Button it

When you talk to members of your staff, do you watch what you say? Did you know that you could be making contractually binding commitments?

A recent leading Judgment has reaffirmed that commitments that you might make as a doctor employer to one of your employees on behalf of your practice or organisation can be contractually binding. So do be careful what you say.

The potential problem

Within your practice you may think you have very clear parameters about who is responsible for staff pay and conditions and who can make key decisions about them.

But if one of your employees believe they have been promised something by someone in a senior or managerial role, they may argue that they have a contractual right to what has been offered to them.

They may be right. It is very important to watch what you say to your staff as your position and the nature of the employment relationship may mean that what you committed to is something which the organisation is legally required to honour.

That may be the case even if you don’t have the proper authority to make that commitment, where due to your position you would appear to do so.

What happened in a recent case 

The risk that what is said to employees can be held to be contractually binding has been reinforced by a recent decision of the Employment Appeal Tribunal.

That case of Hershaw v Sheffield City Council involved an HR consultant working for the Council who heard some internal grievances.

The grievances were about the level of pay received by a particular group of staff. In the outcome of the grievance, the HR consultant decided that those staff should be paid at grade 5 under the Council’s pay structure instead of grade 3.

The Council itself thought that this decision was wrong and that at most the employees should only have been paid the salary for grade 4.

When the Council refused to pay, the employees brought a claim against the Council for breach of contract and unlawful deduction from wages relying upon what they had been promised by the HR consultant, which they said was contractually binding on the employer.

What the Employment Appeal Tribunal has decided is that the employees were able to enforce the grievance outcome as it was contractually binding on the Council, based upon what they were told by the HR consultant.

The decision was contractually binding when the commitment was made, the employees did not need to do anything to make it enforceable. The HR consultant was acting on behalf of the employer in her role (and was not acting in a personal capacity).

The Council had tried to argue that she was not someone who had the authority to increase employees’ pay and could not make such decisions for the Council under the Council’s rules.

However the Employment Appeal Tribunal did not agree with this. As she was someone who appeared able to give an authoritative outcome, what she stated was legally binding.

Who has authority? 

What is particularly concerning about this Judgment is that sometimes people do make commitments when they have not got the authority to do so.

If it appears to the employee that they do have such authority, then the commitment is legally binding.

For example, a practice manager may have been told that they do not have the authority to make decisions about employees’ pay and benefits, but those employees will still be able to rely upon a practice manager’s statements if it is reasonable for them to do so (as it usually will be).

Similarly, staff may rely upon what is said by a partner in the practice and argue that what they were told is legally binding, even where the partners between themselves may have previously agreed that the individual partner should not make such decisions.

Doesn’t an employee have to accept for it to be a binding contract?

The usual rule in a contract is that if someone offers something, the other person needs to accept it before it is binding.

This applies to the initial offer of an employment contract, which can be withdrawn if it has not yet been accepted.

However once the employment relationship starts, the requirement for acceptance works a little differently. In this case, one of the things the employer argued the Employment Appeal Tribunal should do was find that the statement was not contractually binding because the employees had not overtly accepted what had been offered.

In their decision the EAT are quite clear, employees do not have to actively do something to accept commitments made to them on their employer’s behalf. Continuing to work is enough.

While this makes sense for some offers, it can give employers particular problems if commitments are made to staff which only come into play at a later date.

Examples would be commitments made about sick pay, overtime, or even what will be paid if someone is redundant or loses their job.

Staff may well be able to rely upon historic promises in arguing about what they are entitled to now. Sometimes disproving (or even sometimes remembering) what was promised a long time ago can be difficult.

Is there anything I can do to reduce these risks? 

The problem is that those in roles which by their very nature are able to make commitments for the practice or organisation, will be able to do so.

A maverick colleague or practice manager needs to be told not to make commitments, but if they do so there is no way legally to get back from them.

However there are a few things you can do to reduce risk (see box     ):

Phil Allen is a partner in the employment and pensions team at Weightmans LLP 

Ends