Being a total law nerd, I like nothing more than sitting down with a cup of tea, a Hobnob (other biscuits are acceptable) and a ‘fresh off the press’ Court of Appeal decision. I enjoy nodding sagely when their Lord and Ladyships come up with a decision that I entirely agree with and smugly thinking ‘well I would have advised like that anyway’ or ‘why did anyone bother to bring this case to appeal?’.
But the odd decision leaves me frowning, and the very new decision of Abrahall v Nottingham City Council has done just that, since it has really significant implications for a well-established HR practice.
In brief, in 2011 Nottingham City Council (NCC) took the decision to implement a two-year pay freeze which meant that employees’ usual incremental pay progression was suspended. NCC took the view that there was no contractual right to incremental pay progression and made the case that if this pay freeze could not be implemented, redundancies would have to happen. The recognised unions were not happy and made their objections clear. They also balloted their members as regards industrial action but couldn’t muster enough support. So no formal type of dispute was raised nor any collective grievance brought. The pay freeze went ahead.
This particular situation is not quite as straight-forward as where an employer announces that a contractual change is going to occur and any employee who wants to object needs to do so by a certain date, or will be deemed to have consented to the change. But for the purposes of what the implications are for employers, it’s still very relevant.
No implied consent?
Two years later, in 2013, NCC announced that, for financial reasons, it would have to impose a similar pay freeze. At this point, several hundred employees brought claims in the Employment Tribunal (ET) for unlawful deductions of wages, claiming (a) they had a contractual right to incremental pay progression and (b) they had not agreed to vary this term of their contract. They were basing these claims on the argument that NCC had unilaterally changed their contracts two years earlier (by imposing that first pay freeze) but the staff had never agreed to it – silence and a failure to sue at the time should not be treated as their content, they argued. Whilst all the employees lost their claims in the ET, they had better luck in the Employment Appeal Tribunal and even better luck in the Court of Appeal.
The Court of Appeal found, first, that all affected employees enjoyed a contractual right to annual incremental pay rises. The second, and main, part of the judgment went on then to look at whether, by their actions (or inactions!), the employees should be treated as having impliedly agreed to vary this contractual term. Thankfully, the Court of Appeal rejected an argument put forward by the employees that continuing to work following a pay cut/pay freeze can NEVER amount to implied consent. However, the Court also found that it was not that case that, by continuing to work, an employee will always eventually be found to have accepted a pay cut/pay freeze. Silence does not necessarily mean consent.
New legal test
The Court identified three issues to consider when an employer has told its workforce that it is making a contractual change and does not seek consent in the standard way:
- I will call the first one the ‘only referable’ test. It relates to how much one can safely conclude from the fact that, when a change in terms is imposed, the employees don’t sue or resign but continue to work as normal. Does their continued working imply their consent to the change? The Court ruled that question to be answered by a court or ET dealing with such a case is: is the employees’ conduct in continuing to work ‘only referable’ to their having accepted the new terms imposed on them or is there another reason why they continued working? I imagine most employees could fairly easily argue that the reason they carried on working was not because they consented to the change but because they feared losing their jobs if they complained or because financial circumstances meant that they couldn’t just walk out of job.
- Second, what level of actual protest did the employees make (or continue to make) regarding the contractual change? Remember in this case the unions were fairly vociferous around the time, but this didn’t translate into either industrial action or a collective grievance. So the bar is not set that high here. As long as the employees or their representatives object in some way, this could be enough to overturn an assumption that their continued working and lack of claims or resignations amounted to consent.
- And whilst it is still possible to argue that ‘after a period of time’, the employee may be taken to have accepted the changes, identifying this point in time is going to be difficult.
In short, the Court said that these are the hurdles an employer must overcome if it wishes to establish that an employee’s ‘no’ actually meant ‘yes!
On the basis of the above, the Court of Appeal found that the employees had not impliedly accepted any change to their contract and presumably were now entitled to back pay for the entire period. A big bill for NCC – and I imagine they wish they had undertaken redundancies instead.
So, where does this leave employers wishing to bring in some much needed contractual changes?
Up until now, the law had been fairly clear. If the change has an immediate impact on the employee, even if they protest at the time, if they then continue to work without further protest, the employer could safely assume after, say 6 months, that the employee had impliedly accepted the change through continuing to work and not sue or resign. This new decision throws that certainly up in the air and raises the spectre of employers facing unlawful deduction from wages claims for back-pay going back several years (cue frowning face from Anne-Marie).
How, then, can any contractual change be safely implemented? The only way to achieve a risk-free change is to gain the express consent from your employees – signed on the dotted line (don’t rely on sending out a letter and not chasing up a response). This involves a ‘sales job’ from the employer (why is this change REALLY necessary?) and perhaps some compromise.
The other two routes have always been to either push it through and use the ‘silence means consent’ option, as we’ve been discussing; or the good old SOSR option of terminating the existing contract (with notice) and offering a new one containing the new terms.
For many employers this SOSR ‘dismissal and re-engage’ route is the nuclear option and one to be avoided, and understandably so. This option does involve a dismissal and can lead to unfair dismissal claims. It will also trigger s.188 collective consultation if 20+ employees are affected. However, on the plus side, if the employee accepts the new contract, there can be no on-going breach of contract – so it does bring a great deal of certainty.
We seem to have arrived at a point where SOSR dismissal and re-engagement seems like a safer option than pushing changes through and hoping that silence will be treated as consent.
Alternatively, the employer might decide to make redundancies instead, which seems crazy to me (cue more frowning face).
All employers need to consider change at some time or another – if you have a change project in mind, please feel free to give us a call.
And I should add that here at Menzies Law we also have a clever approach that can reduce your risks considerably if you are indeed considering SOSR.
We would love to help you find your way through!
or call 0117 325 0924