In the case of Hershaw and others v Sheffield City Council (UKEAT/0033/14) the Employment Appeal Tribunal (EAT) has held that an employer was contractually bound to pay several employees higher salaries, following a mistake in an outcome letter from an HR consultant to a group of employees who had raised a grievance about their level of pay.

The EAT held that the key questions were whether the employer had intended the letter to set out its decision regarding pay and whether the sender of the letter had sufficient authority to bind the Council, both of which were satisfied in this case.  The Council's argument that the contractual change was void by reason of mistake was not considered by the EAT, and was sent to a new employment tribunal.

Background

A change to an employee's contract must be made by someone with sufficient authority to bind the employer, which may include an agent of the company who is not an employee.  However, it is possible in certain circumstances for a contract to be void in law where it can be shown that one or both parties were mistaken as to a key fact or point of law when entering into the contract. Employees and workers are protected from having unauthorised deductions made from their wages by section 13 of the Employment Rights Act 1996.

Facts

Mr Hershaw and his colleagues (the Employees) were market patrol officers employed by Sheffield City Council (the Council).  The Council offered a variation to the Employees' pay in October 2009, following a pay and grading review.  The Employees appealed against the decision, arguing that they should have been paid more, and the matter went before a body authorised to make a decision on pay levels.

The appeal was heard in March 2011 and the body reserved its decision.  No decision was communicated to the Employees, despite the appeal body being obliged to do so within 10 days, and the Employees issued a grievance in August 2011 about the process.

The grievance was investigated by an HR consultant who was not an employee of the Council and had no authority to make a decision on pay levels, although she was authorised to communicate the result of the grievance process to the Employees.

On 10 October 2011 the HR consultant wrote a letter to the Employees, informing them that their pay grades would be increased from grade 3 to grade 5.  The Employees' pay did not increase and the Council subsequently realised that the HR consultant had made a mistake and re-convened the appeal panel, which decided that in March 2011 it had concluded that the Employees should receive pay grade 4 rather than 5.  The Employees were then put on to pay grade 4.

The Employees brought employment tribunal claims, alleging that they were entitled to receive grade 5 wages and claiming unlawful deductions of wages for the difference in pay between grades 4 and 5.

Employment tribunal decision

In the employment tribunal, the judge concluded that the 10 October 2011 letter was not a contractual document and that the HR consultant had not had authority to bind the Council, as she was only responsible for communicating the decision of the appeal panel.  The judge held that it was not necessary to decide if a contractual mistake had been made, as the letter did not have contractual force.  The Employees appealed to the EAT.

EAT decision

The EAT overturned the employment tribunal's decision, holding that the letter did have contractual force.  The EAT stated that the key principle was whether the letter was intended to set out what had been decided by the Council and whether it had been sent by someone who had been authorised to send it.  In the circumstances, both of these points had been satisfied.

As the employment tribunal judge had not ruled on whether a contractual mistake had been made, the EAT remitted the case to a freshly constituted employment tribunal to decide that point.

Comment

This case is a useful reminder of how easily communications with employees can lead to unintended changes being made to employees' contracts.

Where a communication sets out a variation to the employee's terms (eg an increase in pay or conditions relating to a bonus) 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.

It is therefore important to ensure that all communications to staff concerning pay, entitlements and conditions are properly checked and that if these are subject to conditions or the employer's discretion, this is clearly set out in the communication.  Employers should be particularly careful where someone who is not employed by them, such as a consultant, writes to staff.

It will be interesting to see if the doctrine of mistake will void the contractual change in this case when the matter is eventually decided by an employment tribunal.  However, this is by no means certain, with the EAT stating that there are strong arguments on both sides.  In any case, asking a court or employment tribunal to correct a contractual error is an expensive business and best avoided if possible.