A recent case in the Employment Appeal Tribunal (Hershaw and others v Sheffield City Council) has highlighted the importance of employers taking care when making commitments, both orally or in writing, to employees. A minor error in communication could lead to employers being bound by  an unintended contractual variation. In this particular case a HR letter advising on the outcome of a grievance was determined to be capable of creating a contractual right to higher pay for the employee.

Following a review of the Sheffield City Council’s pay and grading structure, it was decided that the pay of a group of market patrol officers (the claimants) would be varied resulting in a lower salary. The workers accepted this variation “under duress” and raised an internal appeal, the outcome of which did not alter their pay. The group subsequently lodged a grievance which was investigated by an HR consultant who had no authority to make a decision about the claimants’ pay but was authorised to communicate the outcome of the grievance to them.

The HR consultant wrote to the claimants advising that the appeal panel had decided that they should be placed on grade 5 (they were previously on grade 3), entitling them to higher pay. The claimants’ pay, however, did not increase. At a later date the Council realised that this letter had contained a mistake, prompting it to reconvene the appeal panel who concluded that the claimants should be grade 4, and not grade 5 as they had been notified. The claimants issued proceedings in the Employment Tribunal for unlawful deduction of wages, and argued that the grievance outcome letter had a contractual effect. The Employment Tribunal dismissed the claim and found that the grievance outcome letter was not a contractual document, and that the HR consultant did not have authority to bind the Council to the variation of pay. The claimants appealed.

The Employment Appeal Tribunal upheld the claimants’ appeal, and ruled that the grievance outcome letter was capable of creating a contractual right to higher pay and was therefore binding on the Council. Although the HR consultant did not have the authority to approve a pay increase, she was held out by the employer as someone who could provide an authoritative answer to the grievance.

What lessons can be learnt from this case?

  • Employers, in particular HR professionals and managers, should be careful when communicating with employees, in particular concerning pay and entitlement. All communications should be properly checked and if they are subject to any conditions or limitations, or are at the employer’s discretion, this should be clearly set out in the communication. It is advisable for managers and the HR department to receive training in this regard to avoid unintentionally creating contractual obligations.
  • If a communication sets out a variation in the employee’s terms and conditions of employment and comes from someone who is held out by the employer as having authority to make or communicate a decision, it is likely that this will be binding on the employer. Employers should carefully consider the identity of those whom they authorise to communicate with employees.