Council cannot use own irrationality to avoid paying staff enhanced notice, says Tribunal

A local authority could not rely on its own alleged irrationality to get out of paying enhanced contractual notice to its employees, an Employment Tribunal has ruled.

In an unusual move, the Tribunal also held that Letchworth Garden City Council’s actions were a violation of the employees’ right to property under Article 1 Protocol 1 of the European Convention on Human Rights.

Letchworth Garden City Council was set up as a town or parish council in June 2005 when elections were first held. The claimants were employed in various different capacities and constituted the authority’s entire complement of employees. They were dismissed by reason of redundancy on 14 January 2010.

They all relied upon a variation in the terms of their contract which was communicated by a letter of 30 March 2009 to the effect that, in the event of being dismissed by reason of redundancy, at any time between then and 31 December 2010, they would be given a minimum of 12 months’ notice, which could either be worked notice or, in the council’s discretion, pay in lieu of notice.

The letter also said there would be severance pay of the greater of either 20 weeks’ pay or two weeks’ pay for each completed year of local government services, whether continuous or not and to be paid at the actual weekly rate.

These changes were brought in because of fears about the recruitment and retention of employees and potential disruption to the council’s business, including its community engagement projects.

The staff were having to endure increasing uncertainty over their futures. A campaign group – Help Eliminate Letchworth Parish council (HELP)  – had been set up and granted an opinion poll, which found that 76% of respondents agreed that the council should be dissolved.

Employees were also working in unpleasant circumstances, having been on the receiving end of hostility and abusive behaviour from members of the public.

A report on the proposed variations – prepared prior to their implementation – said: “This proposal will offer some comfort and protection to staff during a period of great uncertainty. It will allow the council to deliver the services it promised to and allow community empowerment to continue.

“Moreover the council will incur no expenditure unless it becomes necessary. Even in the event that staff are dismissed by reason of redundancy, the total payable would not exceed a maximum level permitted under Local Government early termination of employment regulations.”

But a newly constituted council – led by campaigners from HELP, whose slogan was “we’re in it to bin it” – was elected on 4 June 2009 on a promise to become non-spending. To do that, it had to dismiss all staff by reason of redundancy.

The council purported to vary the terms of contract again. This would have seen the severance pay element remain unaltered, but the 12 months’ notice was to be reduced to three months. However, if the staff were to sign a compromise agreement accepting the new arrangement, in addition to the three months’ notice there would be the equivalent of a further three months’ notice.

The employees – after obtaining advice from an independent solicitor – all refused to enter into the compromise agreement.

The council then paid the severance payment and the three months’ notice but nothing else. The claimants sued for the balance of notice pay in accordance with their varied contracts of employment.

Letchworth sought to argue before the Tribunal that the previous administration had acted ultra vires by agreeing to enhanced notice periods if its employees were made redundant.

This was not because it exceeded the council’s statutory powers but because it was irrationally generous to the extent of being Wednesbury unreasonable.

The barrister for Letchworth argued that in contemplating that the electorate of Letchworth wanted the closure of the council, but yet in seeking to put in place a policy that was designed to keep the claimants in post, the policy and resources committee acted in a way that no sensible council could have done in the circumstances and failed to consider its overall responsibility to the ratepayers of Letchworth.

The Employment Tribunal in Bedford rejected the council’s contentions and found for the claimants. It dismissed as “unsustainable” the suggestion that the council should have curtailed its programme in the light of the opinion poll. It was entitled to carry on public business during its term.

The Tribunal said that “given both the unusual situation and the highly charged atmosphere in which the staff found themselves”, it could not accept the argument that the varied terms, although generous, had been irrationally generous.

“The council placed rational, clear, carefully calculated limits upon its own generosity for the express purpose of enabling the council to do continue the business for which it had been elected and for which it was reliant on having the staff present to carry out that role,” it added.

Letchworth did not come “anywhere close” to discharging the heavy burden of showing that the varied terms were so unreasonable that no reasonable decision maker could have arrived at. There was no irrational generosity and no evidence of an improper motive.

“Rather there was a balanced decision as to protecting current staff’s interests and promoting stability, on the one hand, whilst on the other, not unduly tying the hands of a radically different council in the second term,” the Tribunal concluded.

The Tribunal also accepted the claimants’ submissions that – even if it were wrong and the council had been irrationally generous – the council should be stopped from reneging on the varied conditions of employment. Each of the claimants had to varying extents changed their position. They had also taken important personal decisions on the strength of the promised variation. It would have been inequitable to allow the council to go back on its promise.

The claimants’ argument that the enhanced notice rights constituted a right to property under the European Convention of Human Rights was also accepted.

The Tribunal said it was “unattractive” for a public authority to rely upon its own alleged illegality in relation to contracts of employment which contained the implied term of mutual trust and confidence “and where its own employees have continued to work for it in unpleasant circumstances, relying upon the promise of some further limited security of employment to it in order to obtain their continued services”.

Commenting on the ruling, Frank Lovett, Chairman of Letchworth Garden City Council claimed that the full cost of the redundancy payments would be more than £200,000, rather than around £40,000 if the variations of March 2009 had not been implemented.

He said: “Because of the unusual nature of these contracts and the very considerable sums of money involved we felt it was our responsibility, on behalf of Letchworth council ratepayers, to seek legal advice. We consulted specialist employment lawyers who advised that what the old council had agreed to give them was so very much greater than the norm that it was likely that the old council’s action had been unlawful.”

Cllr Lovett insisted the council had worked hard with the staff to reach new terms that would strike a fair balance between their interests of the staff and the interests of the ratepayers of Letchworth, but that in the end the matter went before the Tribunal for a decision.

He said: “It is unfortunate, because we had hoped that any surplus money would eventually have been redistributed back to Letchworth ratepayers. We felt this would have been particularly welcome during this difficult economic time. Now the money will go to the past employees instead.”

Cllr Lovett added that the council remained convinced that it was its duty to try to safeguard the council’s funds for the ratepayers of Letchworth “and that it was the correct thing to do”.

Michael Paulin, a barrister at 3 Paper Buildings who represented one of the claimants, said: “Although this is a first instance Tribunal decision, this is likely to be of great interest to those in local government, especially in light of the spending cuts.

“It is not everyday that an ET finds that a local authority breached the human right to property.”

Philip Hoult

For a copy of the Tribunal’s judgment, email This email address is being protected from spambots. You need JavaScript enabled to view it..