What happened?
In Hershaw v Sheffield City Council, the EAT decided that a letter increasing employees' pay was legally binding on the employer, even though the consultant who sent it had no authority to make a decision about pay.
Following the Sheffield City Council's (“Council”) review of its pay and grading structure, Mr Hershaw and several other employees were reassigned to new roles, with higher pay. They did not, however, receive the higher pay. The employees appealed the Council's failure to pay the higher salary and eventually raised grievances after the Council failed to respond to the employees' appeal. A HR consultant investigated the grievances and then wrote to the employees confirming the decision to re-grade the employees with a higher pay grade. The employees still did not receive the higher pay and brought a claim for unauthorised deduction from wages.
The EAT decided that the letter sent by the HR consultant created a contractual obligation on the Council to pay the higher salary.
Even though the HR consultant did not have the actual authority to increase the employees' salary herself, her letter was still binding. The Council had appointed the HR consultant to deal with the grievance (the central issue of which was pay) and therefore authorised her to communicate the result of the grievance procedure.
Viewed objectively, the HR consultant's letter was intended to set out what was offered by the employer to the employees and was sent by someone whom the Council had held out as being authorised to make that communication. Therefore the letter had the same effect as if the employer had personally and directly told the employees of the pay rise.
What does this mean?
Communications to employees made on behalf of an employer can be binding on the employer where the person making the communication is held out as having authority to do so, even if the employer did not intend to be legally bound.
What can we do?
Employers should be careful how they communicate decisions to their employees, particularly where they ask someone else to communicate such a decision. The EAT made it clear that, for example, a letter from an employer typed by a secretary on the company's letterhead could make an offer which can bind the company. Employers often have internal policies which set out express limits on levels of authority for this very reason. Although this would not prevent the company from being legally bound in the same circumstances as this case, such a policy would at least act as a deterrent or would remind consultants of what they should and should not agree to in the name of the company.
