Hershaw v Sheffield City Council

Where an employer offers an employee an additional benefit for the foreseeable future, with no apparent disadvantage, continued work will ordinarily amount to acceptance of the benefit as a contractual term. Formal acceptance is unnecessary. The position may differ where a change of grade carries additional responsibilities or forms part of a wider restructuring.

A communication may have contractual effect even if made by someone who lacked authority to determine the employee’s pay. The question is whether, objectively, it communicated an offer or decision and was made by someone held out by the employer as authorised to communicate it. Any mistake which the employee recognised, or ought reasonably to have recognised, may prevent the apparent agreement from taking effect.

Market patrol officers employed by Sheffield City Council challenged their pay and grading following a Single Status review. An appeal panel considered their challenge but the Council did not notify them of the result. In response to a grievance, an HR consultant wrote stating that the appeal had resulted in placement at Grade 5. A further HR communication repeated that position, but the Council later reconvened the appeal panel and asserted that the correct outcome was Grade 4.

The Employment Judge held that the October 2011 letter had no contractual effect and that the HR consultant lacked authority to vary the employees’ pay. He also concluded that the relevant contractual entitlement was Grade 4. The appeal concerned whether the letter could create a binding variation, whether any mistake prevented reliance on it, and the meaning of salary in the Council’s pay policy.

1. Appeal allowed in part and remitted. The October 2011 letter was capable of having contractual effect. The Employment Judge was wrong to treat a grievance outcome as incapable in principle of being contractual.
2. In the context of this dispute, the grievance sought notification of the result of a pay appeal. The Council authorised the HR consultant to communicate that result. Although she was not authorised to decide pay and grading herself, she was held out as authorised to communicate the decision. Objectively, the letter therefore operated as a communication by the employer.
3. The employees’ continued work could amount to acceptance. Where an additional benefit is offered with no apparent downside, continued work ordinarily establishes acceptance without any formal exchange of letters. The Tribunal should consider whether the change carried additional responsibilities or formed part of a restructuring; no such burden was apparent on the facts described.
4. The apparent agreement remained subject to the doctrine of mistake. The fresh Tribunal must determine whether the employees recognised, or ought reasonably to have recognised, that the Grade 5 communication was erroneous. If so, the mistake may prevent reliance on the letter. That issue was remitted because it had not been decided.
5. The Employment Judge’s reasoning equating salary with basic pay could not stand. His conclusion depended on an erroneous assumption about the evidence. The Employment Tribunal could reconsider the meaning of salary if it became material to the mistake issue, applying the objectively ascertainable meaning of the pay policy if it was contractual.

• Employment Appeal Tribunal: Allowed the appeal to the extent stated and remitted the issue of mistake, and if necessary the meaning of salary, to a fresh Employment Tribunal.
• Employment Tribunal: Employment Judge Little dismissed the test case and held that the October 2011 letter did not create a contractual entitlement.