect from April 2011. It obviously does not, though, follow from this that the parties necessarily had a common intention for employees to have a contractual right to incremental pay rises. An employer may, for example, have every intention of giving its employees a pay rise each year indefinitely into the future whilst reserving for itself the unfettered discretion not to give one in any particular year. To put it another way, even if there were an express contractual term stating, ‘The employer intends to give all employees a pay rise each year’, such a term would not necessarily have to be construed as meaning the same as, ‘All employees will get a pay rise each year’;

69.6

The Pay Policy was intended to be comprehensive and to cover all matters relating to employees’ pay that had been agreed between the respondent and the Unions;

69.7

Were it not for the Collective Agreement and the corresponding statement at the top of the Pay Policy about which of its paragraphs were incorporated into individual employees’ contracts of employment (taken together with the terms of the incorporation clause in the Core Contract), there would be no evidence whatsoever that the Unions had ever even contemplated the possibility of employees not having a contractual right to incremental pay rises, let alone that such was their intention. Indeed, ignoring the Collective Agreement and Pay Policy, the factual background relevant to the ascertainment of intention all points the other way. For example, as the respondent must have known, the Unions would not have consciously signed away their APT&C employee members’ pre-existing contractual rights to incremental pay rises without a fuss and there was no fuss – there wasn’t even discussion on the topic; there is no discernible reason why the Unions might have wanted any SCP system to be non-contractual.”

I turn to the dispositive reasoning. At paras. 71-72 the Judge identified seven sub-issues arising on this part of the case. He acknowledged that they were inter-related and that there was no obviously best order to take them in. I will follow the various steps in his analysis.

His starting-point – which he labelled “issue (ii)” – was that if one ignored the Collective Agreement and the Pay Policy the description of the new pay system contained in the Booklet would be incorporated into the contracts of employment of the group 1 Claimants (that is, those who had accepted the Council’s original offer of new terms). His reasoning is at paras. 77-81 of the Reasons. I need not set it out in full. He pointed out that the form of words in the response letter referred to the terms and conditions offered being “outlined” in the Booklet as well as the Core Contract; that the Booklet itself contained no disclaimer of contractual status; that the description of the pay system related to matters of a kind which one would expect to find specified in a contract of employment; and that one would expect the Council, dealing with its employees in good faith, to wish its employees to have an accurate description of what their rights were.

His next step – “issue (iii)” – was that that conclusion applied also to the group 2 Claimants (that is, those who had been dismissed and re-engaged on the new terms): see paras. 82-87. He acknowledged that there was one important difference between them and the group 1 Claimants, namely that they had not signed the option 1 alternative in the response form. But he held that it was very unlikely that either party intended that the terms of those employees who took option 2 should be different from those who took option 1; and the form of words accepting re-engagement was capable of being read as referring to the Booklet as well as the Core Contract.

Having reached that conclusion on the individual documentation, the Judge turned to the effect of the documentation at the collective level – that is, the Collective Agreement and, more particularly, the Pay Policy. At paras. 88-114 of the Reasons he discusses in great detail the parties’ submissions on the effect of paragraphs 3 and 5 of the Pay Policy – “issue (i)” – and concludes that, if one ignores the effect of the Booklet (as discussed in issue (ii) – see above), their effect, read with the rubric about incorporation, is that “the whole of the SCP system is non-contractual” (para. 111). He acknowledged at para. 107 that:

“… [I]f paragraph 5 of the Pay Policy did not exist, the express incorporation of its paragraph 3 would be enough to, by implication, incorporate the respondent’s SCP system into employees’ contracts of employment. Given the background, I think any reasonable person in the position of the parties at the time would think, in the absence of any indication in any of the relevant documents to the contrary, that what was intended was clearly a continuation of the contractual SCP system that had previously existed, but updated to take the new SCP scheme into account and applied to all employees and not merely to those on APT&C contracts. In reaching such a conclusion, I would not be implying a term into the Core Contract that isn’t there, whether through necessity or because of custom and practice or otherwise; I would simply be interpreting the term that is there so as to give effect to the parties’ objectively ascertained intentions.”

But he believed that paragraph 5 was inconsistent with any such conclusion.

Having thus concluded, on the one hand, that the individual documentation (and in particular the Booklet), read on its own, appeared to show a contractual right to pay progression and, on the other, that the collective documentation (and in particular the Pay Policy) appeared to negative any such right, the Judge proceeded, at paras. 115-123, to consider what conclusion should be drawn from the documentation as a whole. His decision, at para. 123, was:

“It follows, in conclusion, that considering everything together, and whether looking at the situation through a lawyer’s eyes or those of the hypothetical reasonable lay person in the parties’ position, and whether peering through a magnifying glass and using the fine-tooth comb or taking some steps back and using the broad-brush, and endeavouring to reach a result that is not an affront to common sense, and notwithstanding my above preliminary conclusions on the SS4 (Footnote: ⁴) question, my final decision is: the claimants’ contracts of employment are to be construed as giving none of them a contractual right to incremental pay rises. Accordingly, the complaints of all Lead Claimants … fail and are dismissed.”

One element in the Judge’s reasoning which I should specifically identify is that he regarded it as very unlikely that the contractual intention was that the entitlement to pay progression should differ as between the three groups: see paras. 119-121.

Mitting J structured his reasoning rather differently from the ET, starting with the group 1 Claimants and then proceeding to consider separately those in groups 2 and 3.

As regards group 1, he considered in turn the positions of the former APT&C staff (about 60% of the total) and the former manual workers (about 40%). As regards the former (considered at para. 224 of his judgment), his starting-point was that if the Council’s submissions were right those employees were to be taken to have agreed to a significant diminution in their contractual rights. He pointed out that that could only be achieved by clear language, referring to the decision of this Court in Khatri v Cooperatieve Centrale Raiffeisen-Boerenleenbank BA [2010] EWCA Civ 397, [2010] IRLR 715. Like the Employment Judge, he regarded the language of the individual contractual documents, and specifically the Booklet, as positively inconsistent with any such intention; and, unlike him, he did not believe that the effect of that documentation was trumped by the Pay Policy. He adopted a different construction of, in particular, paragraph 5 of the Pay Policy which enabled it to be read consistently with the individual documentation. As regards the former manual workers (considered at para. 24), he acknowledged that they would not, unlike the former APT&C staff, be losing a right which they already enjoyed; but he pointed out that it would be inconsistent with the whole purpose of the introduction of single status if the two groups had different contractual entitlements. His constructions of both the individual and the collective documents in the case of the former APT&C staff could be applied equally in their cases. Accordingly he overturned the ET’s decision as regards group 1.

As regards group 2, however, Mitting J reached the opposite conclusion on the basis that the documentation effecting their re-engagement did not refer explicitly to the Booklet: see para. 28 of his judgment. He acknowledged that the result would “lead to an anomaly within the Respondents’ established workforce”; but he said that that was the inevitable result of the different contractual paperwork.

As regards group 3, at para. 30 of his judgment Mitting J held that his conclusion as to group 2 necessarily applied equally to them.

I will not set out the submissions of Mr Laddie and Mr Segal at the start. Instead I will refer to them so far as necessary in my discussion of the issues. Like Mitting J, I will take the three groups of Claimants in turn.

I start with the individual documentation. The foundation of Mr Laddie’s case is that, as noted at para. 24 above, the Core Contract contains no express provision for pay progression. That is true as far as it goes, but the references to salary being in accordance with a “band” and to a “spinal column point” might be thought necessarily to imply a form of pay progression: it is hard to see what their functions would be except as the vehicle for such a system. It is in any event somewhat unrealistic to ignore the context – known or readily knowable by employer and employee alike – that a system involving pay progression had long been in place for the APT&C employees with whose status that of manual employees was to be assimilated. No doubt the employee is not told what the other points in the band identified in his or her contract are, but they would reasonably, and correctly, assume that they were defined somewhere else; and they would also reasonably assume that progression was annual. I therefore think that, read in context, it is possible to imply into the admittedly abbreviated language of clause 8 of the Core Contract a provision that a system involving pay progression would apply; and such a provision, appearing in the primary contractual document, would naturally be understood to be contractual.

However, in the case of the group 1 Claimants it is unnecessary to rely on implication. As the Employment Judge pointed out, the terms in which they accepted option 1 in the response form referred explicitly to the “terms and conditions of employment … outlined in the … associated booklet” (see para. 20 above), and it is accordingly right to consider the rights referred to in the Core Contract as amplified and explained in the Booklet. I agree with both the ET and the EAT that the passages quoted at paras. 28 and 30-32 above would clearly confirm to employees that under the new agreement they would have not simply an expectation but an entitlement to pay progression. Both the general statement in part 1 of section 2 and the particular examples in part 2 state unequivocally that pay “will” increase by one SCP a year until the grade maximum is reached.

Mr Laddie, as I have noted, drew attention to the word “typically” in the passage explaining the concept of “headroom” and submitted that that pointed against the existence of a contractual entitlement. It is not clear what the purpose of including that word was. I accept that in principle one possibility could be that it was intended to mark the fact that progression was a matter of discretion and not of right. Another possibility canvassed in oral argument is that it was intended to acknowledge that progression could be denied as a result of poor performance: however, I think that is unlikely because in that case it should have been used in the other passages too (and there is also an uncertainty as to whether the Council intended to retain the performance qualification – see para. 36 above). A third possibility is that it was intended to reflect the fact that, although some employees would move into a new grade at the top and so would enjoy no headroom, such cases would be unusual; I am inclined to think that this is the most likely explanation, though I accept that the language would in that case be inept. In the end, however, it is unnecessary to get to the bottom of this question. Whatever the explanation for the use of the word, it is in my judgment insufficient to qualify the clear meaning of the remaining passages.

That would be my conclusion on the basis of the Core Contract and the Booklet read in isolation. But it is strongly reinforced by Mitting J’s points (see para. 50 above) (a) that it is highly unlikely that former APT&C employees would understand that they were being asked to give up a contractual right to progression which they had enjoyed previously; and (b), that, given the entire philosophy of single status, it is equally unlikely that any of the parties intended that former manual employees should enjoy lesser rights than their former APT&C colleagues.

The question then is whether the effect of the individual documentation as I would construe it is modified by the terms of the Collective Agreement, and specifically the terms of paragraphs 3 and 5 of the Pay Policy and the accompanying rubric, as set out at paras. 37-39 above. I agree with Mitting J, in respectful disagreement with the Employment Judge, that it is not. Read without any context, I can see how it might seem significant that there is no reference to pay progression in paragraph 3, which is explicitly contractual, while there is such a reference in paragraph 5, which is explicitly non-contractual. However, the context is crucial. It is no more likely than in the case of the individual documentation that the parties to the Collective Agreement should have intended to deprive former APT&C employees of a contractual entitlement which they previously enjoyed, or that a distinction should be made between them and the former manual employees. Viewed in that context, I do not believe that it is necessary to attach significance to the fact that paragraph 3, while setting out the grade structure in detail, does not explicitly mention pay progression. As I have already observed, it is necessarily inherent in the use of a structure where each grade covers several pay points that employees will expect to progress up the grade at regular (in practice annual) intervals: otherwise what would be the point of it ? It is not in the least surprising that it did not occur to the parties that it was necessary to spell that feature out. As for the “non-contractual” paragraph 5.1, although there is indeed explicit reference to progression in the final two sentences, that is only because such reference is necessary for the purpose of the particular problem being addressed, namely what to do about employees who come into the grade part-way through the year. I do not believe that it can reasonably understood as being the primary provision by which the parties intended to confer the right to pay progression generally.

I would add, though this is not essential to my reasoning, that I think it is likely that the exclusion of paragraph 5 from the list of provisions having contractual effect was not because of sub-paragraph 5.1 at all but because of sub-paragraph 5.2: this contains provisions about management discretion in an exceptional situation of a kind which would not normally be regarded as apt for incorporation into individual employees’ contracts. If so the drafting of the rubric may have been over-wide, because it catches paragraph 5.1 as well as paragraph 5.2, but that does not affect the issues in this case.

I have reached that conclusion simply on the basis of the terms of Pay Policy as it stood at the relevant time. However, Mr Laddie sought to rely on the drafting history referred to in paras. 36 and 40 above. He submitted that the (deliberate) transfer of the references to pay progression from paragraph 3 of the 2008 version to paragraph 5 of the 2009 version of the Pay Policy could only be explained by an intention to ensure that they were not incorporated into the individual contracts of employment.

Although, I have said, this material was put before the ET with the agreement of both parties, the Judge expressed some reservations about its admissibility (see para. 18 of the Reasons), because of the well-established rule that evidence about prior negotiations is normally inadmissible as an aid to construction; and I share his misgivings. When the point was put to Mr Laddie he argued that the rule does not apply to the negotiation of collective agreements because they do not in themselves have contractual effect. He referred to the decision of the EAT (Morison J presiding) in Burke v Royal Liverpool University Hospital NHS Trust [1997] ICR 730. I am not persuaded by that point, and certainly I cannot see that it gets any support from Burke. However, we did not hear full argument, and since the admissibility of this material was common ground in the ET I prefer to decide the point on the basis that in any event I do not believe that it assists the Council. The ET found in terms that the differences in question between the 2008 and 2009 versions was “purely for stylistic reasons” (see para. 44 of its Reasons, quoted at para. 40 above). I see no reason to question that conclusion. If there had been a deliberate intention to remove employees’ entitlement to pay progression as between the two drafts I would expect it to have been effected a good deal more explicitly.

As noted at para. 48 above, the ET found that it was very unlikely that the parties would have intended that entitlement to pay progression should differ between the three groups; and that finding is hardly surprising. Likewise, Mitting J acknowledged that it was anomalous that the position as regards contractual entitlement to pay progression should differ as between the employees who chose option 1 and those who chose option 2: see para. 51. However, he believed that he was compelled to reach that result because his decision in favour of group 1 was based squarely on the language of the Booklet, and the form of words signed by employees accepting re-engagement following their dismissal on 31 October 2010 made no reference to it.

I do not accept the premise of that argument. I have set out the words in question at para. 21 above. Mr Laddie, supporting Mitting J’s reasoning, contended that the first sentence contains an explicit repudiation of “the changes outlined in the … booklet” and that it is accordingly legitimate to have regard only to the terms of the “signed contract” referred to in the second sentence, i.e. the Core Contract. In my view that is a mis-reading. What the first sentence does is refuse “to accept the changes” offered under option 1. But that means no more than it says. The employees in question were not, as a matter of principle, prepared positively to agree to a change (see para. 10 above); but it does not follow that they agreed that the terms which would be available to them if they accepted re-engagement following dismissal would be different from those which had been accepted by their colleagues who had taken the more compliant path. On the contrary, the natural expectation, at least absent any indication to the contrary, would be, that, although they had forfeited the cash incentive, if they were re-engaged it would be on the same terms and conditions as their colleagues. I see no significance in the fact that the “offer of re-employment” which they accepted only referred expressly to the Core Contract: they were entitled to read it in the light of the explanations of its effect previously given to them and their colleagues by the Booklet. I have already observed that there is nothing in the Core Contract positively inconsistent with a right to pay progression and indeed that the reference to a “band” and a spinal column would appear clearly to imply it: see para. 54 above.

Employees employed on or after 1 November 2010 received a letter offering them employment which enclosed a contract of employment for signature in the form of the Core Contract. They did not, however, receive a copy of the Booklet, for the obvious reason that single status was now a done deal, and new employees did not have to have it specially explained to them. Mitting J held that that fact meant that those in group 3 could not establish a contractual right to pay progression; and Mr Laddie submitted that he was right.

I do not believe that the fact that the group 3 Claimants never received the Booklet is important. I would refer again to para. 54 above, where I point out that the terms of clause 8 of the Core Contract would appear to imply a system of pay progression. Even if the details of that system cannot be fleshed out by reference to the Booklet, they are supplied by paragraph 3 of the Pay Policy (incorporated in the individual contract via clause 5), albeit without the panoply of user-friendly examples and explanations. I have already held (see para. 58) that the system there described should be construed as providing for a contractual right to pay progression. It is true that some of the factors which I referred to in support of that construction would not directly apply to new employees; but in my view they would reasonably understand that their position in those regards would be the same as that of the existing workforce who belonged the same pay structure.

For those reasons I would hold that the Claimants in all three groups enjoyed, at the point of the implementation of the freeze, a contractual right to pay progression, and accordingly that the withholding of the applicable increments with effect from 1 April 2011 was a breach of contract.

I should tie up one loose end. Mr Laddie pointed to findings made by the ET at paras. 27 and 28 of its Reasons that there was some uncertainty as to the scope of the right under the Purple Book to withhold annual increments on grounds of “unsatisfactory service”: different local authorities appear to have adopted different approaches. But if, as is not disputed, the right to pay progression was contractual, an uncertainty of that kind is irrelevant for our purpose: it would simply have to be resolved if a dispute about it ever rose. In fact, as the ET found, the Council had never in the past withheld increments on this basis and it was in practice a dead letter; and it may well be that the condition was tacitly dispensed with under the single status contracts, since it is not referred to in either the individual documentation or the Collective Agreement. (Indeed reference to it was found by the ET to have been deliberately removed between the 2008 and 2009 versions of the Pay Policy: see para. 36 above.) But this is not something which we are required to decide.

VARIATION

The facts relevant to this issue were found by the ET at para. 70 of its Reasons, and I think it best to set them out in full:

“70.1

On 10 December 2010, the respondent informed the unions at a meeting that it was proposing to save money by, amongst other things, a 2 year incremental pay freeze.

70.2

The Unions strenuously opposed the proposals, including the incremental pay freeze. Amongst other things, the Unions threatened industrial action and at a meeting on 4 February 2011, Mrs Sanna [representing UNISON] stated something along these lines: that UNISON would ‘oppose’ the proposed pay freeze ‘at every arena at every level’.

70.3

The respondent repeatedly asserted that the alternative to its proposals was a large number of additional compulsory redundancies.

70.4

ACOS decided at a meeting on 8 March 2011 to go ahead and implement the pay freeze with effect from 1 April 2011.

70.5

The Unions, in or around early April 2011, consulted their members about taking industrial action and although those who turned out were overwhelmingly supportive, an insufficiently high percentage of the total membership turned out for the consultative ballot to justify a full formal ballot. The result of UNISON’s consultative ballot was publicised in a document dated 13 April 2011.

70.6

There is evidence of only two relevant communications directly between the parties in the immediate aftermath of the implementation of the pay freeze. The first was at a ‘Budget Consultation’ meeting on 15 April 2011. There was some discussion of the GMB’s consultative ballot and of the fact that those who had voted had voted in favour of industrial action by a ratio of 6 to 1 and that ‘although the national issue on pensions was included in the ballot, the majority of members were concerned about the local changes to terms and conditions.’ The second was at a similar meeting on 27 May 2011. A representative of Unite, Oz Taylor, said something along these lines: ‘colleagues have lost trust in the City Council … Members felt they had signed a legal agreement with the City Council in relation to Single Status, and the incremental pay freeze was in breach of that agreement’.

70.7

Not a single employee raised a grievance about the initial two year pay freeze, whether individually or collectively with others. The unions did not raise a formal dispute with the respondent either, neither was there any kind of formal or informal industrial action. No letters were written after the ACOS decision of 8 March 2011 by or on behalf of affected employees to the effect that they did not accept the pay freeze and/or were working under protest or anything of that kind. Equally, nothing was said or written by or on behalf of employees to the effect that they did accept it.

70.8

Between 27 May 2011 and 2013, there was, on the evidence, no further complaint by the Unions, even an informal one, about the initial incremental pay freeze. In December 2012, the Unions complained at Budget Consultation meetings about a proposal to extend the incremental pay freeze for a further year, but not about the original two year incremental pay freeze. The first post-May 2011 Union complaint about that original incremental pay freeze was in or around April 2013.”

The findings at paras. 70.7 and 70.8 are crucial to the arguments before us.

It was the Council’s case in the ET that, on those facts, by their conduct in continuing to work without protest after 1 April 2011 the Claimants must be taken to have agreed to a variation of their contracts of employment to the effect that “there would be no right to incremental pay rises between 1 April 2011 and 31 March 2013”. Although there had initially been some confusion about how the case was put, Mr Laddie explicitly disavowed any case based on waiver or estoppel: it was variation or nothing (Reasons para. 129). (As already noted, the Council accepted that no equivalent argument could be run in relation to the further freeze implemented in 2013.) That remained the Council’s case before us.

There are a small number of authorities in which the Courts or the EAT have had to consider whether employees have become disentitled to enforce the terms of a contract of employment because they have failed to object to a purported variation. None is quite on all fours with the facts of the present case, but I should nevertheless review them in order to identify the underlying principles.

In Rigby v Ferodo Ltd [1988] ICR 29 the defendant employers sought to agree a 5% pay cut with the trade union representing their workforce. Agreement did not prove possible, and eventually they imposed the cut unilaterally. Having canvassed the opinion of its members about industrial action the union notified the employers that it would not be calling such action, but it pursued an attempt through ACAS to achieve the restoration of the previous rate. In the meantime the employees continued to work, without making any individual protest. When conciliation failed, about five months after the cut was imposed one of the affected employees brought proceedings, with the union’s support, for the arrears (Footnote: ⁵).

At first instance Ognall J gave judgment for the employee. His judgment is not reported, but it appears from the subsequent decisions of this Court and the House of Lords that the employers’ principal defence was that the employee had agreed to a variation of his contract, either as a result of things said or done by the union by which he was bound or by his own conduct, which appears to have been simply his conduct in continuing to work: see the speech of Lord Oliver in the House of Lords (p. 32 G-H). That argument was rejected by Ognall J and was not pursued on appeal: see in particular May LJ’s judgment in this Court ([1987] ICR 457) at p. 462 C-D. Instead, the employers relied on arguments, slightly differently formulated in this Court and in the House of Lords, on the basis that the imposition of the pay-cut had unilaterally terminated the employment and that the employee’s only entitlement was to damages for wrongful dismissal limited to the notice period.

That argument was unsuccessful at both levels. In his speech in the House of Lords, with which the other members of the appellate committee agreed, Lord Oliver said, at p. 35 C-G:

“My Lords, the one thing that is clear in this case is that the appellant had no intention whatever of terminating the contracts of employment with its workforce except by compelling the acceptance of new contractual terms which Mr. Rigby and his fellow [union] members were, as they made it quite clear, unwilling to accept and which they never did accept. Faced with that situation the appellant could have chosen to terminate their contracts on proper notice. It chose not to do so. It could have dismissed them out of hand and faced the consequences. It chose not to do so. It continued to employ them, week by week, under contracts which entitled them to a certain level of wages but withheld from them a part of that entitlement. I can, in those circumstances, see no answer at all to Mr Rigby's claim and the trial judge and the Court of Appeal were, in my judgment, plainly right in the conclusions at which they arrived.

It has been submitted that there was some sort of implied acceptance on the part of Mr Rigby of the appellant's repudiation by working on. At the trial this was put on the basis of estoppel, waiver and acquiescence. All three were rejected by the trial judge and, in my judgment, he was, on the facts which he found, quite plainly right to reject them. I can, for my part, see no other basis upon which it can be argued that the continued working by Mr Rigby and his acceptance for the time being and under protest of the wage that the appellant, with full knowledge of his lack of agreement, chose to pay him is to be construed as an acceptance by him either of the repudiation by the appellant of the original continuing contract or of the new terms which the appellant was seeking to impose [emphasis supplied].”

The situation in Rigby v Ferodo is at first sight very like that in the present case. It is true that the basis in law of the employers’ defence as advanced in this Court and the House of Lords was not the same as that advanced by the Council before us; but it did nevertheless depend on the proposition that the employee’s conduct in continuing to work following the pay-cut constituted an “acceptance”, albeit of the supposed repudiation rather than of a supposed variation. That argument was rejected in the passage which I have quoted, in terms which explicitly apply not only to the case as advanced on appeal but also to the case advanced at first instance – see the final sentence, and specifically the final words which I have italicised. However, Mr Laddie emphasised that it was an express part of Lord Oliver’s reasons for rejecting that argument that the employee had continued to work for the reduced wage only “under protest”. It does not seem that the protest referred to was any individual protest lodged by him – rather, it consisted in things said and done by the union at the collective level; but it is clear that, unlike in the present case, the union had continued actively to oppose the cut, through the ACAS machinery, up to the date of the issue of proceedings.

In Jones v Associated Tunnelling Co Ltd [1981] IRLR 477 the employers asserted in the statutory statement of terms that the contract contained a mobility clause in wider terms than the employee considered to be the case. One of the arguments which they raised was that the employee had continued to work with knowledge that this was the term being asserted and that therefore he must have been taken to have accepted it. The EAT rejected that argument. At para. 22 of his judgment Browne-Wilkinson J said:

“In our view, to imply an agreement to vary or to raise an estoppel against the employee on the grounds that he has not objected to a false record by the employers of the terms actually agreed is a course which should be adopted with great caution. If the variation relates to a matter which has immediate practical application (e.g. the rate of pay) and the employee continues to work without objection after effect had been given to the variation (e.g. his pay packet has been reduced) then obviously he may well be taken to have impliedly agreed. But where, as in the present case, the variation has no immediate practical effect the position is not the same. It is the view of both members of this Tribunal with experience in industrial relations (with which the Chairman, without such experience, agrees) that it is asking too much of the ordinary employee to require him either to object to an erroneous statement of his terms of employment having no immediate practical impact on him or be taken to have assented to the variation. So to hold would involve an unrealistic view of the inclination and ability of the ordinary employee to read and fully understand such statements.”

The significance of that passage for our purposes is Browne-Wilkinson J’s acknowledgment that an employee who continues to work, without objection, after a reduction in his pay may well be taken to have impliedly agreed to a variation of the contract, on the basis that the change is one which has “immediate practical application”.

In Solectron Scotland Ltd v Roper [2003] UKEAT 0305/03/3107, [2004] IRLR 4, a group of BT employees had enjoyed a contractual right to redundancy payments over and above the statutory entitlement. In several redundancy exercises over a period of years those rights were not accorded to the redundant employees by new employers to whom the relevant business had transferred under TUPE. The issue in the EAT was whether as a result of that history the original rights had been lost. An argument on behalf of the employers on the basis of “custom and practice” was rejected, but they also contended that by continuing to work notwithstanding the failure to implement the old redundancy terms on several occasions the employees must be taken to have agreed that their contracts of employment should be varied so as to remove the entitlement to them. Elias J addressed that argument as follows:

“29.

There seem to us to be two fundamental difficulties with this. First, the redundancy terms were never in fact offered as new established redundancy terms in substitution for any former rights. Rather, as we have indicated, they were specific terms which were offered in relation to particular redundancy exercises. They would only bite if and when an employee accepted those terms and was made redundant accordingly. Second (and perhaps more significantly) an employee cannot be taken to have consented to a variation in the contract simply by continuing to work in such circumstances as arose here.

30.

The fundamental question is this: is the employee's conduct, by continuing to work, only referable to his having accepted the new terms imposed by the employer? That may sometimes be the case. For example, if an employer varies the contractual terms by, for example, changing the wage or perhaps altering job duties and the employees go along with that without protest, then in those circumstances it may be possible to infer that they have by their conduct after a period of time accepted the change in terms and conditions. If they reject the change they must either refuse to implement it or make it plain that by acceding to it, they are doing so without prejudice to their contractual rights. But sometimes the alleged variation does not require any response from the employee at all. In such a case if the employee does nothing, his conduct is entirely consistent with the original contract containing; it is not only referable to his having accepted the new terms. Accordingly, he cannot be taken to have accepted the variation by conduct.

31.

So, where the employer purports unilaterally to change terms of the contract which do not immediately impinge on the employee at all – and changes in redundancy terms will be an example because they do not impinge until an employee is in fact made redundant – then the fact that the employee continues to work knowing that the employer is asserting that that is the term for compensation on redundancies, does not mean that the employee can be taken to have accepted that variation in the contract.

At para. 32 he quoted the passage from Jones which I have set out above. At paras. 33-34 he applies those principles to the facts of the case and rejects the employers’ argument.

It will be noted that at para. 30 Elias J, like Browne-Wilkinson J in Jones, contrasts the case before him with one where an employer “varies the contractual terms by … changing the wage”, observing that in such a case, if the employees continue to work without making it clear that they are doing so without prejudice to their contractual rights, “it may be possible to infer that they have by their conduct after a period of time accepted the change in terms and conditions”. The overall effect of the passage is in line with Jones but more fully spelt out.

In Khatri v Cooperative Centrale Raiffeisen-Boerenleenbank BA, to which I have already referred in another context (see para. 50 above), the employee was sent a letter by his employers setting out changes to his terms and conditions of employment as regards bonus entitlement and restrictive covenants: the terms had not been the subject of prior agreement or discussion. He was invited to sign a copy of the letter to signify his acceptance. He did not expressly object at the time; but nor did he sign the letter, and he was not pressed to do so. He continued working as before: the relevant changes did not have an immediate impact, since bonus was only payable at the end of the year and the restrictive covenants would only bite on termination. However, some three months later, having received notice of potential redundancy, he stated explicitly that he was not accepting the new terms. He was given notice of dismissal shortly afterwards, but he remained in employment till the end of the year, at which point he claimed for payment of the bonus that would have been due under the old terms.

The employee’s claim for summary judgment was dismissed in the High Court but allowed on appeal to this Court, which held, inter alia, that on the undisputed facts he had not accepted the variation proposed in the employers’ letter. Jacob LJ, with whom the other members of the Court agreed, said, at paras. 44-49 (p. 720):

“44.

Mr Goudie [counsel for the claimant] submits, correctly in my view, that none of the acts of either party unequivocally show acceptance by the claimant of the new terms. In reality he carried on doing the old job for the same pay. The only difference was in reporting to a different superior. That is a trivial difference and miles away from a clear unequivocal act from which one can infer that the claimant was accepting the new terms.

45.

Particularly striking is the fact that the claimant did not use the method of acceptance of the new terms specifically called for in the ‘offer’ letter, namely by signing it. He had done that in relation to the March letter. That reinforces the inference that he had not accepted the new terms on this occasion. Further reinforcement is provided by the fact that the bank did not require him to sign or even query with him why he had not signed.

46.

It should be remembered here that not only did the new terms purport to remove the bonus entitlement, they also sought to impose restrictive covenants. Acceptance of the terms would make the claimant worse off. So why should his conduct in continuing just as if nothing had changed spell out acceptance of this offer?

47.

We asked Mr Craig [counsel for the employer] when it could be said that the offer was accepted. Was it on the day after the offer when the claimant came into and was allowed to work? Was it when he accepted his first pay after the offer? Or when? Mr Craig could not really say, other than that the acceptance must have happened by October. That overlooks why he could not really say. It is because there is no unequivocal act implying acceptance.

48.

The law in such a case is reasonably clear. Perhaps the leading authority is Rigby v Ferodo [1988] ICR 29. [Jacob LJ quoted the final sentence of the passage from the speech of Lord Oliver in Rigby set out at para. 73 above.]

49.

Mr Craig submitted that this case is different because there was no protest. However there was a failure to accept the terms as specifically asked for by the employer. Why should anyone construe the fact of continued working as an acceptance of those terms?”

At para. 50 Jacob LJ set out paras. 30-32 of Elias J’s judgment in Solectron, observing that it was “a case rather weaker than the present” because there was no failure by the employee to respond to a specific request for acceptance. He concluded, at para. 51 (p. 721):

“Applying Elias J's ‘only referable’ test to the present case, it seems clear to me that it would be quite wrong to infer from all the circumstances that the claimant had accepted changes to his contract, changes which were wholly to his disadvantage both by removing his right to performance related bonus and imposing restrictive covenants. There is no substance in the variation point.”

The factual situation in Khatri is distinguishable from that before us, both because the employee had been asked to sign a letter containing the new terms to signify his acceptance but had not done so and also because the changes in question did not bite immediately in the way that a pay cut does. But it is significant because it endorses Elias J’s statement in Solectron that the conduct relied on must be “only referable” to the employee having accepted the proposed variation; and also because it applies the observations of Lord Oliver in Rigby v Ferodo.

I should mention for completeness the decision of the EAT (HH Judge Peter Clark and members) in Cartwright v Tetrad Ltd [2015] UKEAT 0262/14/1501. The employer had imposed a 5% pay cut on the workforce. A period of five months elapsed between the first deduction and any objection being raised. The ET, directing itself by reference to Solectron, found that by continuing to work during that period the employees had impliedly accepted a variation in their contractual pay. The EAT dismissed the employees’ appeal, but the reasoning is so brief that nothing useful can be learnt from it.

Mr Segal in his oral submissions submitted that the principled position was that where an employer seeks to vary the contract of employment to the employee’s disadvantage, more particularly by reducing the remuneration (for short, “a contractual pay-cut”), the employee can never be held to have accepted the variation simply because they have continued to work without protest. Their doing so would not be, in Elias J’s language, “only referable” to their accepting the variation: they might be simply unwilling – perfectly understandably – to risk the consequences of stopping work. He referred us to para. 4-092 of Chitty on Contracts (32^nd ed), which reads (omitting some particular examples):

“Although a promise or representation may be made by conduct, mere inactivity will not normally suffice for the present purpose since ‘it is difficult to imagine how silence and inaction can be anything but equivocal.’ Unless the law took this view, mere failure to assert a contractual right could lead to its loss; and the courts have on a number of occasions rejected this clearly undesirable conclusion. … The only circumstances in which mere ‘silence and inaction’ can have this effect are the exceptional ones (discussed elsewhere in this book) in which the law imposes a duty to disclose facts or to clarify a legal relationship and the party under the duty fails to perform it.”

Mr Segal acknowledged that that passage was not directly concerned with consensual variation of a contract (which is dealt with in chapter 22 of Chitty – see section 5) but with the principle in Hughes v Metropolitan Railway (1877) 2 App Cas 439 (sometimes, though the terminology is contentious, referred to as promissory estoppel or equitable waiver) (Footnote: ⁶). He submitted that in fact the Council’s defence ought, despite Mr Laddie’s disavowals, properly to be characterised as one of waiver or estoppel; but he said that the point was not important because the applicable principle was the same: a party should not be bound by his mere inaction in circumstances where there was no duty on him to act.

There is a purist attraction to that approach: it is instinctively unappealing to say that employees have lost their rights in the face of a contractual breach simply by doing nothing. It also has the merit of putting the onus on the employer, as the party seeking to change the contract to his benefit, to take positive steps to achieve the change, if necessary by taking the dismissal-and-re-engagement route. The Claimants might also find some support in para. 46 of Jacob LJ’s judgment in Khatri: see para. 80 above.

However, to take the position that to continue to work following a contractual pay-cut could never constitute acceptance would be contrary to the dicta of both Browne-Wilkinson J in Jones and Elias J in Solectron, in an area where the specialist expertise of the EAT must be accorded particular respect (Footnote: ⁷); and I do not believe that it would be right in principle. A contractual offer can of course be accepted by conduct, and that must include the offer of a variation. Under a contract of employment the parties are in a complex relationship in which they are both required to perform their mutual obligations on a continuous basis, and those obligations are frequently modified by their conduct towards each other. I can see no reason why an employee’s conduct in continuing to perform the contract, in circumstances where the employer has made clear that he wishes to modify it, may not – in principle – be reasonably understood as indicating acceptance of the change. As for Khatri, the general language of para. 46 of Jacob LJ’s judgment must be read in the context of his overall reasoning. He did not rely on the simple proposition that silence can never indicate consent: rather, he went on to give particular reasons why it was not proper in the circumstances of that case to infer the employee’s acceptance of the new terms which the employers sought to impose – namely that those terms had not yet bitten, and also that the employers had expressly sought the employee’s acceptance in writing but he had not given it.

However, to say that in some circumstances continuing to work following a contractual pay-cut may be treated as acceptance does not mean that it will always do so. On the contrary, what inferences can be drawn must depend on the particular circumstances of the case. Neither Browne-Wilkinson J in Jones nor Elias J in Solectron went further than saying that continuing to work following a contractual pay-cut might constitute acceptance: the language used was “may well be taken to have … agreed” and “it may be possible to infer”. The authorities illustrate some specific points about the proper approach to the question of when continuing to work may constitute acceptance. I briefly identify them as follows.

First and foremost, the inference must arise unequivocally. If the conduct of the employee in continuing to work is reasonably capable of a different explanation it cannot be treated as constituting acceptance of the new terms: that is why Elias J in Solectron used the phrase “only referable to”. That is simply an application of ordinary principles of the law of contract (and also of waiver/estoppel). It is not right to infer that an employee has agreed to a significant diminution in his or her rights unless their conduct, viewed objectively, clearly evinces an intention to do so. To put it another way, the employees should have the benefit of any (reasonable) doubt.

Secondly, protest or objection at the collective level may be sufficient to negative any inference that by continuing to work individual employees are accepting a reduction in their contractual entitlement to pay, even if they themselves say nothing. This is clear from Rigby v Ferodo: see para. 74 above.

Thirdly, Elias J’s use in para. 30 of his judgment in Solectron of the phrase “after a period of time” raises a point of some difficulty. It is easy to see how it may not, depending on the circumstances of the particular case, be right to infer acceptance of a contractual pay-cut as from the day that it is first implemented: the employee may be simply taking time to think. Elias J’s formulation is intended to recognise that a time may come when that ceases to be a reasonable explanation. However, it may be difficult to identify precisely when that point has been reached on anything other than a fairly arbitrary basis. In Khatri Jacob LJ discomforted counsel for the employers by making that very point: see para. 47 of his judgment. But, again, that passage needs to be read in the context of the fact that in that case the variation had not yet bitten, and I do not think that the difficulty in identifying the precise moment at which an employee should be treated as first accepting a contractual pay-cut means that the question has to be answered once and for all at the point of implementation.

Because of his finding on the prior issue the Employment Judge did not need to deal with the issue of variation; but, sensibly, he did so in case the matter went further. He held that if the Claimants, or any of them, had enjoyed a contractual right to pay progression they could not be said to have agreed to a variation. His reasoning can be summarised as follows.

At paras. 130-132 of the Reasons he stated what he took to be the effect of para. 30 of Elias J’s judgment in Solectron. He said that he did not understand it to enunciate a rule that an employee who continues to work, without explicit protest, following an immediately effective contractual breach will always be taken to have accepted a variation of his contract. The question was whether in the particular circumstances of the case his doing so constituted an unequivocal acceptance of the varied terms. That self-direction is in accordance with my own view of the applicable principles as discussed above.

At paras. 134-135 he addressed an argument by Mr Laddie to the effect that the employees went along with the pay freeze because they were afraid of losing their jobs if it was not implemented and that they only eventually protested in 2013 when a further freeze was imposed. As to that, he said, at para. 134:

“Even if I accepted that as entirely correct in relation to every relevant claimant - and I don't (although I do accept it as, probably, broadly accurate in relation to most relevant claimants) - it would not, in my view, make good the respondent’s defence based on contractual variation.”

At para. 135 he said that it simply did not follow from the fact that an employee’s inaction had been motivated by fear of the consequences of action that he or she agreed to their contract being varied. In particular, he said:

“135.1

An employee’s failure to complain about a breach of contract that is referable to his fear of losing his job if he does so is manifestly not only referable to his having accepted the new terms imposed by the employer.

135.2

There are many reasons why someone might decide not to pursue a breach of contract claim and there is no basis for assuming, just because the breach arises in the employment context, that the only reason is agreement to a contractual variation and consequent acceptance that there has, in fact, been no breach of contract.”

At para. 136 he pointed out that there had initially, both before and after implementation, been vehement protests by the unions: he referred in particular to Mr Taylor’s statement at the meeting of 27 May 2011 – see para. 68 above (quoting para. 70.6 of the Reasons). He continued:

“I see no logical basis for concluding that that unequivocal ‘no’ was transformed into an unequivocal ‘yes’ simply by silence over a period of time. The respondent might very well reasonably have assumed from the unions’ and the claimants’ silence on the point after May 2011 that they probably weren't, despite their threats, going to do anything about the incremental pay freeze, such as bring a claim about it. That is not, though, the same as agreeing to it. Resigned acceptance to the fact that one's employer has decided to freeze one’s pay in breach of contract is not the same as agreement to the pay freeze …”.

At para. 137 he rejected an argument on the part of Mr Laddie that the contrast between the unions’ initial vehemence and their subsequent silence positively reinforced the inference that the employees had accepted the variation of their contracts.

Finally, at para. 139 he pointed out that the Council’s position had consistently been that there was no contractual right to pay and accordingly that the imposition of the freeze involved no variation of the contract. He asked the rhetorical question “how can the respondent be said to have proposed … the contracts of employment being varied when it has all times maintained no contractual rights were involved ?”. He observed that it would have been open to the Council to assert its contractual right to withhold pay progression but make it clear that if it was wrong about that it wished to vary the contract to the same effect.

He concluded, at para. 140:

“In short, I don't accept that anything the unions or the claimants did or said, or failed to do or say, even suggested that they agreed to a variation of their contracts to the effect that their [supposed] (Footnote: ⁸) right to incremental pay rises would be suspended for two years, let alone constituted a clear and unequivocal indication of their agreement to it. The only thing that was possibly implicit in the claimants’ and the unions’ silence and inaction – and I would not class even this implication as clear and unequivocal – was that they decided they wouldn't actively oppose it or bring a claim about it, given the apparent lack of enthusiasm for industrial action.”

The variation issue was of course live in the EAT because of Mitting J’s decision that the group 1 Claimants enjoyed a contractual right to pay progression. He did not, however, deal with it in detail, saying only that he endorsed the Employment Judge’s reasoning and conclusion. (He did make one additional point, at para. 34, based on the decision of the Supreme Court in Société Générale v Geys [2012] UKSC 63, [2013] 1 AC 523; but it was common ground before us that that did not advance the argument.)

Mr Laddie advanced three challenges to the Employment Judge’s reasoning and conclusion. I will take them in turn, though in a different order from how he developed them.

First, he submitted that the Judge was wrong to reject his submission that it followed from the fact (which the Judge accepted, at least “broadly”, at para. 134) that the Claimants’ silence/inaction was due to the fear of redundancy that they must be taken to have agreed to a contractual variation: see para. 91 above. In particular, he challenged the reasoning in sub-paras. 135.1 and 135.2. I do not accept that submission. In the first place, I do not accept that the Claimants’ motivation is directly relevant: as in any issue about the formation of a contract, which includes its variation, what matters is the objective phenomena. I would accept, however, that it was part of the relevant context, in deciding what inferences could be drawn, that the Council had made it clear that the alternative to a freeze was mass redundancies. But the submission that the Judge was rejecting was that that was a decisive factor in itself. I agree that it was not.

Secondly, Mr Laddie submitted that the Judge had been wrong to attach significance to the fact that the Council’s position had always been that the Claimants had no contractual right to pay progression: see para. 93 above. I do not agree. On the contrary, I share the Judge’s view that the point is significant. In deciding how to interpret the employee’s conduct it must in principle be relevant how unequivocal is the offer to which he is said to be responding.

That brings me to Mr Laddie’s third submission, which was simply that the Judge’s decision was perverse; and this was in truth, as he acknowledged, the heart of his case. He submitted that the only reasonable construction to put on the employees’ conduct in continuing to work was that they had accepted the contractual pay-cut. It had been strongly resisted by the unions prior to implementation but there had been insufficient support for industrial action and there had thereafter been no significant continuing objection. The two post-implementation communications referred to by the Judge at para. 70.6 of the Reasons went no further than to say that the unions and/or their members were unhappy with the way that they had been treated. The machinery existed for the matter to be taken further, even without industrial action, as it was in 2013 (and as occurred in Rigby v Ferodo); but it was not used. It would also have been straightforward for the Claimants, no doubt with union advice, to write individually to make clear that they were continuing to work without prejudice to their existing contractual rights; but that was not done.

That is a powerful submission, and I have not found this part of the appeal entirely easy. It is a great pity that neither the unions nor their members stated unequivocally at the moment of implementation that they did not accept the proposed cut and that their continuing to work was without prejudice to that position. In the end, however, I believe that the Judge’s decision was one to which he was entitled to come. There are three points that seem to me particularly important.

First, the proposed variation was wholly disadvantageous to the employees. Sometimes pay-cuts are proposed as part of a package of measures some of which are (at least arguably) to the employees’ benefit. If the employees continue to work without protest following implementation, taking the good parts as well as the bad, it is usually easy to infer that they have accepted the package in its entirety. But where that is not the case it is more difficult to say that they are not simply putting up with a breach of contract because they are not prepared to take positive steps to remedy it, whether by taking industrial action or by bringing proceedings. Mr Laddie would say that this was, in substance, a package case because the employees were relieved of the risk of redundancy. But that is not the same: the Council was not asked to, and did not, make any contractual promise not to make redundancies.

Secondly, the matter was not, on the ET’s findings, put to the employees as something on which their agreement was required. Indeed, given that pay was negotiated collectively, it was not something on which employees would normally be expected to take individual decisions: although that route had had to be resorted to for the introduction of single status it was wholly exceptional. No doubt when the freeze was first proposed the Council tried to get the unions’ consent; but when that was not forthcoming it was imposed unilaterally, and the Council’s position was that it was contractually entitled to take that course. That is in my view important: see para. 99 above. Although I have been critical of the unions for not stating their position explicitly, or encouraging their members to do so, the same criticism can be advanced of the Council. It would have been open to it to tell the employees in terms that if they continued to work after 1 April 2011 they would be taken to have agreed to the proposed freeze (without prejudice to whether their agreement was legally required): I do not say that continuing to work in the face of a unilateral ultimatum of that kind would automatically have constituted acceptance, but it would have made the Council’s position clear and made the argument for an acceptance by conduct much stronger. There was equivocality on both sides.

Thirdly, there was strenuous protest on the part of the unions not only up to but beyond the date of the implementation of the freeze on 1 April 2011: see para. 70.2 of the ET’s Reasons. At that date they were in the course, or on the cusp, of consulting their members about the possibility of industrial action, and the results of that consultation did not become known until about the middle of the month: see paras. 70.5 and 70.6. Mr Laddie confirmed in his oral submissions that it was his case that the variation took effect from the first pay-day after 1 April 2011: I did not understand him to rule out the possibility that it took effect at some later date, but he did not propose any such alternative or advance any argument about how it might be identified. We do not know precisely when during the month the pay-day fell; but even assuming in the Council’s favour that it was at the end of the month, after the results of the ballot were known, I find it hard to see how the Claimants’ continuing to work as from that date could be taken as an unequivocal acceptance of a variation which might have been the subject of industrial action until days before. A decision not to take industrial action is not the same as a decision to accept a variation (as is illustrated by the facts of Rigby v Ferodo – see para. 71 above), and there is no suggestion that the unions made it clear that they would take no further steps, still less that they would now reluctantly agree to the freeze – indeed the two statements recorded at para. 70.6 of the Reasons, general though their terms may be, are inconsistent with any such volte-face. I do not believe that the failure of the unions to take further steps thereafter, or of the Claimants to voice any explicit protest, compel the conclusion that their position changed; and, as I have mentioned, Mr Laddie did not advance a positive case for a half-way house date.

I would dismiss the appeal as regards the group 1 Claimants and allow the cross-appeals of the group 2 and 3 Claimants. The result is that all of them are entitled to arrears of pay equivalent to what they would have earned if pay progression had been operated in each of the years in which it was frozen.

I agree that the appeal should be dismissed and the cross-appeals allowed, for the reasons given by Underhill LJ. However, I would like to add some observations on the question of variation which, like Underhill LJ, I have not found entirely easy to resolve.

In practice employees will often agree to a variation by conduct. This will readily be inferred, for example, where the change is to the employee’s benefit, such as where he is given a pay increase.  Unless the contract is wholly exceptional, he will not have expressly to confirm acceptance before the increase takes effect: see Attrill v Dresdner Kleinwort Ltd [2013] EWCA Civ 394, [2013] IRLR 548, paras. 97-98.  Similarly, if he is promoted, is given a new contract and acts in accordance with its terms, he will be deemed to have accepted the whole of the terms, and that is so even though the new contract may contain certain disadvantageous provisions and even though they do not immediately bite: see FH Farnsworth Ltd. v Lacy [2012] EWCA 2830 (Ch), [2013] IRLR 198, where an employee was treated as having agreed to the imposition of a restrictive covenant on this basis.

The difficulty arises where the variation is to the employee’s disadvantage, as in this case, and there is either no compensating advantage, or it is being imposed to avoid a potentially worse disadvantage, such as being made redundant.  The Employment Judge seems to have taken the view that a failure to complain which was referable to a fear of redundancy could never constitute a variation of the contract. He said this (para. 135.1):

I think there is force in Mr Laddie’s criticism of this paragraph. I do not see why in an appropriate case the employee should not be taken to have accepted the variation in order to avoid the risk of redundancy.  If the fear of redundancy can only be avoided by accepting the new terms, it is wholly artificial to treat these as separate and distinct reasons for failing to complain.  

It may be said that the employee should never be held to have accepted a variation simply by working without protest under the new terms without more. After all, a party can bring a claim for breach of contract within the limitation period without having to notify the other party that he objects to the breach, and why should this be different?  I think that the answer lies in the fact that the employment relationship is typically a continuing relationship based on good faith, and exceptionally in that context it might be appropriate to infer that a failure to complain about a proposed variation of the contract for the future may be taken as agreement to that variation which prevents it constituting a breach. It might also be said that an employer can always put the position beyond doubt by lawfully terminating the contract on notice and introducing the varied contract which includes the new disadvantageous term or terms.  No doubt the employer’s reluctance to do that is in part motivated by a desire to avoid potential unfair dismissal claims. But there are also less selfish reasons. In the context of a continuing relationship based on good faith, dismissing and re-employing might appear to be an unnecessarily hostile stance, only to be adopted as a last resort. Attempts to secure agreement should not be discouraged and exceptionally the circumstances may justify the inference that the employee has agreed to the new terms even where he has been reluctant to do so formally.

Mr Laddie put forward some powerful reasons why the Employment Judge ought to have found that there was acceptance of the pay variation here, in particular the lengthy period of almost two years without complaint when no pay increments were given. However, I agree with Underhill LJ that the judge was entitled to take the view he did. There was initially objection to the change and thereafter, once the decision not to take industrial action had been taken, neither the unions, the employees nor the employer clarified their position.  It could not in these circumstances be said that the employees had unequivocally by their conduct shifted their position and accepted the change in terms.

I agree with both judgments.