• Employees Who Continue To Work Following Pay Freeze Did not Agree to Variation

    In Abrahall and ors v Nottingham City Council and anor, the Court of Appeal has held that a group of employees who continued to work following their employer’s imposition of a pay freeze did not thereby agree to a variation of contract. Although the employees did not bring tribunal claims until two years later, they had protested through their trade unions at the time of the breach, and their continuing to work could not be taken as unequivocal acceptance of a change that was wholly to their disadvantage.

    In March 2011, the Council decided to impose a two-year pay freeze, meaning that the usual incremental pay progression was suspended. The trade unions strenuously opposed this proposal, threatening industrial action. The Council repeatedly asserted that the alternative was a large number of additional compulsory redundancies. When the freeze was implemented in April 2011, the unions consulted their members about taking industrial action and, although those who turned out were overwhelmingly supportive, turnout was not high enough to justify a formal ballot. The union communicated its opposition to the pay freeze at meetings in April and May but raised no formal dispute and no employee raised a grievance. When the Council decided to impose a similar freeze in April 2013, several hundred affected employees brought claims for unlawful deductions on the basis that they had a contractual entitlement to incremental pay increases.

    An employment judge dismissed the claims in their entirety. The contractual position was complicated by the fact that different groups of employees had joined the Council at different times, and were subject to conflicting terms and conditions and collective agreements. The employment judge therefore had to consider the position of three distinct groups of employees. However, he concluded that none of the employees had a contractual right to annual pay progression. Although that sufficed to dispose of the claim, the employment judge went on to consider whether, if the employees were contractually entitled to the pay increases, they had implicitly agreed to a variation of contract by continuing to work. He found that they had not. Considering Mr Justice Elias’s judgment in Solectron Scotland Ltd v Roper and ors (Brief 752), the employment judge asked whether, in the particular circumstances of the case, the employees’ continuing to work constituted an unequivocal acceptance of the varied terms. In his view, nothing in the employees’ actions or inactions suggested that they agreed to a two-year suspension of their (supposed) right to incremental pay rises.

    The employees appealed to the EAT, with partial success. The EAT held that one of the groups of employees was contractually entitled to pay increases, and agreed with the employment judge that they had not implicitly agreed to the variation. The claims of that one group therefore succeeded but the claims of the other two groups failed. The Council appealed against the judgment in relation to the successful group and the two other groups cross-appealed. The Court of Appeal dismissed the Council’s appeal and allowed the cross-appeal, holding that all of the claimants were contractually entitled to pay progression. It therefore went on to consider the question of variation and acceptance.

    The Court held that the employees had not implicitly agreed to a variation of contract. Lord Justice Underhill, giving the leading judgment, rejected the claimants’ argument that continuing to work following a contractual pay cut can never constitute acceptance. In his view, such an absolute position would be contrary to the dicta of Elias J in Solectron and Mr Justice Browne-Wilkinson in Jones v Associated Tunnelling Co Ltd 1981 IRLR 477, EAT. However, nor is it the case that continuing to work following a contractual pay-cut will always be treated as acceptance – the question of what inferences can be drawn depends on the particular circumstances of the case. Underhill LJ identified a number of relevant principles. First, the inference must arise unequivocally – if the employee’s conduct in continuing to work is reasonably capable of a different explanation it cannot be treated as constituting acceptance of the new terms. Secondly, protest or objection at the collective level may be sufficient to negative any inference of acceptance. And thirdly, Elias J’s suggestion in Solectron that, after a ‘period of time’, the employee may be taken to have accepted raises the difficulty of identifying precisely when that point has been reached on anything other than a fairly arbitrary basis. However, this difficulty does not mean that the question has to be answered once and for all at the point of implementation.

    Applying these principles to the facts, Underhill LJ rejected the Council’s submission that, since the claimants’ silence/inaction was due to their fear of redundancy, they must be taken to have agreed to a contractual variation. The claimants’ motivation was not directly relevant, since contractual issues depend on objective conduct. The background of threatened redundancies was relevant but the employment judge was entitled to find that it was not decisive. Underhill LJ also rejected the Council’s argument that the employment judge was wrong to attach significance to the fact that its position had always been that the employees had no contractual right to pay progression – the judge was right to find that this was relevant to interpreting the employees’ conduct. As for the Council’s argument that the employment judge’s decision was perverse, Underhill LJ confessed to some difficulty in deciding this point but came to the conclusion that the employment judge had not erred. It was true that the unions had made no significant continuing objection to the pay freeze, and it was a great pity that neither the unions nor their members stated unequivocally at the moment of implementation that they did not accept it and that their continuing to work was without prejudice to that position. However, given that the proposed variation was wholly disadvantageous to the employees and was not put to them as something on which their agreement was required, and given that the unions protested strenuously not only up to but beyond the date of implementation, it was hard to see how the claimants’ continuing to work could be taken as an unequivocal acceptance of a variation that 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 and there was 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.

    Copyright Thomson Reuter IDS Brief

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