The Court of Appeal has overturned the decision of the County Court in Wetherill v Birmingham City Council (BCC) that a local authority had to pay damages for breach of contract because it unilaterally changed terms of a car allowance scheme.
The claimants, employees of BCC, all received a car-user allowance. BCC changed the bands under which the allowance was paid, without consultation, resulting in lower car-user allowances being paid to the claimants. BCC argued that it had express power to vary the terms in the claimants' contracts of employment. Further, it argued that if the unilateral contract variation amounted to a breach of contract, the breach had been accepted by the claimants because they continued to work with a lower-band car allowance. The County Court agreed with the claimants and made an order that they were entitled to damages.
The Court of Appeal reversed the decision of the lower court and held that as BCC did not exercise the right to vary 'for an improper purpose, capriciously or arbitrarily, or in a way in which no reasonable employer, acting reasonably, would exercise it,' it was entitled to vary the allowance unilaterally. BCC did however breach the claimants' contracts by failing to make proper transitional arrangements when implementing the change. Had it given sufficient notice of the changes, there would have been no breach.
Impact on employers
This decision is helpful for employers who are seeking to make changes to contracts. The manner in which the change is introduced and the purpose behind it will be key.