The starting point for this discussion is that beyond paying the National Minimum Wage, employers are generally entitled to pay employees whatever they choose, with market factors playing a significant role in this decision. Employment contracts do though have a number of terms which have been implied into the contract by the courts and employment tribunals. The Employment Appeal Tribunal (the "EAT") has decided in the past that in most employment contracts there will be an implied term that the employer will not act "arbitrarily, capriciously or inequitably in matters of remuneration" (F C Gardner Ltd v Beresford [1978] IRLR 63). This does not mean that there is an implied term in every employment contract that employees are entitled to regular pay increases (Murco Petroleum v Forge [1987] I.C.R. 282). More recently, the Court of Appeal held that the implied term to not act "arbitrarily, capriciously or inequitably in matters of remuneration" was "simply one part of the more general obligation not to destroy the mutual trust and confidence between employer and employee" (Glendale Managed Services v Graham and others [2003] IRLR 465 (EWCA). The term of mutual trust and confidence is implied into every employment contract. A breach of this term will always amount to a material breach of the contract entitling the employee to resign and claim constructive unfair dismissal in the employment tribunal.
This leaves us with the position that, as part of the implied term of mutual trust and confidence, an employer should treat employees fairly and equally in matters of remuneration. There will, of course, be situations where it appears this is not being done but the key is that the reason for this should not be capricious or arbitrary. In Transco plc v O'Brien [2002] ICR 721 all employees, aside from Mr O'Brien, had been offered enhanced redundancy terms. The Court of Appeal held that this amounted to a breach of the mutual term of trust and confidence. Lord Justice Pill stated, "to single out an employee on capricious grounds and refuse to offer him the same terms as are offered to the rest of the workforce is in my judgment a breach of the implied term of trust and confidence".
The reality is that most employees who are of the view that their pay should be increased, would prefer not to go down the route of an Employment Tribunal claim. Employees who believe they have a good case in support of a pay increase may wish to consider having an informal discussion about this with their line manager in the first instance or raising it at their appraisal. If this is not successful, the employee could choose to raise a formal grievance. If the employee is seriously considering resigning and claiming constructive dismissal (and advice should be taken before they do), they would be wise to go through their internal grievance process first to avoid any potential reduction in any compensation awarded by an Employment Tribunal.
,What should be clear from the above is that in general, employees who are disgruntled about their pay will not be in a position to show their employment contract has been materially breached and instead, the practical option is to look for another job with more favourable remuneration. That is not to say that there could not be circumstances in which an employee could show that the failure to provide a pay increase is in breach of the mutual term of trust and confidence. This will though be very fact specific and will likely depend upon factors such as what the employee has been told in respect of their pay, whether there is anything in writing (such as emails promising a pay increase), why the employee is of the view that they are entitled to a pay increase, the way in which colleagues are remunerated and the employer's reason for not providing a pay increase.
If you consider that you may require advice on any issue relating to your pay or other terms of employment, please get in touch.
