Variation of Employment Contracts

April 24th, 2018

Does an employee continuing to work following implementation of a pay freeze constitute acceptance of a variation of contractual provisions in collective agreements giving entitlement to pay progression? It all depends on the circumstances of the case, says the Court of Appeal in Abrahall v Nottingham City Council (2018) EWCA Civ 796.  Underhill LJ reviewed Rigby v Ferodo, Jones v Associated Tunnelling, Selectron, Khatri, and Cartwright v Tetrad.  Underhill LJ described Khatri as “significant”, including because of its endorsement that conduct relied upon to constitute an acceptance must be “only acceptable to the employee having accepted the proposed variation”.  Underhill LJ said:-

“85.      … A contractual offer can of course be accepted by conduct, and that must include the offer of a variation. Under a contract of employment the parties are in a complex relationship in which they are both required to perform their mutual obligations on a continuous basis, and those obligations are frequently modified by their conduct towards each other. I can see no reason why an employee’s conduct in continuing to perform the contract, in circumstances where the employer has made clear that he wishes to modify it, may not – in principle – be reasonably understood as indicating acceptance of the change. …

  1. However, to say that in some circumstances continuing to work following a contractual pay-cut may be treated as acceptance does not mean that it will always do so. On the contrary, what inferences can be drawn must depend on the particular circumstances of the case. … The authorities illustrate some specific points about the proper approach to the question of when continuing to work may constitute acceptance. I briefly identify them as follows.
  2. First and foremost, the inference must arise unequivocally. If the conduct of the employee in continuing to work is reasonably capable of a different explanation it cannot be treated as constituting acceptance of the new terms: that is why Elias J in Solectron used the phrase “only referable to”. That is simply an application of ordinary principles of the law of contract (and also of waiver/estoppel). It is not right to infer that an employee has agreed to a significant diminution in his or her rights unless their conduct, viewed objectively, clearly evinces an intention to do so. To put it another way, the employees should have the benefit of any (reasonable) doubt.
  3. Secondly, protest or objection at the collective level may be sufficient to negative any inference that by continuing to work individual employees are accepting a reduction in their contractual entitlement to pay, even if they themselves say nothing. This is clear from Rigby v Ferodo: …
  4. Thirdly, Elias J’s use in para. 30 of his judgment in Solectron of the phrase “after a period of time” raises a point of some difficulty. It is easy to see how it may not, depending on the circumstances of the particular case, be right to infer acceptance of a contractual pay-cut as from the day that it is first implemented: the employee may be simply taking time to think. Elias J’s formulation is intended to recognise that a time may come when that ceases to be a reasonable explanation. However, it may be difficult to identify precisely when that point has been reached on anything other than a fairly arbitrary basis. … I do not think that the difficulty in identifying the precise moment at which an employee should be treated as first accepting a contractual pay-cut means that the question has to be answered once and for all at the point of implementation.”

Sir Patrick Elias added:-

“107.     In practice employees will often agree to a variation by conduct. This will readily be inferred, for example, where the change is to the employee’s benefit, such as where he is given a pay increase.  Unless the contract is wholly exceptional, he will not have expressly to confirm acceptance before the increase takes effect: …   Similarly, if he is promoted, is given a new contract and acts in accordance with its terms, he will be deemed to have accepted the whole of the terms, and that is so even though the new contract may contain certain disadvantageous provisions and even though they do not immediately bite: …

  1. The difficulty arises where the variation is to the employee’s disadvantage, as in this case, and there is either no compensating advantage, or it is being imposed to avoid a potentially worse disadvantage, such as being made redundant.  …
  2. … I do not see why in an appropriate case the employee should not be taken to have accepted the variation in order to avoid the risk of redundancy.  If the fear of redundancy can only be avoided by accepting the new terms, it is wholly artificial to treat these as separate and distinct reasons for failing to complain.
  3. It may be said that the employee should never be held to have accepted a variation simply by working without protest under the new terms without more. After all, a party can bring a claim for breach of contract within the limitation period without having to notify the other party that he objects to the breach, and why should this be different?  I think that the answer lies in the fact that the employment relationship is typically a continuing relationship based on good faith, and exceptionally in that context it might be appropriate to infer that a failure to complain about a proposed variation of the contract for the future may be taken as agreement to that variation which prevents it constituting a breach. It might also be said that an employer can always put the position beyond doubt by lawfully terminating the contract on notice and introducing the varied contract which includes the new disadvantageous term or terms.  No doubt the employer’s reluctance to do that is in part motivated by a desire to avoid potential unfair dismissal claims. But there are also less selfish reasons. In the context of a continuing relationship based on good faith, dismissing and re-employing might appear to be an unnecessarily hostile stance, only to be adopted as a last resort. Attempts to secure agreement should not be discouraged and exceptionally the circumstances may justify the inference that the employee has agreed to the new terms even where he has been reluctant to do so formally.

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