On the 9th day of Christmas my employee said to me…“My line manager has promised me a pay rise in the New Year”.
2016 looks like a prosperous year for the employee! If however the employer did not intend for the employee to have a pay rise, does it have to honour the manager’s promise?
Before breaking the bad news to the employee that their fortunes are not on the up, the employer needs to understand whether it can deny the employee the anticipated pay rise. In doing so, the following needs to be considered:
- The contract of employment. Most contracts will set out when and how salary will be reviewed. Often contracts provide for an annual review and, more importantly, that reviews do not automatically guarantee a pay rise. However, pay rise promises made in the context of the salary review scheme are likely to be binding.
- Historical pay rises. If the organisation’s usual practice is to award predetermined salary increases on an annual basis there may be an implied contractual right to an annual automatic pay rise; the manager’s comments may therefore be in line with this practice. Vigilance should however be exercised to minimise the risk of this type of right being created.
- The detail of the conversation between the employee and the manager. Irrespective of the terms of the employment contract and/or implied rights to a pay rise, the manager’s comment may in any event have created a right to a pay rise. The main consideration will be whether the manager intended to make a contractually binding promise and the onus is on the employer to disprove that this was the intended consequence. The following factors will as, a minimum, need considering when determining if the employee has any entitlement:
1. When was the promise made? For example, pay rise suggestions at the end of the Christmas party are unlikely to create legal obligations whereas promises made around salary review time during 1:1 meetings may well do so. However, do bear in mind that a manager’s promise made at a social event, or on other occasions outside the parameters of the salary review scheme, can bind the employer in some instances.
2. Is the employee’s account accepted by the manager?
3. What did the manager offer? Is there certainty about the terms of the offer – for example, the amount of the increase and the date from which it becomes payable.
Ultimately, promises made by managers do have the potential to bind their employer and as such can have costly consequences and managers should be reminded of this.
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This update is for general guidance only and does not constitute definitive advice.