The employer, Asda, wanted to amend the contracts of existing employees so that their pay structure would be brought in to line with the more up-to-date ‘Top Rate’ regime. Most employees adopted this new regime, either willingly or forceably, but a small number claimed breach of contract and in some cases unfair dismissal, contending that they did not consent to the new regime. In this test case, Asda justified its decision to unilaterally vary the terms of the employment contract by relying on provisions contained within the staff handbook, which formed part of the terms and conditions of employment. In particular, the ET considered the following part of the staff handbook:

‘The Company reserves the right to review, revise, amend or replace the content of this handbook, and introduce new policies from time to time to reflect the changing needs of the business…’.

The claimants claimed, amongst others things, that the power to vary an employment contract was limited to non-contractual policies and any proposed variation as to pay would still require consent from the employees. This was rejected by the ET who ruled that Asda, by unambiguously including a clause in the staff handbook stating that it could unilaterally change terms and conditions without the consent of the employees, were entitled to do as they did.

The main ground of appeal was that the Tribunal had failed to consider how the employees, most of whom were of limited intellect, may have interpreted the staff handbook. Then EAT rejected the submission that none of the employees could reasonably have understood the effect of the unilateral discretion to amend terms and conditions. It also rejected the assertion by the claimants that the clause related to amendments of the handbook and not to the terms and conditions of the employment contract.

__________________________

Appeal No. UKEAT/0221/09/ZT

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

At the Tribunal
On 3 December 2009

Judgment handed down on 11 February 2010

Before
THE HONOURABLE MR JUSTICE SILBER
DR K MOHANTY JP
MR T MOTTURE

MS D BATEMAN AND OTHERS (APPELLANT)

ASDA STORES LTD (RESPONDENT)

Transcript of Proceedings

JUDGMENT

APPEARANCES

For the Appellant MR JOHN HENDY (One of Her Majesty’s Counsel)
and
MR STEPHEN HARDY
(of Counsel)
Instructed by
Messrs Simpsons Solicitors    
Thorne House,
36 Station Road
Cheadle Hulme
Cheshire SK8 7AB

For the Respondent MR CHRISTOPHER JEANS
(One of Her Majesty’s Counsel)
and
MR DANIEL OUDKERK
(of Counsel)
Instructed by
Messrs Pinsent Masons Solicitors
City Point
One Ropemaker Street
London EC2Y 9AH

** 
SUMMARY**
CONTRACT OF EMPLOYMENT:  Incorporation into contract
Asda wished to ensure that their entire store staff were employed on the same pay and work structure and this meant that those on the old regime had to transfer to a new regime. Some 9,330 employees agreed, but some did not. So when the new regime was imposed on them, 6 test Claimants brought claims for unauthorised deductions from their wages contrary to section 13 of the Employment Rights Act 1996.

Asda contended before the Employment Tribunal that they were entitled to impose new conditions because the staff handbook stated that Asda “reserved the right to review, revise, amend or replace the contents of this handbook, and introduce new policies from time to time reflecting the changing needs of the business...”  The handbook also provided details of pay and other conditions of employment.

The conditions in the staff handbook were incorporated in the Claimants’ contracts of employment. The Employment Tribunal held that these conditions permitted Asda to impose the new regime on its employees without obtaining their further consent.

The Claimants appealed contending that Asda could not rely on the conditions in the staff handbook to justify imposing the new regime and they required the consent of all employees.
Held: The appeal is dismissed because:

1. The staff handbook permitted Asda to make the changes to the pay and work regimes without obtaining the further consent of the Claimants (Dicta of Lord Woolf M.R. in Wandsworth London Borough Council v D’Silva [1998] IRLR 193 [31] applied);
2.  The wording in the staff handbook was wide enough to permit Asda to change matters set out in it and these included the pay and work structure with the result that Asda were entitled to impose the changes in the Claimants’ pay and work  provisions without the need to obtain their express consent.

THE HONOURABLE MR JUSTICE SILBER
I  Introduction
1. Prior to August 2007, a small proportion of the store staff of Asda Stores plc (“Asda”) were employed on a pay structure entitled “Standard Rate” (“the old regime”).  Asda wished to amend the contracts of those employees so that their pay structure would be brought in line with the more up-to-date structure entitled “Top Rate” (“the new regime”) which was adopted by the vast majority of their store staff.  Asda sought to ensure that no employees suffered a reduction in his or her pay as a result of the decision to amend their contracts to incorporate the new regime.

2. There was an extensive consultation process concerning Asda’s wish for its store staff to adopt “the new regime”.  Some 9,300 employees transferred voluntarily to the new regime during the consultation process leaving about 8,700 whose contracts were transferred involuntarily to the new regime.  Asda justified its decision to impose its new regime on staff, who had not expressly agreed to them by relying on provisions in its staff handbook (“the Colleague Handbook”).

3. About 700 claims were brought by employees of Asda in the Employment Tribunal claiming unauthorised deductions from wages contrary to section 13 of the Employment Rights Act 1996, breach of contract and in some cases unfair dismissal.  Eventually, there were six test Claimants who contended that they did not consent to the change to the new regime, and by the end of the hearing only one of them contended that she had suffered a loss as result of the introduction of the new regime while the others claimed declaratory relief.

4. The parties had agreed before the substantive hearing in the Employment Tribunal that the issues which it was required to decide were:

**“Issue 1
**(1) Was the introduction of “Top Rate” such as to require the consent of the claimants having regard to:
(a) the nature of the change (a change in the classification of pay); and
(b) the Colleague Handbook (which provides that Asda may amend terms)?
Issue 2
(2) If the claimant’s consent was needed did the claimants consent (expressly or impliedly)?
Issue 3
(3) If the claimants’ consent was not given was the total amount of wages paid to the claimants on occasions to which the claim form relates less than the total amount of wages properly payable to him or her on each such occasion as to amount to an unauthorised deduction from wages?”

5. The Employment Tribunal concluded on issue 1 that it had “no doubt that [the Colleague Handbook] permitted [Asda] as a matter of contract to do what it did”, namely to introduce the new regime without obtaining the consent of the Claimants.  The Claimants now appeal against that finding. The Employment Tribunal also concluded that there was therefore no need for it to consider further the agreed issues 2 and 3 on account of its finding on the first issue.

**II  The Colleague Handbook
**6. As Asda seeks to justify its decision to unilaterally change the payment terms of the Claimants to the new regime by relying on provisions in the Colleague Handbook, it is appropriate to set out the relevant terms and conditions.  They start at page 4, in a section headed “Your Contract”. The material provisions state (with block letters inserted by this Appeal Tribunal in each paragraph so as to permit ease of reference) that:

“**Your Contract
**[A] The letter you received offering you your job (and any subsequent contract change letters), together with the following sections in this handbook, form your main terms and conditions of employment:
• Changes to the Colleague Handbook
• Probationary Period
• References
• My Pay
• Sick Pay
• My hours of work
• Breaks
• Customary Holidays
• Holidays
• Notice Periods
• Other employment

[B] They also constitute your statement of employment particulars which you are entitled to under the Employment Rights Act 1996.  The handbook also contains lots of information about Asda policies which do not form part of your terms and conditions of employment.

**Changes to the Colleague Handbook
**[C] The Company reserves the right to review, revise, amend or replace the content of this handbook, and introduce new policies from time to time to reflect the changing needs of the business and to comply with new legislation.  A copy of the handbook is displayed on the colleague communication board in your store and on Pipeline, and replacement copies are available from your People Manager.

[D] You should keep yourself up to date with any changes, by attending meetings, huddles [informal team meetings] and by keeping an eye on the colleague communication board for any updates…”

7. The section in the Colleague Handbook headed “Your Pay” has a part which is entitled “What will I be paid?” and it sets out details of both the old and the new regimes.

III  The Approach of the Employment Tribunal
8. There was a dispute at the hearing before the Employment Tribunal as to whether the Claimants were then entitled to contend that the variation clause in the Colleague Handbook had ever been incorporated into their contracts of employment with the result that Asda could not rely on it.  The Employment Tribunal pointed out there had never been a hint of this argument in the claim form or in the amended claim form or in the agreed Schedule of Issues or in the Claimants’ skeleton argument.  It concluded that it was too late and not in the interests of justice, or in furtherance of the overriding objective, for the Claimants to be allowed to raise this new argument because if the Employment Tribunal had acceded to the Claimants’ request, there would then have been a requirement for further disclosure of documents and for the exchange of witness statements, which would have necessitated an adjournment (paragraphs 23 to 25).  This ruling has not been appealed.

9. The Employment Tribunal started by considering issue 1 to which I referred in paragraph 4 above, namely whether the new regime could be introduced without obtaining the Claimants’ consent.  Mr. John Hendy QC Counsel for the Claimants, submitted to the Employment Tribunal that:

(a) The power to vary, on its proper construction, is limited to non-contractual policies.
(b) Any proposed variation as to pay will still require consent.
(c) On the facts, the Respondent did not in fact do what is covered by the variation clause.
(d) The fact that the Respondent never expressly acted in accordance with the variation clause supports the Claimants’ interpretation of its meaning and that it did not extend to changing contractual terms, or these particular contractual terms

10. The Employment Tribunal held that the introduction of the new regime was a significant change affecting how much employees would be paid for their work at particular times of the day and night as well as removing certain benefits.  It concluded that the pay of the Claimants was fundamental to the employment relationship and that in the light of the significant changes to the Claimants’ contractual terms as to pay, Asda was required on ordinary principles to obtain the consent of the employees.

11. The Employment Tribunal accepted that an employer may reserve to itself the contractual power to vary terms in a contract of employment without consent by reserving the ability to change a particular aspect of the contract unilaterally.  This principle was established in Wandsworth London Borough Council v D’Silva [1998] IRLR 193 in which Lord Woolf MR giving the judgment of the Court of Appeal said at paragraph 31:

“The general position is that contracts of employment can only be varied by agreement.  However, in the employment field an employer or for that matter an employee can reserve the ability to change a particular aspect of the contract unilaterally by notifying the other party as part of the contract that this is the situation.  However, clear language is required to reserve to one party an unusual power of this sort.  In addition, the court is unlikely to favour an interpretation which does more than enable a party to vary contractual provisions with which that party is required to comply.  If, therefore the provisions of the code which the council were seeking to amend in this case were of a contractual nature, then they could well be capable of unilateral variation as the counsel contends.  In relation to the provisions as to appeals the position would be likely to be different.  To apply a power of unilateral variation to the rights which an employee is given under this part of the code could produce an unreasonable result and the courts in construing a contract of employment will seek to avoid such a result.”

12. Having referred to other authorities, the Employment Tribunal then accepted the general principle that employers may reserve the contractual right to vary the terms or to change important aspects of their job irrespective of whether the employee consents or not but that such provisions will be scrutinised carefully to ensure that they cover the particular changes made unilaterally by the employer.  Thus “if the change or variation falls within the contractual power to vary, it will be effective even if financial loss ensues” (paragraph 65).

13. The Employment Tribunal explained first that Lord Woolf had referred to “the ability to change a particular aspect of the contract unilaterally” and second, that it had not been referred to any authority on a general right or power to vary contractual terms without restriction.  It concluded that it could see no reason why the position should not be that an employer could “not as a matter of  contract law reserve the right to amend  all or any of the contract terms unilaterally” as an exception to the general rule that a variation of a contract requires the consent of both parties (paragraph 67).

14. The Employment Tribunal also noted that there might be exceptions to this approach but that no exceptions applied in this case.  Thus, it accepted that there might be arguments in a particular case that the employer had acted so unreasonably or so arbitrarily or capriciously as to amount to a breach of the implied trust and confidence “but such arguments do not arise in this case” (paragraph 65).  The Employment Tribunal also recognised that if a change to contractual conditions was introduced without notice or warning or without consultation, it might be argued that this infringed mutual trust and confidence “but [that in the present case] there was consultation and several months’ warning to employees, and the Claimants make no challenge on this basis” (paragraph 67).  These were factual conclusions, which could not be appealed.

15. The approach of the Employment Tribunal was that where a staff handbook forms part of a contract of employment, it is a matter of construction whether the particular terms are contractual or mere declarations of policy or aspiration (see Keeley v Fosroc International Ltd [2006] EWCA Civ 1277 at paragraphs 31-35).  The Employment Tribunal recognised that the terminology used in the relevant document would not be definitive but they noted that Mr. Hendy had not challenged the conclusion that:

“a variation clause which purports to give a power to amend the contents of a staff handbook which encompasses contractual matters is apt to be contractual”(paragraph 70).

16. The Employment Tribunal rejected each of Mr. Hendy’s contentions on the basis that:

(a) paragraph C of the Colleague Handbook confers the right first to review revise, amend or replace the content of the Colleague Handbook and second the right to introduce new policies [paragraphs 74 and 75];

(b) this could be done again in the words of paragraph C of the Colleague Handbook “to reflect the changing needs of the business and to comply with new legislation”;

(c)  the Colleague Handbook specifically identifies the sections of it which are contractual which include pay and holidays and the variation clause set out in paragraph C of the Colleague Handbook;

(d) there was an amendment of “the content” of the Colleague Handbook when Asda sought to change the old regime to the new regime and such changes fell within the terms of the Colleague Handbook, which permitted unilateral change by Asda; and that

(e) “[Asda] acted in this case in pursuance of a clear and unambiguous power to vary contractual terms.  The Tribunal has considered carefully how the clause should be interpreted, in view of its wide-ranging effect, but it is entirely unambiguous.  However unusual and broad this power was, and however unfettered, the Tribunal has no doubt that it permitted the respondent as a matter of contract to do what it did.  The power could only be exercised to reflect the changing needs of the business (the second circumstance in the clause, changes in legislation, does not arise in this case).  The Tribunal described [Asda]’s reasons for which to have [the new  regime] as the only pay structure, and to force the change in August 2007, at paragraphs 32 and 38 above, and the Tribunal has no hesitation in concluding that these reasons fell within the words “the changing needs of the business”.  Finally, as the Tribunal has said, there is no contention that [Asda] acted capriciously, or arbitrarily, or in any way which breached mutual trust and confidence, in imposing [the new regime] in August 2007.”(paragraph 82).

IV The Grounds of Appeal
17. Mr. Hendy’s grounds of appeal are that the Employment Tribunal failed to apply the proper principles of construction and in particular that it:

(a) Failed to take account of the recognised principles of construction which required the Employment Tribunal to take account of the background of the employees of Asda affected by the change to the new regime (“The Relevant Background  Issue”);

(b)  Did not appreciate that Asda’s duty to maintain trust and confidence required them to have brought home to [the Claimants] what [the contractual provisions] meant (“The Trust and Confidence Issue”);

(c) was perverse in reaching the conclusions which it did that on the true construction of the relevant provisions in the Colleague Handbook, Asda was entitled to impose the new regime on the Claimants without obtaining their further consent as the Colleague Handbook did not authorise the introduction of the new regime without obtaining the express consent of the employees concerned. That was because the terms of the Colleague Handbook on their proper construction did not permit Asda to incorporate the new regime into its employees’ contacts of employment without first obtaining their express consent and Asda could not merely rely on the terms of the Colleague Handbook (“the Construction Issue”); and that it

(d) should have construed the words contra proferentem.  He contends that if the Employment Tribunal had applied the principles it would have found in the Claimants’ favour (The Contra Proferentem Issue”).

18. Mr. Christopher Jeans QC, Counsel for Asda, disputes these contentions and he submits that the Employment Tribunal’s decision should be upheld.  He contends that if the Claimants’ appeal is upheld, then he has a cross-appeal.  It was agreed at the hearing that this would have to be heard on a separate occasion if the Claimants were successful.

**V  The Relevant Background Issue
*19. The starting point for Mr. Hendy’s  submission is that the Employment Tribunal failed to apply the proper principles of construction which were set out by Lord Hoffman when he explained famously in Investors Compensation Scheme Ltd v West Bromwich Building Society* [1990] 1 WLR 896, 912 H – 913 E that:

“(1)      Interp

retation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract. …
(4)      The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax. (see Mannai Investments Co. Ltd. v Eagle Star Life Assurance Co. Ltd. [1997] 2 WLR 945.”

20. Mr. Hendy contends that further assistance is to be derived from the approach of  the Court of Appeal in the recent cases of Protectascoat v Szillagyl [2009] IRLR 365 and more significantly Autoclenz Ltd v Belcher [2009] EWCA Civ 1046 in which Smith LJ said in a judgment with which the other members of the Court agreed  that:

“52.  …the court or tribunal must consider whether or not the words of the written contract represent the true intentions or expectations of the parties (and therefore their implied agreement and contractual obligations), not only at the inception of the contract but at any later stage where the evidence shows that the parties have expressly or impliedly varied the agreement between them
53.  In my judgment the true position, consistent with Tanton, Kalwak and Szilagyi, is that where there is a dispute as to the genuineness of a written term in a contract, the focus of the enquiry must be to discover the actual legal obligations of the parties.  To carry out that exercise, the tribunal will have to examine all the relevant evidence. That will, of course, include the written term itself, read in the context of the whole agreement.  It will also include evidence of how the parties conducted themselves in practice and what their expectations of each other were…”

21. Mr. Jeans does not dispute these submissions but he does not accept the next submission of Mr. Hendy, which is that the Employment Tribunal failed to apply the words of Lord Hoffman “what the parties using those words against the relevant background would reasonably have been understood to mean” or the words of Smith LJ that “the true intentions or expectations of the parties (and therefore their implied agreement and contractual obligations)” because the relevant background would have shown that Asda could not rely on the provisions in the Colleague Handbook to impose the new regime on the Claimants without their express consent.

22. To show “the relevant background”, Mr. Hendy points out that most of the employees were not well-educated or even literate or numerate and subsisting on very low wages.  So he says that whatever the Colleague Handbook stated it is of critical importance that in the words of his skeleton argument:

“not one of the 150,000 employees who entered a contract on the basis of it, could conceivably have intended or expected its effect would be to leave to the unilateral discretion of the respondent the right to reduce the pay increase or change the hours of work and cut holidays without the need for consent and without the need for notice.”

23. We are unable to accept that submission because it was accepted at the hearing before the Employment Tribunal that the Colleague Handbook should be construed on an objective basis.  Importantly, no evidence was adduced before the Employment Tribunal that the employees had the intention, expectations or limitations referred to in the Claimants’ skeleton argument.  Of course, the Claimants could have adduced such evidence to that effect in front of the Employment Tribunal, but they did not do so and there is no ground of appeal that the Employment Tribunal should have made a finding along the lines of what is in the Claimants’ written skeleton argument and which I have quoted in paragraph 22 above.  Indeed there was no evidence before the Employment Tribunal to justify such a finding.

VI  The Trust and Confidence Issue
24. Mr. Hendy contends that if Asda really intended that the words in the Colleague Handbook were to have the meaning found by the Employment Tribunal, Asda should pursuant to its duty to maintain trust and confidence have brought home to its employees what they really meant.  He submits that such a duty does exist in appropriate cases as was explained by Lord Bridge in Scully v Southern Health and Social Services Board [1992] 1 AC 294, especially at pages 305-307.

25. Mr. Hendy points out that in Visa International Service Association v Paul [2004] IRLR 42, this Appeal Tribunal upheld a finding by an Employment Tribunal that the employer’s failure to inform an employee on maternity leave of job vacancies for which she considered herself suitable was a breach of the employer’s duty of trust and confidence.

26. We cannot accept that argument in this case as it is not now open to the Claimants because before the Employment Tribunal the Claimants expressly conceded that there was no issue in relation to the trust and confidence duty because, as was pointed out in paragraph 16(e) above, the Employment Tribunal explained in paragraph 82 of its Reasons that “there is no contention that [Asda] acted capriciously, or arbitrarily, or in any way which breached mutual trust and confidence, in imposing [the new regime] in August 2007”.  In the absence of such a contention and evidence adduced in reliance on it, the Employment Tribunal could not have made a finding on this issue and so there cannot now be an appeal on this issue.

VII  The Construction Issue
27. The case for the Claimants is that the Employment Tribunal was wrong to find that the words in paragraph C of the Colleague Handbook were “clear and unambiguous” as the reserved power “to review, revise, amend or replace” in paragraph C of the Colleague Handbook was directed to “the content of the handbook”, which is a phrase which is in marked contrast to the phrase “terms and conditions of employment”, which is used twice in the previous paragraph.  So it is said that that the reserved power to “review, revise, amend or replace” did not apply to the terms and conditions of employment but merely permitted changes “to alter the contents of the handbook”.

28. We are unable to agree because there are two separate but important rights given to Asda in paragraph C of the Colleague Handbook which provides that “The Company reserves the right to review, revise, amend or replace the content of this handbook, and introduce new policies from time to time to reflect the changing needs of the business and to comply with new legislation”.

29. The first right conferred on Asda in paragraph C is to review etc the content of the Handbook and the second right is to introduce new policies. The fact that they are separate and independent of each other is shown by what is to be found after the word “handbook” in the passage quoted in the last paragraph, namely first the presence of a comma and second the addition of the word “and”.  Indeed, an additional argument to support that conclusion is that if the writer of the Colleague Handbook had intended for there to be two separate rights, he would have in fact used the comma and the word “and” which now appears in paragraph C.  We conclude that the right to review etc applies to the contents of the Handbook.

30. Further, in so far as it is contended that the power to amend etc can only be exercised by re-issuing the whole Handbook, we are unable to agree because the power “to amend” in paragraph C extends not to the Handbook but as is expressly stated it applies to its “contents”.  The Employment Tribunal was correct to reach a similar conclusion in paragraph 80 of its Reasons when it explained that “it is beyond argument that there was amendment or the content of the Colleague Handbook, when the entitlement set out in it as [the old regime] were removed from employees”.

31. We are also unable to accept further arguments of the Claimants that:

(a) any variation would require further consent but that ignores the wording in paragraph C under which Asda “reserves the right to review, revise, amend or replace”.  These words show clearly that Asda was entitled to unilaterally change the content of the handbook;

(b) the power to vary conferred on Asda was limited to “non-contractual policies” but that submission was correctly rejected by the Employment Tribunal because the power conferred in paragraph C which was “the right to review, revise, amend or replace” was not limited to policies but was indeed extended to “the contents of this handbook”.  Such contents included contractual matters such as “my pay” “sick pay” and “my hours of work” which are changed in the new regime; and that

(c) as set out in their skeleton argument, “the meaning ascribed to the relevant words by the Tribunal would have rendered the contract void for uncertainty”.  We cannot understand this submission because the right of Asda to vary the conditions of their employees relating to the matters set out in paragraph A of the Colleague Handbook without obtaining their further consent has been clearly established. There is no uncertainty about this.

32. We therefore have no hesitation in rejecting the criticisms of the decision of the Employment Tribunal that the Colleague Handbook authorised Asda to introduce the new regime without first obtaining the consent of the Claimants’.

VIII  The Contra Proferentem Issue
33. Our conclusion is that the wording of paragraph C of the Colleague Handbook is clear as showing that Asda was entitled to review and to change the contracts of its employees without obtaining prior consent.  So there is no need to invoke the contra proferentem rule which only comes into play when there are ambiguities, but that is not this case.

IX  Conclusions
34. The appeal must therefore be dismissed and as the cross-appeal does not arise, it must also be dismissed.