The Equality And Human Rights Commission v Earle

A contractual annual salary-progression review may entitle an employee to have progression considered, without conferring an entitlement to an increment. Clear wording that the employer has no obligation to increase basic salary means that satisfactory performance is an important, but not exclusive or conclusive, consideration.

An employer’s contractual pay discretion must not be exercised arbitrarily, capriciously, perversely or wholly unreasonably. It may nevertheless take account of legitimate financial constraints and the pay position of comparable employees. Where a required review was not held, damages depend on the employee’s real prospect of receiving an increment had the review occurred.

The claimant was recruited by the Equality and Human Rights Commission at the lowest point of a salary range. Her written contract provided for annual reviews of progression through that range. It also stated that a review would include an assessment of performance and that the Commission had no obligation to increase basic salary.

An Employment Judge held that satisfactory performance gave the claimant a contractual right to progression, and upheld her claim for arrears. The Commission appealed. The central issues were the proper construction of the progression clause, the effect of a pre-contract assurance and entire-agreement clause, and whether the failure to hold a review caused recoverable loss.

1. Appeal allowed. The Employment Judge erred in construing clause 5.3 as giving an automatic entitlement to an increment unless performance was unsatisfactory. The clause required annual consideration of progression, but expressly denied any obligation to increase salary. Performance was the principal specified consideration, but the words “will include” allowed other considerations to be taken into account.
2. The discretion not to award an increment was contractual. It was subject to the implied limits identified in Clark v Nomura International plc and Socimer International Bank v Standard Bank London: it could not be exercised arbitrarily, capriciously, perversely or wholly unreasonably. The Commission could, however, take account of its funding position and the need to maintain a reasonable relationship between employees’ pay. Those matters were not confined to the claimant’s personal characteristics.
3. The pre-contract assurance that salary would increase subject to satisfactory performance did not alter that conclusion. The whole-agreement clause formed part of the parties’ real agreement. It deprived an earlier collateral assurance of legal effect and could not be overridden by it. The assurance was relevant only as limited contextual evidence of the parties’ expectations.
4. The claimant was contractually entitled to an individual progression review. The Commission breached that obligation by deciding not to hold reviews because funding was unavailable. A review could still have served a purpose, including identifying future progression prospects.
5. Nevertheless, the evidence established that, owing to exceptional funding constraints, a review would not realistically have resulted in an incremental payment to the claimant or similarly situated employees. Damages for the missed review were therefore nil. The Tribunal decision was set aside, and the Judge formally declared that the contract was not broken.

• Employment Appeal Tribunal: Allowed the Commission’s appeal and set aside the Employment Judge’s decision.
• Employment Tribunal, London (South): On 15 August 2013, Employment Judge Milton upheld the claimant’s claim for arrears of wages based on breach of contract.