This month’s problem concerns: Our Company has had a particularly tight financial year. It is coming round to pay talks shortly and on the last management accounts, it appears unlikely that we will be able to afford a pay rise. What does the Company have to do in order to comply with its obligations for pay review?


Patricia Rooney from the Employment team at Tughans writes:


The Company’s obligations will depend on the provisions of their contract with employees. Most employment contracts confirm that the employer will carry out a pay review on a specified date/month every year. Usually the pay review period coincides with the end of the Company’s financial year.

Whilst a considerable number of contracts include a provision confirming that the employee is entitled to a pay review, it is rare to find a contractual entitlement to a pay/salary increase.

This is, however, subject to one usual exception where pay reviews are subject to collective agreements or NJC arrangements whereby the employer is obliged to abide by any amendment to terms and conditions of employment, including an increase in pay, agreed at national or local level.

In those circumstances, regardless of the individual employer’s financial circumstances, if the employee’s contract includes such a provision, the Company will be required to award a pay increase, in line with the collectively agreed rates.


Failure to Award a Pay Rise


Failure to award a pay rise in such circumstances could provide the employee with a number of possible remedies.

It may constitute a breach of contract and the employee might resign and allege constructive dismissal and issue proceedings at the Tribunal on such grounds.

The Company’s breach of contract, in failing to observe the employee’s contractual entitlement for pay award under collective agreements/NJC arrangements, could also allow the employee the right to issue proceedings in the civil court claiming damages. Such course of action lies to the civil courts only as the employee will not be able to issue proceedings at the Tribunal alleging breach of contract until the end of the employment relationship.

If the employment relationship has terminated however, the employee could issue proceedings at Tribunal for breach of contract, claiming up to £25,000.

However, it is hopeful that the employee will not resort to such remedies. Rather, it could be expected that the employee would issue proceedings at the Industrial Tribunal alleging an unlawful deduction of wages under the Employment Rights (Northern Ireland) Order 1996. The employee could issue a complaint to the Tribunal within 3 months of the deduction/absent pay rise, or within 3 months from the date of the last deduction or payment in the series of shortage in wages.

It is not however clear whether the employee has a contractual right to a pay increase, and may only be entitled to a pay review. Consequently, in such circumstances, the employer would be required to carry out a proper review process, in line with reviews carried out in previous years. It may be that the Company’s practice is to carry out a review following a formal appraisal process, looking back at targets, key performance indicators etc in order to not only assess performance and undertake the review, but also to consider the possibility of a salary increase.


Custom and Practice


If custom and practice within the organisation is that there has been not only a pay review, but an automatic pay increase in previous years following an appraisal process, the employer must be in a position to fully explain the absence of a salary increase for this particular year.

In addition, the employer is at risk that the employee might allege that due to custom and practice, there is an implied contractual entitlement to a salary increase. If this can be proven, and a pay increase is not awarded, the potential remedies available to the employee are those set out above.

The employer will be better able to defend claims if custom and practice has dictated that whilst there has always been a pay review, a salary increase has not always followed at the end of such a review.

It is crucial that the employer can justify the review, and salary increase (or absence thereof) on an individual employee basis, if the review process is subject to company targets and personal objectives. In the event that the employer grants a salary increase to some employees and not others, it is vitally important that the review process is fully documented and discussed with the employees concerned. The employer should be in a position to justify why pay awards have been granted to some employees and not others.

Such a difference in treatment, if not fully justified, could present the employee with grounds for issuing a complaint to the Tribunal alleging discrimination or bringing an equal pay claim if there are men and women doing identical or like work on different pay rates. The company will be required to show that the difference in treatment is not solely due to gender but from material factors which could include performance, appraisal outcome, objectives, experience or qualifications etc and do not involve direct or indirect discrimination.

In addition, the employer should be cautious in considering attendance as part of the reason for failing to award a salary increase if the reason for such absence was illness, which could amount to a disability and then lead to a claim for disability discrimination.

In circumstances where the Company has awarded a pay rise to an employee and not to others, the employee will be understandably disgruntled and look to all avenues for redress. It is recommended that the employer takes steps to fully explain to the employee the reason for the decision taken and ensures there are fully documented processes with valid and fair reasons for that outcome.