Contracts of employment
Introductory guidance to the ‘contract of service’, the written statement of particulars, and varying the contractual terms
Selected cases on disputed or breached terms and conditions of employment
Here we list a selection of key cases, reported since 2010, on disputed or breached terms and conditions , providing a summary of the decision and implications for employers.
Cases have been grouped together based on the specific contractual issues being dealt with:
Log in to view more of this content. If you don't have a web account why not register to gain access to more of the CIPD's resources. Please note that some of our resources are for members only.
(unreported, UKEAT/0033/14 27 June 2014, EAT)
Issue: Consultant liability
Twelve council staff members raised a formal grievance about their employer's inaction over an issue concerning their pay levels. The Council used an external HR consultant to investigate the grievance. The consultant was authorised to write to the employees with the outcome of their grievance, but not to determine their pay. The consultant mistakenly told them that they had been placed on a higher salary grade.
The Employment Appeal Tribunal held that although the consultant didn't have actual authority to increase the grade, the letter had contractual effect. The Council had authorised the consultant to answer the employees' grievance and so the letter bound it to pay the higher salaries, just as if it had written directly to the employees itself.
(unreported, [2013] EWCA Civ 974 31 July 2013, CA)
Issue: Implied terms through custom and practice
Employees who were employed by Northern Foods then transferred under Tupe to Park Cakes Ltd. Four of the employees who were then made redundant claimed that they were entitled to enhanced redundancy payments, as these had been made without exception at Northern Foods before the Tupe transfer. The key question was whether the enhanced payments had been made consistently over a substantial period. The evidence was that the enhanced terms had been paid in all seven redundancy exercises from 1993 to 2006. Therefore the Court of Appeal (CA) held that the tribunal had made an error by not inferring that the enhanced terms had been paid without exception. Therefore the case had to be reheard by a different tribunal. The CA gave some useful guidance about when a term has become implied. The important question is not whether the employer intended to be bound by the term, but whether the employer’s conduct, viewed objectively, conveyed to the employee that the employer intended to be bound.
(unreported, [2013] EWCA Civ 394 26 April 2013, CA)
Issue: Discretionary bonuses
The employees were bankers working in the investment banking arm of Dresdner Kleinwort Limited which merged with Commerzbank in 2009. In 2008 many key employees left and to keep the remaining employees, the Chief Executive announced to staff at a meeting that the bank was introducing a minimum bonus pool for 2008 of €400m.
Letters were sent to employees later that year providing details of their provisional bonus awards for 2008. A ‘material adverse change’ clause was also inserted in the letters entitling the bank to review the bonus awards if ‘additional material deviations’ were identified in the bank’s accounts. Then in 2009 the employees were told that their 2008 bonuses would be only 10 percent of the amount originally announced.
By the time the matter reached the Court of Appeal the key issues were whether:
The Court of Appeal (CA) agreed with the High Court and decided that the employees’ contractual claims for the bonuses worth a total of between €40m and €50m should succeed, as the Chief Executive's verbal announcement of the minimum bonus pool was contractual. The subsequent letter seeking to limit it could not unilaterally vary the previous verbal term of the contract and was a breach of the implied term of mutual trust and confidence. Even the public scrutiny of bonuses could not get around the contractual commitment that the bank had made to its employees.
(unreported, [2012] EWHC 3221 (Ch) 16 November 2012, HC)
Issue: Breach of contract - demotion following Facebook post
A Christian manager with 19 years service at Trafford Housing Trust was demoted for making allegedly homophobic comments on Facebook. He had posted a link to a BBC news item about gay marriage adding the comment “an equality too far” underneath. Two work colleagues posted responses disagreeing with him and he posted a second comment purporting to explain and justify his first comment.
His employers were notified. They disciplined him and eventually decided he had committed gross misconduct and breached the employer’s Code of Conduct and Equal Opportunities Policy. He was demoted with a pay reduction which would have been significant over time. He claimed for breach of contract. The case did not involve a claim for discrimination on the grounds of religion or belief but only concerned contractual matters. The key issue was whether the Facebook postings were gross misconduct.
The High Court found in favour of the employee, essentially because the employer had committed a serious and repudiatory breach of contract. The comments posted by the claimant needed to be looked at in context and a reasonable Facebook user would not attribute the comments made to being to the employer as the comments were not work-related and were made outside of normal working hours. Mr Smith was paid damages representing the difference between the salary paid and his contractual salary, although this was limited to financial loss during the notice period and was less than £100. Of course, if he had claimed discrimination, chosen to resign and claim unfair dismissal, rather than work on under protest and opt for wrongful dismissal, he would have recovered more substantial compensation.
(unreported, [2011] UKSC 58 14 December 2011, SC)
Issue: Breach of an express term - damages
A consultant surgeon claimed £4 million damages for loss of career. He was dismissed in 2006 for gross personal and professional conduct and had not been able to obtain another permanent post since. He claimed that his employer had failed to follow a contractual disciplinary procedure and that if the correct procedure had been followed, he would not have been dismissed. He was therefore he alleged entitled to damages representing the whole loss of his career. His main assertion was that he would not have been dismissed if the disciplinary panel had correctly included a clinician of the same discipline.
A youth community worker had also been dismissed for gross misconduct. He similarly brought a breach of employment contract claim for failure to follow the provisions of a contractual disciplinary code. He said this had caused him a loss of reputation and inability to work in his chosen field.
The key issue was whether employees can claim damages for breach of an express term in their employment contract where the breach relates to the manner of dismissal, rather than anything said or done before the dismissal. Previous cases had said such employees should bring tribunal claims for unfair dismissal, to which the statutory cap on compensation would apply rather than bigger contractual claims - see Johnson v Unisys Ltd [2001] IRLR 279.
The Supreme Court judges all gave slightly different decisions. However, the majority said that employees cannot claim damages for breach of an express term in their employment contract where this relates to the manner of dismissal. The statutory unfair dismissal scheme deliberately limits the right to claim including time limits, qualifying service requirements and a compensation cap.
Contractual damages can only be claimed if the loss precedes and is independent of the dismissal process. In other words there has to be something else the employer has done wrong rather than just messing up the disciplinary process.
In the surgeon’s case, his dismissal followed the improperly constituted disciplinary panel's findings, not anything said or done before the dismissal.
In the youth worker’s case the loss of reputation was caused by the dismissal itself.
Therefore the employees were not entitled to pursue damages for the breach of contract, without limitation.
(unreported, UKEAT/0217/12 8 May 2014, EAT)
Issue: Unauthorised deduction of wages - employee should have been paid national minimum wage
A senior care assistant in a residential care home worked with residents with learning difficulties. She lived at the care home and worked during the day and a sleepover shift from 9pm until 7am the following morning (which earned her an extra £25).
The employer said the care assistant was able to sleep on site and only carried out duties in emergencies, but she contended that she did a variety of duties during the sleepover shifts and that she was not allowed to sleep.
The key issue was whether she was entitled to receive the national minimum wage (NMW) for all her night shift hours and if paying less than the NMW amounted to an unlawful deduction from wages.
The Employment Appeal Tribunal held that as a matter of fact the care assistant could be required to undertake various duties during the sleepover shift and eventually concluded that she was entitled to receive the NMW for all her night shift hours (even if she was asleep and not working) and that there had been an unlawful deduction from wages. The employer had a legal obligation to have a qualified person on site at all times which is why they needed her there. Her mere presence was therefore enough to constitute working time for NMW purposes. The employer was ordered to pay the employee approximately £15,000.
(unreported, [2016] EWCA Civ 360 14 April 2016, CA)
Issue: Breach of contract - unauthorised change to attendance management policy
Seven employees were each employed by a different agency within the Department for Transport. Each agency had a staff handbook, based on the same standard format divided into ‘Part A’, which was expressly stated as incorporated into employees’ employment contracts and ‘Part B’, which contained various policies expressed to be guidance relevant to the employment relationship and operation of contractual terms and conditions.
Following unsuccessful negotiations with the trade unions, the Department unilaterally imposed a new standardised attendance management policy. This introduced a new trigger point for formal absence management to kick in of five days absence rather than the previous 21 days. The employees sought a declaration from the court on the terms of their contracts.
The Court of Appeal found in favour of the employees and gave a declaration that their employer had breached the contracts of employment by imposing the change to the attendance management provisions of the staff handbook. The provisions of the handbook relating to absence management were sufficiently clear and precise to be incorporated into the contracts. As no agreement about changes was reached, unilateral changes could only be made if they were not detrimental to the employee.
(unreported, [2013] EWCA Civ 1148 11 October 2013, CA)
Issue: Short time working
Employees brought proceedings in the employment tribunal for unlawful deductions from their wages. Their employer was considering making redundancies due to the economic climate. It concluded a collective agreement with the GMB union to reduce employees' working hours by five hours per week to 34 hours, with no working on Fridays, with a pay reduction over a six month period. GMB asked the employer to confirm that guarantee payments would be paid to the employees when they were working reduced hours.
The employer did not agree that guarantee payments would be made because the reduction in working hours was a result of an agreed collective variation to the employees' terms and conditions. The claim therefore included non-payment of guarantee payments. The employees argued that temporary variations to a contract were not a change to 'normal' working hours, as a temporary contractual variation (as occurred in this case) was not a change to 'normal working hours' and the law expressly provided for entitlements to guarantee payments ‘in any case where an employee's contract has been varied or where a new contract has been enteredinto, in connection with a period of short-term working.'
The Employment Appeal Tribunal (EAT) rejected that argument and held the tribunal was right to conclude that there was an effective variation in the contracts of employment. This meant that there were no days when any of the employees were not provided with work when they would normally be required to work in accordance with their contracts. The EAT therefore held that employees were not entitled to guarantee payments under Section 28 of the Employment Rights Act 1996.
[2012] UKSC 63
Issue: Pay in lieu of notice
In a curiously handled dismissal, the managing director at the bank Société Générale was handed a letter in November that stated his employment was terminated with immediate effect. He was then escorted from the building. The Bank did not tell him the date on which his termination would take effect, nor that it was made under the contractual payment in lieu of notice clause.
About two weeks later he received about £32,000 in his bank account which he assumed was a payment in lieu of notice. The bank still did not communicate what the payment was for. Under his employment contract, Mr Geys had a three months' notice on termination of his employment, with no pay in lieu clause, although the employer’s right to pay in lieu of notice was set out in its staff handbook.
Mr Gey’s solicitors then wrote to the bank's solicitors in January stating that he affirmed his contract of employment and reserved his position in relation to the acceptance of the monies until it was understood what they were for. The bank’s solicitors then replied confirming that it had terminated his employment with immediate effect back in the November and that his pay in lieu of notice had been credited to his bank account.
A dispute arose as to when the employment contract actually terminated. The date was important as his termination payment was just under €8m if his employment was terminated in 2007, or €12.5m if he was terminated in 2008. The bank's case was that the contract terminated in November or in December when the bank made the payment in lieu of notice.
The High Court decided that the bank's actions in November amounted to a repudiatory breach of contract. As the bank had failed to expressly inform the employee that it was summarily terminating his employment pursuant to the pay in lieu of notice clause, his employment contract did not terminate until 6 January, the day on which he was deemed to have got the solicitor’s subsequent letter confirming the summary dismissal and pay in lieu of notice. He was therefore entitled to more money than would otherwise have been the case. The High Court held that there was no conflict between the handbook and the contract. The right to three months' notice was subject to the right to pay in lieu in the staff handbook.
(unreported, [2012] EWCA Civ 697 24 May 2012, CA)
Issue: Pay in lieu of notice
The managing director of a company was dismissed, albeit dressed up as a redundancy. The company agreed to pay him six months pay in lieu of notice, in accordance with his contract. Shortly afterwards the company discovered that he had arranged the transfer of £10,000 of the company’s money into his pension fund. On discovering this the company refused to pay the former director his payment in lieu of notice and he brought a claim for breach of contract.
The relevant clause in the service agreement was as follows:
‘The Company may terminate the Appointment forthwith by paying salary and the value of all other contractual benefits in lieu of the required period of notice...and it is expressly agreed and declared that such payment in lieu of notice shall not constitute a repudiation of this Agreement.’
The case eventually reached the Court of Appeal which decided that the former managing director should be paid the pay in lieu of notice. When the employer dismissed him it did not know about his wrongdoing and agreed to make a payment in lieu of notice. A debt accrued at that point.
(The employer could not rely on the principle established in Boston Deep Sea Fishing v Ansell. This principle enables an employer who has dismissed without notice in circumstances when it was not entitled to do so, to possibly justify their actions if it subsequently discovered that the employee has committed an act of gross misconduct which would have entitled the employer to dismiss without notice in any event. However this principle does not apply where the employer had chosen to lawfully terminate the employment under a payment in lieu of notice clause).
[2012] EWHC 3543 (QB)
Issues: non-compete clauses
The claimant was a journalist and business news broadcaster who entered into a service agreement with a media business to become their Head of Media. He was to provide media skills coaching and bring in new business. His package included basic salary plus an equity share of 8% in the business, provided he stayed with the company for two and a half years. There was some understanding about increasing the size of this share from 8% to 20% in November 2005.
The contract contained:
Before joining the company he accepted invitations to moderate high-profile conferences in front of large high-level audiences and he accepted two further invitations to moderate such events during his employment on the company's behalf. It was not work the company had undertaken previously.
Mr Threlfall eventually handed in his notice to leave the company to work for Reuters, presenting its television service. He claimed breach of contract including entitlement to his equity share increasing to 20% from November 2005, a termination payment, a bonus payment and dividends. The company counterclaimed for breach of contract, including breach of his restrictive covenants and his fiduciary duty, as well as the duty of good faith and alleged that his actions had triggered the forfeiture of the shares.
It was held that:
Please note: While every care has been taken in compiling these notes, CIPD cannot be held responsible for any errors or omissions. These notes are not intended to be a substitute for specific legal advice.
Introductory guidance to the ‘contract of service’, the written statement of particulars, and varying the contractual terms
Frequently asked questions on the legal issues relating to an employee’s terms and conditions of employment
Selected cases covering disputes on the types of employment contract that people are employed under
Survey evidence on how and why employers use zero-hours and short-hours contracts, and employees' characteristics, attitudes and preferences when it comes to these types of contract