Case update (2): Contract of employment – incremental pay increase

Summary: Should verbal assurance of guaranteed incremental pay increases subject to performance, contrary to absolute discretion in a written contract bind an employer?

No says the EAT In The Equality and Human Rights Commission v Earle available here.

Facts: Ms Earle successfully applied for a job as a senior legal policy adviser with the EHRC. The job had a salary range within which there were a number of incremental steps from the lowest level (where she started) to the top.

Clause 5.3 of Ms Earle’s contract stated:

“Progression through the salary range will be reviewed annually on or around 1 October in each year until the maximum of the range for your role has been reached. Any progression review will include an assessment of your performance during the preceding 12 months. There is no obligation on the EHRC to increase the level of your basic salary at a review. Any increase awarded in one year will not create any right or entitlement or set any precedent in relation to subsequent years.”

Clause 22 of Ms Earle’s contract stated:

“This contract supersedes any previous oral or written agreement between the EHRC and you in relation to the matters dealt with within it.”

Ms Earle was disappointed with the starting salary she was offered and contacted an EHRC HR officer, who assured her that she would be granted progression through the incremental steps of her pay grade if her performance was satisfactory. On the basis of those assurances, Ms Earle accepted the job.

Subsequently EHRC was subject to severe financial constraints arising from a tightening of Government funding, and did not award Earle (or anyone in her position) either pay progression or a progression review.

Ms Earle brought a Tribunal claim for unlawful deduction from wages. The Tribunal upheld Ms Earle’s claim and found that the EHRC had acted in breach of contract by failing to progress Ms Earle based upon her ‘satisfactory performance’.

However, the EAT overturned the Tribunal’s decision. The EAT decided that the EHCR was entitled to rely upon the whole context and interpretation of the contract, which specifically provided that there was no obligation to increase her salary at review. The HR Officer’s comments were superseded by Ms Earle’s contract as set out at Clause 22. The EAT did find the EHRC was technically in breach of Clause 5.3 by failing even to hold a review. However, the reality was such that no compensation was owed for this failure to meet Ms Earle as there would have been no pay rise in any event.

Implications: Be careful what you say during the recruitment process when giving verbal assurances to successful job applicants about the terms and conditions of their employment. Fortunately for the employer in this case its contract terms were clear and unambiguous and superseded the HR Officer’s comments. It would be prudent for employers to check that your contracts of employment are equally clear and that they contain an overarching clause stating that its terms supersede any previous oral or written agreements.

Although in this case the employee did not receive any award for the employer’s failure to even hold a pay review, it would be prudent for employers to conduct such review where the contract provides for one. This will avoid any question of a breach of contract.