Wetherill & Ors v Birmingham City Council

A national car-user allowance scheme may give a local authority power to determine the allowance band by reference to duties and appropriate engine capacity, even where the employee uses a larger car. The authority may revise the grading from time to time, but must give proper notice and make transitional arrangements protecting contractual rights created by an established vehicle-specific practice. Failure to provide adequate transition is a breach of contract, not necessarily a nullity. The change remains effective, and damages are limited to loss during the period that adequate protection would have lasted. A general arrangement may suffice for a large workforce, with adjustment in exceptional cases. Related earlier proceedings do not automatically make a later defence an abuse of process.

Employees of Birmingham City Council claimed payment of car-user allowances at Band 3 rates under their employment terms and sought declarations concerning future entitlement. The Council had withdrawn Bands 3 and 4 with effect from 1 April 1993. The Birmingham County Court upheld the claims and declared that the continuing failure to pay Band 3 allowances was a breach of contract.

The Council appealed. It argued that the national scheme permitted it to determine and revise the applicable band, that its circular validly notified a change from a vehicle-specific to a duties-specific practice, and that the failure to pay Band 3 rates after 1993 was not a continuing breach. The respondents relied on the prior practice, inadequate transitional protection, and alleged abuse of process arising from earlier proceedings. The central issues were the contractual effect of the scheme and practice, the adequacy of the notice and transition, and the proper scope of the abuse-of-process defence.

Lord Justice Chadwick delivered the leading judgment, with Lord Justice Laws and Mr Justice Evans-Lombe agreeing.

1. The national scheme had to be read as a whole. It permitted the Council to determine the allowance band by reference to the nature of the user, the duties to be performed, and the engine capacity considered appropriate. An employee could therefore be placed in Band 2 while using a Band 3 or Band 4 car. The scheme imposed limited restrictions: Band 1 could be used only for a car within that capacity, and a car exceeding 1750cc could not be placed below Band 4.
2. The Council could reassess the appropriate grading from time to time, including in response to changes in duties, vehicle technology, or passenger-carrying requirements, but proper notice was required. The reasoning in Barnes v Wigan Metropolitan Borough Council was approved insofar as the determination had to relate to the employee’s work and use and could not be arbitrary or unrelated to the job. The facts of that case were distinguished because the Wigan decision had been driven solely by cost cutting.
3. Although the national scheme itself did not confer a vehicle-specific entitlement, the Council’s pre-1993 practice did so contractually. Employees acquired rights corresponding to the car actually used on designation, at least while using that car or a replacement in the same band. Those rights could be changed to a duties-specific entitlement.
4. The contractual power to vary was subject to an implied obligation not to act improperly, capriciously, arbitrarily, or in a manner no reasonable employer would adopt. Employees who had incurred financial commitments in reliance on the existing practice were entitled to proper transitional protection. The Council’s failure to provide that protection was a breach of contract.
5. Under section 4 of the Employment Rights Act 1996, a circular brought to affected employees’ attention could satisfy the written-notice requirement. Individual tailored notice was unnecessary. The circular was therefore effective to communicate the change, although it did not cure the breach caused by inadequate transition.
6. The change was not void. The appropriate remedy was damages for loss during the period adequate transitional arrangements would have covered, rather than continuation of the old scheme indefinitely. The Council’s conduct did not breach the implied term of trust and confidence.
7. The earlier Brown proceedings, which had been settled, did not make the Council’s defence abusive. Its conduct in Butler precluded an assertion that transition had necessarily ended before 6 February 1997, but did not prevent it asserting that transition ended before 3 April 1998 or ended earlier for an employee who changed cars after learning of the new practice.
8. Any proper transitional period would have ended before the period claimed in these proceedings. The failure to pay Band 3 rates after 3 April 1998 was therefore not a continuing breach. The appeal was allowed and the order of 23 August 2006 was set aside.

• Court of Appeal (Civil Division): In [2007] EWCA Civ 599, allowed the Council’s appeal and set aside the order below.
• Birmingham County Court: On 23 August 2006, His Honour Judge McKenna upheld the employees’ payment claims and declared that the failure to pay Band 3 allowances constituted continuing breaches of contract.