Friday Law Report: Redeployment scheme was not irrational

23 July 1999

Newbold and another v Leicester City Council

Court of Appeal (Lord Justice Simon Brown, Lord Justice Auld and Lord Justice Thorpe) 12 July 1999

A REDEPLOYMENT scheme which provided lump-sum payments to employees of the council as compensation for the loss of stand-by and call-out payments was not so generous as to be irrational and ultra vires.

The Court of Appeal allowed the plaintiffs' appeal against a decision limiting the amount of compensation due to them under a redeployment scheme.

The council had employed the plaintiffs for many years as street-cleansing drivers. Their contracts of employment entitled them, in addition to their normal wages, to pounds 20 per week for standing by to carry out emergency work and two hours' pay at premium rates for every emergency call-out.

In about 1991 the parties agreed that the plaintiffs would be "redeployed", i.e. would continue doing essentially the same jobs, but that their contracts of employment would be varied to remove their entitlement to the stand- by and call-out payments.

The variation was expected to reduce their earnings by about 40 per cent, but the council agreed to compensate them by payment of lump sums equivalent to four times the annual difference between their former and new earnings, subject to a cap of one year's earnings. The selection of the four-year period for calculation appeared to have been taken from national conditions of employment for reimbursement of additional travelling payments following redeployment. In each case the compensation should have been in the region of pounds 10,000.

After the redeployment agreement with the plaintiffs, but before payment to them of the agreed sums, the council was prompted to look at the legality of the scheme by the decision of the Divisional Court in Allsop v North Tyneside Metropolitan Borough Council (affirmed by the Court of Appeal [1992] ICR 639), in which payments made by a local authority under a voluntary redundancy scheme in excess of statutory maxima were held to be ultra vires. After advice from junior counsel the council revised the scheme so as to reduce the compensation for the loss of pay to two years only, and re-calculated the the payments at less than pounds 3,000 each.

The plaintiffs commenced proceedings for breach of contract. The judge held that the scheme and/or its application to the plaintiffs was irrationally generous to the plaintiffs so as to take it outside the general provisions of sections 111(1) and 112 of the Local Government Act 1972; that the council had acted ultra vires in amending the scheme and in purporting to vary the plaintiffs' contracts of employment, and that the plaintiffs were entitled only to the re-calculated payments. The plaintiffs appealed.

Oliver Segal (Thompsons) for the plaintiffs; Andrew McGrath (Legal Services, Leicester City Council) for the council.

Lord Justice Auld said that the present case was not a case like Allsop. The council had to show, on a balance of probabilities, that no reasonably directed local authority could have adopted and applied the scheme. In fixing the appropriate "buy-out" figures the council had to form a view, taking into account such factors as long-term as well as short-term savings in operating costs and the preservation of good industrial relations with its employees.

It was plain that the council had given anxious consideration to such factors. They were very much matters for the council's own assessment and not for the court; and the legality of its scheme and application of it in the section 111(1) sense of what would "facilitate" or be "conducive . . . to" its functions could not turn on arithmetical comparisons of the immediate effects of what was proposed and what might have been proposed in individual cases.

The fact that the scheme might have been drawn from a national scheme providing for reimbursement of additional travelling expenses following redeployment did not make it irrational for the council to apply and adapt it to other circumstances such as those in the present case. There was no basis on which the judge had been entitled to find that the scheme or its application was irrational so as to relieve it of the commitment it had made to the plaintiffs.