The Court of Appeal has recently held that, where a contract of employment provides for an employee to receive payments such as overtime pay or a shift allowance but does not specify the amount of such payments, it will be implied that a reasonable sum will be paid. In the case of Driver v Air India Limited Mr Driver was employed by Air India as Manager of Catering Services at Heathrow Airport. His contract of employment provided that “provisions regarding shift work, payment for shift work, overtime working and payments for overtime working are set out in notices and circulars issued by Air India from time to time. Copies of current notices and circulars are available for inspection upon request to your Section Head.” However, no such notices or circulars existed. Mr Driver’s contract also stated that he would be required to work overtime on both an ad hoc and rostered basis from time to time.

Mr Driver received overtime payments until 31 December 2001 and shift payments until December 2002. After this time all payments ceased and no explanation was provided to Mr Driver for this. After receiving several grievances from Mr Driver between 2002 and 2005, Air India Limited accepted in January 2006 that Mr Driver was entitled to overtime and shift payments. However, for reasons which were never fully explained to the Court, Air India Limited continued to not make such payments and Mr Driver therefore brought a claim.

At first instance, the Judge found that Mr Driver’s contract of employment did not give Mr Driver any entitlement to overtime or shift payments on the basis that the specific provisions relating to such matters were said to be contained in notices and circulars which did not exist. The Judge also held that, in any event, Air India would only be liable for overtime payments if it had expressly asked Mr Driver to carry out overtime duties and it appeared that no such request had been made, Mr Driver having made the decision to work overtime himself.

On appeal, the Court of Appeal held that the absence of the notices and circulars referred to in Mr Driver’s contract should not result in Mr Driver losing his entitlement to overtime or shift pay and that instead, where the specific provisions regarding the payments could not be found, the law would instead imply a reasonable sum. The Court of Appeal noted that, whilst a contract is not ordinarily construed by subsequent conduct, the fact that Mr Driver had received overtime payments up until 2001 when they had suddenly stopped without any explanation was highly relevant. The Court of Appeal also disputed the interpretation given to overtime being “required” and found that, as a trusted manager, Mr Driver was in a position to determine when overtime was required. In giving its judgment, the Court of Appeal observed in passing that its decision may have been different had Mr Driver’s contract of employment simply provided that the level of payment was to be agreed.

Employers should be aware that their conduct will be relevant when determining employees’ contractual terms and it will be far more difficult for an employer to demonstrate that an employee has no contractual entitlement in circumstances where it has previously made payments of the kind in dispute.