In Abrahall & Others v. Nottingham City Council & another, the Court of Appeal was asked to consider the circumstances in which an employee could be deemed to have accepted changes to terms and conditions of employment which had been implemented unilaterally.
The Court of Appeal found that, while in certain cases acceptance could be inferred by conduct, the employee's behaviour would have to be capable of no other reasonable explanation. Acceptance had to be unequivocal and, where there was ambiguity, the employee would be given the benefit of the doubt.
The background to this dispute starts with the Council's attempts to bring manual employees onto the same pay and grading structure as "administrative, professional, technical and clerical" (APTC) employees. The Council reached agreement with two unions, GMB and Unite, on a single status arrangement, whereby employees were assigned to grades, each of which covered a band of points within a "spinal column." Each "spinal column point" (SPC) with the band denoted a particular level of salary. Employees would progress through each SPC within a grade until they reached the maximum for their grade, subject to satisfactory service. The Council was unable to reach agreement with the remaining union, Unison, about the single status agreement which would embody the changes. This prevented a comprehensive collective agreement from being incorporated into individual employment contracts.
In order to implement the change, in the absence of agreement from Unison, the Council had to agree the change with individual employees directly. Employees were given the option of agreeing to the change by a set date, in return for which they would receive a cash incentive. The second option was dismissal and re-engagement with the offer of immediate re-employment on the new terms. 90% of the employees signed up to the new terms. Of the remainder, the majority were dismissed and re-engaged on the new single status terms. In the meantime, agreement was reached with all three unions on virtually all aspects of the new terms. New recruits were employed on the basis of the single status agreement.
Around 8 months later, the Council proposed "freezing incremental pay progression" for two years, with the result that the employees would no longer move up the spinal column each year. This proposal was not agreed with the unions but was implemented over a two year period. The Council sought to extend the pay freeze for a further period, at which point the unions lodged a grievance.
The Claimants fell into various categories. The Court of Appeal considered the circumstances of:
- the option 1 Claimants who had signed new terms voluntarily;
- the option 2 Claimants who had been dismissed and re-engaged; and
- the third group new recruits who had started employment on the new terms.
The Claimants argued that each group had a contractual right to an annual salary increment. The Council denied that the single status contracts gave employees the right to annual salary increments. In the alternative, the Council argued that even if there had been such a right, the Claimants had agreed a variation of their contracts whereby pay progression was suspended for two years during the freeze (prior to the unions lodging the grievance).
The Court of Appeal examined the contractual arrangements of the three groups of employees and concluded that, in each case, based on the documentation available to each category, there was a contractual right to pay progression under the single status agreement terms. The withholding of annual increments under the pay freeze was a breach of contract. It was, therefore, necessary to consider whether the Claimants had agreed to the variation by working without protest.
The Court of Appeal noted that the unions had "strenuously opposed" the proposed pay freeze. They threatened industrial action but insufficient numbers from the total membership turned out for a consultative ballot to justify a full formal ballot. The union continued to voice its dissent in communications with the Council, remarking that, "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 a breach of that agreement."
While the union expressed their dissatisfaction with the proposals, no employee raised a grievance in respect of the pay freeze, either collectively or individually. No letters were written by or on behalf of the employees indicating that they did not accept the change and/or that they were working under protest.
The union did not raise a fomal dispute and there was no formal or informal industrial action. Nor did they complain about the initial pay freeze over a two year period, other than to object to the extension of the pay freeze. Due to the absence of objections on the part of the employees, the Council argued that the employees had agreed a variation of their contracts to the effect that "there would be no right to incremental pay rises between 1 April 2011 and 31 March 2013."
Key principles from the authorities on variation
The Court of Appeal analysed the case law on variations to terms and conditions of employment and highlighted the following key principles:
- It could not be said that continuing to work after a contractual pay-cut would never constitute acceptance by conduct. The Court of Appeal acknowledged that, in an employment context, "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 conduct."
- It is necessary to examine the circumstances of the case to establish whether an inference of acceptance can be drawn. The case law addresses the following specific points about whether continuing to work may constitute acceptance:
- The inference must arise unequivocally. If the employee's conduct in continuing to work is reasonably capable of a different explanation, it will not constitute acceptance. The Court of Appeal emphasised that, "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 evidences an intention to do so." The employee is given the benefit of any reasonable doubt.
- Protest at a collective level may be sufficient to dispel any inference that employees have accepted a reduction in pay by continuing to work, even where the employees do not raise individual objections.
- It may not be right to infer acceptance at the point of implementation; the employee "may be simply taking time to think." The fact that it may be difficult to identify the point in time at which that ceases to be a reasonable explanation does not mean that it is appropriate to judge acceptance at the point of implementation.
Applying the above principles, with a focus on whether or not there had been unequivocal acceptance of the pay freeze, the Court of Appeal concluded that the Claimants in each group had not agreed a variation of contract. It reached the following conclusions in respect of the absence of individual protest on the part of the employees:
No protest in the face of "wholly disadvantageous" changes
The changes were "wholly disadvantageous" to the Claimants. The Court of Appeal noted that sometimes pay-cuts are proposed as part of a package of changes, some of which are advantageous to the employees. If the employees continued to work after implementation, with the benefit of the positive and negative elements of the package, it was "usually easy to infer that they have accepted the package in its entirety." However, in this case, there was no positive aspect to the changes and it was "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 bringing proceedings." The Court of Appeal rejected the argument that this was a package case because the Council had said that if the pay freeze was not implemented there would be redundancies. The Council "was not asked to, and did not, make any contractual promise not to make redundancies."
Failure to request express agreement from the employees
The Court of Appeal noted that the Council had proceeded on the assumption that it was entitled to impose the change unilaterally. Pay had been negotiated collectively and, when the unions did not agree, the Council imposed the change in any event. The matter was not "put to employees as something on which their agreement was required." The Council did not tell employees that if they continued to work after the pay freeze, they would be taken to have agreed. Nor did they follow the course of dismissal and re-engagement, which had been adopted on an exceptional basis in relation to the single status agreement. If the Council had made its position clear to the employees, i.e. that continuing to work constituted acceptance, then "it would have made the argument for an acceptance by conduct much stronger."
Strenuous protest by the unions
The unions had opposed the change, to the point of carrying out a consultative ballot as to whether it would get the support for industrial action. The decision not to take industrial action was not the same as a decision to accept the variation. The unions made two statements thereafter in communications with the Council which expressed their dissatisfaction with the change. The Court of Appeal found that the failure of the unions to take any further action and/or the failure of the Claimants to voice any explicit protest did not compel the conclusion that the position had changed.
What are the implications for employers?
The key difficulty arising from this case was that there was "equivocality on both sides." Where there are alternative explanations for an employee's conduct in the face of adverse changes, the employee will be given the benefit of any (reasonable) doubt. In order to avoid this situation, employers should seek express agreement from their employees to contractual changes (which should be evidenced by the employee signing and returning an acknowledgement of the change and their consent).
Where an employee has not signed and returned the consent, employers should work with the employee to seek agreement. Some concessions may need to be made and, as the Court of Appeal recognised, it can be harder for an employee to say that a change was not accepted where (other than in the context of TUPE as to which the ability to change terms is severely restricted) they have had the benefit of positive changes as well as negative ones.
In order to have absolute certainty, employers can take the course of dismissal and re-engagement. This is a significant step which needs careful handling, creating the risk of claims for failure to inform and consult collectively (where 20 or more dismissals are proposed within a 90-day period) and unfair dismissal. However, following the correct process can be a valuable investment, particularly where the effect of the change is not felt immediately. In any event, as the Court of Appeal recognised, an employer should always try to secure consent rather than finding itself in the position of having to argue that an employee who remained silent in the face of adverse changes is bound by the terms.