In Abrahall and others v Nottingham City Council and another  EWCA Civ 796, the Court of Appeal had to decide whether employees who continued to work following a two year pay freeze had agreed to a variation in their terms and conditions.
In March 2011 Nottingham City Council (the Council) and another company owned by the Council proposed a two year pay freeze in 2011 and 2012. The unions did not agree to freeze the incremental pay increases. The Council maintained that the alternative to a pay freeze was compulsory redundancies and the pay freeze was implemented with effect from 1 April 2011.
In 2013 the Council resolved to extend the pay freeze for a further period for some of its workforce and the unions responded by activating a formal collective grievance procedure, which did not resolve the situation.
Several hundred of the affected employees lodged employment tribunal (ET) claims for unlawful deductions on the basis that they had a contractual right to an annual increment in 2011, 2012 and 2013. Six employees were chosen as lead cases representing the three different groups of employees whose circumstances differed in material respects.
Employment tribunal decision
All of the claims were dismissed by the ET after the judge found that none of the employees had a contractual right to an annual pay increase. The claimants appealed.
Employment Appeal Tribunal decision
The Employment Appeal Tribunal (EAT) allowed the appeal in relation to one group of claimants (Group 1) but the appeal was dismissed in relation to the other groups. Nottingham City Council appealed the decision in respect of the Group 1 claimants and the Group 2 and 3 claimants cross-appealed.
Court of Appeal decision
The Court of Appeal dismissed the appeal in respect of the Group 1 claimants and allowed the cross-appeal of the claimants in Groups 2 and 3.
The Court held that the claimants in all three groups had, at the time of implementation of the pay freeze, a contractual right to a progression and withholding the annual increments from April 2011 was a breach of contract. The employees had not implicitly agreed to a variation in their contracts. All of the claimants were entitled to arrears of pay equivalent to what they would have received if pay progression had taken place in each of the years it was frozen.
The Court of Appeal considered the questions of variation and acceptance. Employees often agree to a variation by conduct. In this case however the variation was to the employees' disadvantage. The unions had opposed the pay freeze proposals from the outset but there was no industrial action and none of the individual employees had raised a grievance during the pay freeze. The Council argued that the employees had accepted the contractual variation and had continued to work without raising any objection for two years.
The Court of Appeal considered that the employees should never have been held to have accepted a variation simply because they worked without protest under the new terms. The Court of Appeal questioned why this situation should be any different from a party claiming breach of contract within the limitation period without having to notify the other party that they objected to the breach. The threat of redundancies was also relevant but it was not decisive.
This decision is a reminder that varying terms and conditions is a difficult area and it can be risky to rely on implied acceptance of a change. Employers should take legal advice before implementing any changes to contracts of employment.