Incorporation of Terms

The Court of Appeal has confirmed that a provision relating to absence management which was set out in a staff handbook had been incorporated into contracts of employment; therefore, a new attendance policy which the employer purported to introduce did not vary the employment contract and was not binding on the employees.

At common law, a contract, including an employment contract, may only be amended in accordance with its terms or by agreement between the parties to the contract. When deciding whether a proposed change to a contract takes effect, the contractual terms need to be considered. Some terms may be incorporated into the contract from other sources such as staff handbooks. These terms are incorporated if the contract provides for them to be incorporated and the term is ‘apt for incorporation’. Terms unlikely to be ‘apt for incorporation’ are those setting out guidance or aspirations.

In the case in question, the claimants were employees by different agencies for which the Department for Transport was responsible. The agencies each had a staff handbook that was based on a standard form which was common across the Department for Transport. The absence policy for each agency was almost identical, however there was some variation in the number of days of absence required before a formal absence procedure was put in place. The handbooks stated that all its terms that were ‘apt for incorporation’ were to be incorporated into the employees’ employment contracts.

In respect of change of terms, the handbook provisions were not entirely clear, however where agreement could be reached after consultation, changes could be made by agreement. Where there was no agreement, the Department for Transport could only make unilateral changes if they were not detrimental to employees.

When no agreement could be reached, after consultation, in respect of a proposed change in absence procedure, the Department for Transport informed the trade unions that it would be imposing a new, standard, attendance management procedure. After 5 days or three instances of absence within a rolling 12 month period, a formal process would be triggered.

The employees applied to the court for a declaration. The High Court held that the previous absence provisions in the handbook had been incorporated into the employment contracts and the Department for Transport could not unilaterally change the terms. The Court of Appeal dismissed a subsequent appeal.

The absence provisions in the handbook were sufficiently clear and precise to be incorporated into the employment contract and the changes imposed unilaterally were detrimental to the employees as the changes imposed a process including potential formal sanctions earlier than was stated in the handbook.

Although each case is specific to its facts, employers need to take care in light of the issues raised in the above case. Many employers prefer to have the freedom to amend policy documents without having to engage in consultation, so it is important to ensure that the status of such documents is made clear.