The importance of words in a contract…

Ms Earle joined the EHRC as a Senior Legal Policy Adviser with provision in her contract for a base starting salary and then a number of incremental points for her grade. The contract also stated:-

"progression through the salary range will be reviewed annually… until the maximum of the range for your role has been reached. Any progression review will include a assessment of your performance during the preceding 12 months. There is no obligation on the EHRC to increase the level of your basic salary at a review. Any increase awarded in one year will not create any right or entitlement or set any precedent in relation to subsequent years."

Shortly after she started, funding constraints resulted in a pay freeze and consequently no pay reviews were conducted. When Ms Earle did not receive a pay increment she brought a claim for breach of contract which succeeded because the Employment Judge found that it was "obvious" that the contract entitled her to a salary increment following the starting salary once her annual review had taken place, subject only to satisfactory performance.

This finding was successfully appealed in the EAT. The Judge held that on the face of it, the clause did not convey a right to incremental progression, only subject to satisfactory performance. The words "there is no obligation…" to increase her salary were held to be integral to the whole clause and there was clearly no obligation for her to receive an increase. There might be a requirement for EHRC to hold a review - but not necessarily award an increase as a result. The fact that Ms Earle had received an oral assurance that her incremental payments would be made if her performance was satisfactory made no difference because, the Judge found, the contract had an "entire agreement clause" which meant that the contract "contains the whole agreement between the EHRC and you…".

This case demonstrates the importance, in this case to the employee, of correctly interpreting the drafting of clauses in employment contracts.

This legal update is provided for general information purposes only and should not be applied to specific circumstances without prior consultation with us.

For further details on any of the issues covered in this update please contact Gemma Ospedale, Partner in Employment on 020 7583 2222.