The Court of Appeal has ruled that Nottingham City Council was in breach of contract for failing to award employees incremental pay progression increases.
In the case, Abrahall and Others v Nottingham City Council and Anr, Nottingham City Council employees, who either worked directly for the council or were transferred to a council-owned organisation under a Transfer of Undertaking (Protection of Employment (Tupe)) arrangement, claimed that Nottingham City Council failed to pay incremental pay rises associated with contractual pay progression within set salary bands.
The changes to employees’ pay provision followed the implementation of a single status arrangement, a national pay framework for local authority employees. This replaced the previous pay system, which used a band of points on a pay column, in November 2010. Following the introduction of the single status, Nottingham City Council announced that it was freezing incremental pay progression for two years, preventing employees moving up their pay band. It implemented a further freeze on pay progression in 2013.
The claimants argued that the pay freezes constituted the unlawful deduction of wages, because they had a contractual right to pay progression. However, Nottingham City Council contended that, under single status, there is no contractual obligation to pay progression.
A booklet sent to employees in April 2010, prior to the collective agreement and implementation of single status, outlined the incremental pay progression system previously in use, in which employees gained a pay band point for every year of service. This is despite the fact that there was no explicit reference to pay progression in the provided contract. However, in a later version of the booklet, the reference to pay progression was removed.
The Employment Tribunal (ET) ruled in favour of the employees in August 2015; however, the Employment Appeal Tribunal (EAT) allowed Nottingham City Council to appeal the decision in May 2016. The Court of Appeal dismissed the appeal and ruled that all employees are entitled to arrears of pay, equivalent to what they would have earned if pay progression had been operated in each of the years in which it was frozen.
Lord Justice Underhill, who ruled over the case, said: “It is necessarily inherent in the use of a structure where each grade covers several pay points that employees will expect to progress up the grade at regular, in practice annual, intervals: otherwise what would be the point of it?
“I would hold that the claimants in all three groups enjoyed, at the point of the implementation of the freeze, a contractual right to pay progression, and accordingly that the withholding of the applicable increments with effect from 1 April 2011 was a breach of contract.”
A spokesman at Nottingham City Council said: “We are extremely disappointed with the Court of Appeal’s decision in relation to the historical freeze on incremental pay rises in connection with the council’s former employment contracts. This could result in a major additional cost at a time when our budget is under huge pressure as a result of government cuts.
“The freeze on incremental pay rises was introduced in 2011 as part of the £232m of savings the council had to make, with its main government grant cut by two-thirds. The decision to freeze these pay rises was taken to avoid cuts to jobs and services wherever possible and has saved the equivalent of around 1,000 full time jobs. Had it not been introduced, further significant cuts to services and job losses would have been unavoidable.
“We will review the detail of the decision to assess the full financial implications for the council. As these could be significant, we are planning to lodge a further appeal.”
Dave Prentis, general secretary at trade union Unison, which helped the claimants’ case, added: “The judges have found unanimously in favour of the council employees. Nottingham City Council was completely in the wrong to try and prevent its staff from getting the pay rises they were due.
“In any organisation, where salary scales are linked to jobs, employees’ contracts of employment state that each year, as they gain more experience and move up a point, their wages should increase.
“While there’s much sympathy for cash-stripped councils struggling to provide services for local communities, while the government is slashing their funding, Nottingham shouldn’t have been making its employees pay the price. Now staff can look forward to receiving all the cash they are owed.”
Claire Horne, employment rights solicitor at Thompsons, who represented the claimants, said: “This represents a significant win for those employees who were at the receiving end of austerity measures for a number of years.”