Warning – a letter can have contractual effect!

A recent case involving a Local Authority (Hershaw and ors v Sheffield City Council (2014)) has shown that a letter, in this case written by an HR consultant, can create contractual terms that an employer has to honour.

The case concerned a group of employees (market patrol officers) who had their pay varied following a review of pay grades. The employees appealed against the pay variation, but their appeal was not dealt with. Consequently, they raised a grievance. The grievance was investigated by an HR consultant. The HR consultant did not have authority to make a decision about pay, but she was authorised to communicate the decision about the grievance made by a panel.

After the investigation, the HR consultant wrote to the employees setting out the panel’s decision, which was to revise the grading of their jobs resulting in a pay increase. However, the employees still did not receive any increase in pay. They therefore brought a case for unauthorised deduction from wages in the Employment Tribunal. The Employment Tribunal rejected their claims, finding that the letter did not have a contractual nature and that the HR consultant did not have authority to bind the Local Authority to a variation of contract. The employees appealed this decision to the Employment Appeal Tribunal (EAT).

The EAT held that the HR consultant’s letter to the employees informing them of the outcome of their grievance about pay did create a contractual right to higher pay. Although the HR consultant did not personally have authority to approve a pay increase, she was held out by the Local Authority as having authority to communicate its decision. The EAT also said that where an additional benefit is offered to an employee, with no apparent downside, the parties will be taken to have agreed that the benefit is a term of the contract going forwards, and the employee will usually be taken to have accepted it by continuing to work.

The message from the case – be careful about what is written in a letter, as this can create contractual terms!

If you would like to talk through a situation you are dealing with, or if you need advice on any aspect of employment law, please contact any member of the Pure Employment Law team (01243 836840 or [email protected]).

Please note that this update is not intended to be exhaustive or be a substitute for legal advice. The application of the law in this area will often depend upon the specific facts and you are advised to seek specific advice on any given scenario.