Neutral Citation Number: [2010] EWCA Civ 729
Case No: A2/2009/1441
IN THE HIGH COURT OF JUSTICE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM Employment Appeal Tribunal
THE HONOURABLE MRS. JUSTICE SLADE, 
MR A HARRIS & MRS D M PALMER
[2009] UKEAT 0385_08_2404
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 30/06/2010
Before :

LORD JUSTICE CARNWATH
LADY JUSTICE SMITH
and
LORD JUSTICE RIMER
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Between :

	North Cumbria UNIVERSITY Hospitals NHS Trust	Appellant	
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	Mrs J Fox (and others)	Respondents	

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Andrew Clarke QC and Naomi Ellenbogen QC (instructed by Dickinson Dees LLP) for the Appellant
Thomas Linden QC  (instructed by Thompsons Solicitors) for the Respondents

Hearing dates : Wednesday 21st April, 2010
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Approved Judgment

Carnwath LJ : 
1.	This is an appeal from the Employment Appeals Tribunal on 27 April 2009 which allowed an appeal from the Employment Tribunal on a pre-hearing review. The underlying proceedings relate to some of the many equal pay claims made by nurses employed by the North Cumbria Trust (“the Trust”). As the EAT observed, the appeal concerns “but one element of a very long running saga of litigation to resolve these claims”. 
2.	The immediate issue arises out of the claimants’ attempt to add to the existing proceedings comparators from different job groups. It is common ground (following Bainbridge v Redcar and Cleveland Borough Council (No 2) [2007] IRLR 494) that the addition of a new comparator to an equal pay claim represents a new cause of action. The questions before the Employment Tribunal were, first, whether the application to add such a new cause of action was out of time; and, secondly, if so whether it had a discretion to allow the addition out of time, and how it should be exercised.
Factual background
3.	The claims are linked to the change from the Whitley Council pay system to the so-called “Agenda for Change”, agreed between government, management and unions in November 2004. I can take the relevant facts from EAT’s judgment (para 10-11):
“Prior to the introduction of Agenda for Change, pay in the National Health Service was controlled by the Whitley Council. There was a general Whitley Council and nine functional councils applicable to various categories of staff. For example there was a functional council for maintenance staff, one for scientific and professional staff and one for nursing and midwifery staff, which applied to these claimants. The Whitley Council system incorporated 170 pay scales and hundreds of different grades and allowances. After lengthy discussions between the Department of Health, NHS employers, trade unions and staff representatives, an agreement was reached for Agenda for Change. The basis of Agenda for Change is a job evaluation scheme and pay scale which applies to all employees in the NHS apart from doctors and dentists. Agenda for Change includes three national pay bands. At the same time as new pay scales, national core terms and conditions of service were also introduced together with some flexibility permitting the application of local terms and conditions. A single national negotiating council was formed. 
In June 2004 it was announced that the operational date for the implementation of the new terms and conditions of Agenda for Change would be 1st October 2004. The final Agenda for Change agreement was signed in November 2004. Individuals who agreed to the change were assimilated onto their new place in the Agenda for Change pay scales. The assimilation process required an extensive job evaluation exercise. Following evaluation employees were given a place on the pay bands to which they were to be assimilated. If the job holder did not agree with the banding, they were entitled to have it reviewed by a Review Panel. On assimilation to a pay band each employee received a letter from the Trust setting out the band to which he or she had been assimilated and giving details of some of the terms and conditions under Agenda for Change.” 
4.	A particular feature of the new terms and conditions was the so-called Knowledge and Skills Framework (“KSF”). Again I quote the EAT (para 21-2):
“To progress up the pay scale, employees had to demonstrate the necessary skills to pass through certain pay progression gateways. Under Whitley Council, employees automatically progressed by incremental steps until they reached the top of the scale. Under KSF each individual employee has to demonstrate the knowledge and skills required for their job. The first gateway at which this is to be demonstrated is within 12 months of appointment. To progress further up the pay scale they also have to pass a gateway which is fixed at different levels for different grades. If an employee fails to demonstrate the required skills and knowledge they will not progress up the pay scale.”
5.	The original standard form of contract had contained a statement that the terms and conditions were “subject to change”, and that “any major changes” would be recorded in the documents kept at the appropriate office. Following the agreement in November 2004, individual employees were sent “assimilation letters” in these or similar terms: 
“Following the introduction of the new NHS pay system I am writing to notify you of the results of the job matching/evaluation process and provide you with details of your new rate of pay and main terms and conditions.
Terms and Conditions
A summary of the main changes to your terms and conditions of employment follows."
6.	No assent or confirmation was sought from the recipients.
The case before the tribunals
7.	The claims were made under the Equal Pay Act 1970. Section 1 gives women employees the benefit of an “equality clause” as defined in the section, the broad effect of which is to ensure that they are employed on terms not less favourable for equivalent work than those applying to their male counterparts.
8.	The issues in the present case arose under section 2, which deals with disputes. A claim in respect of alleged contraventions of the equality clause or for arrears of remuneration or damages, may be presented by complaint to an employment tribunal. By sections 2(4) and 2ZA(3A), the proceedings must be instituted on or before “the qualifying date”, which in a “standard case” (as this was taken to be) is -
“...the date falling six months after the last day on which the woman was employed in the employment.”
9.	Accordingly, the issue before the tribunals was whether the previous “employment” came to an end on the day on which the new terms came into effect in each case, with the result that the six month period ran that from that time. This was treated as turning on whether the changes were sufficiently “fundamental” to result in the substitution of a new contract, or whether they constituted a mere variation of a continuing contract. A number of authorities were discussed by both tribunals. Recent guidance was found in the summary of principles by Elias P in Cumbria County Council v Dow (No 2) [2008] IRLR 109 para 12, encapsulated in the following self-direction (para 36): 
“If the change is not of a fundamental nature, the only proper inference is that there was a variation unless we are satisfied that there was, objectively viewed, an express agreement that the mechanism to be adopted was the termination and new contract route.” 
10.	The Employment Tribunal decided that the changes had resulted in a new contract. They regarded the introduction of KSF as “a fundamental change” from the “incremental” approach of Whitley (para 108); and cited other changes which “in their totality” added up to a “significant and fundamental change in the terms and conditions”:
“Leads and allowances have been removed and higher pay given. On call and standby payments are changed. Overtime calculation is also changed. Previously overtime had to be taken as time in lieu by nurses, in contrast to other employees of the NHS, but now they get paid overtime for the extra hours that they work although they still have the options of taking time in lieu. Holiday pay and sick pay calculations are now calculated using the regular pay that an employee receives not just the basic pay...” (para 109)  
11.	They concluded therefore that Agenda for Change represented “a fundamental change of the terms and conditions of employment” with the result that the Whitley Council terms and conditions had been “rescinded”, and a new contract put in its place (para 112). 
12.	The EAT disagreed:
“In our view the Employment Tribunal perversely categorised as fundamental a change in the criteria for pay progression which in any event only impacts at two points in a pay band and otherwise was presented as normally leading to progress to the next point on the pay band on the employee's incremental date. 
The changes to pay listed in paragraph 109 which affect the claimants are restricted to pay. Allowances were consolidated into pay and there were changes to on call and standby payments, provision of pay for overtime and the calculation of holiday pay on regular rather than basic pay. The change in standard hours of work in the NHS does not affect the claimant nurses. Whilst these changes are important, in our judgment the Tribunal came to a perverse conclusion if and insofar as it regarded them either on their own or taken together with the introduction of KSF as fundamental to the contracts of employment as a whole.” (para 92-3)
13.	The case was remitted to the Employment tribunal to determine the application to amend, on the basis that it was not out of time under section 2. 
The case in this court
14.	On the Trust’s appeal to this court, the case has taken a new turn. The claimants, now all represented by Mr Linden QC instructed by Thompsons Solicitors, have sought permission to amend their respondents notice to argue an entirely new point. The Trust accepts that, in what is effectively a test case, the court should be able to deal with all material points, and therefore does not resist the amendment. 
15.	The new point is based on section 2ZA, inserted into the Equal Pay Act by amendment in 2003, to bring domestic law into line with the decision of the European Court of Justice in Preston v Wolverhampton Healthcare NHS Trust [2000] IRLR 06. The section introduces the concept of a “stable employment relationship case”, an expression explained by section 2ZA(2):  
“‘stable employment case’ means a case where the proceedings relate to a period during which a stable employment subsists between the woman and the employer, notwithstanding that the period includes any time after the ending of a contract of employment when no further contract of employment is in force.”
In such a case (as contrasted with a “standard case”), the qualifying date for the purpose of the commencement of proceedings under section 2ZA(4) of the Act is –
“the date falling six months after the day on which the stable employment relationship ended.”
Preston and after
16.	The effect of the ECJ ruling in Preston was explained by Lord Slynn in the House of Lords ([2001] ICR 217 para 32ff):  
“A stable employment relationship
32. The employees concerned in these appeals were variously employed, some under consecutive, but separate, contracts of service with breaks in between (e.g. teachers on a termly or academic year contract); some were regularly employed over a long period on this basis, others were not regularly employed but were employed from time to time and in that category some had what has been called an 'umbrella' contract. Where there is an 'umbrella' contract there is an ongoing contractual relationship but in the other cases there are separate contracts of employment. The Employment Appeal Tribunal… and the Court of Appeal… held that s 2(4) was dealing with specific contracts so that as a matter of interpretation a claim could only be brought in respect of employment in existence within the six months preceding the reference of the claim to the industrial tribunal. Your Lordships… agreed with that interpretation but the question inevitably arose as to whether or not such interpretation meant that s 2(4) was incompatible with art 119. The Court of Justice, whilst accepting that time limits could be imposed in the interests of legal certainty, considered:
‘68. Whilst it is true that legal certainty also requires that it be possible to fix precisely the starting point of a limitation period, the fact nevertheless remains that, in the case of successive short-term contracts of the kind referred to in the third question, setting the starting point of the limitation period at the end of each contract renders the exercise of the right conferred by article 119 of the Treaty excessively difficult.
69. Where, however, there is a stable relationship resulting from a succession of short-term contracts concluded at regular intervals in respect of the same employment to which the same pension scheme applies, it is possible to fix a precise starting point for the limitation period.
70. There is no reason why that starting point should not be fixed as the date on which the sequence of such contracts has been interrupted through the absence of one or more of the features that characterise a stable employment relationship of that kind, either because the periodicity of such contracts has been broken or because the new contract does not relate to the same employment as that to which the same pension scheme applies.’
33. Accordingly, it is clear that where there are intermittent contracts of service without a stable employment relationship, the period of six months runs from the end of each contract of service, but where such contracts are concluded at regular intervals in respect of the same employment regularly in a stable employment relationship, the period runs from the end of the last contract forming part of that relationship….”
The cases were remitted to the employment tribunal to determine which of the applicants could satisfy that condition.
17.	When the case returned to the EAT ([2004] IRLR 96), Judge McMullen QC adopted a limited view of the scope of the new principle. He thought it was intended “to rescue employees who do not have a permanent job”; and that it was confined to cases of the kind considered by the ECJ, that is those relating to applicants who –
“worked regularly but periodically or intermittently for the same employer, under successive legally separate contracts” (para 113-4)
18.	In Thatcher v Middlesex University [2005] All ER(D) 82 (quoted at length in Minister for Health v Rance [2007] IRLR 665, para 52) he introduced a further refinement. Basing himself on some comments of the employment tribunal in Preston itself, he said (para 7):
“... a stable employment relationship ceases where the terms of the new contract or (and I emphasise the word “or”) the work done under it radically differs...”
19.	For a time this approach seems to have been accepted as orthodoxy by the profession. However, in Slack v Cumbria CC [2009] IRLR 463, the Court of Appeal had occasion to consider the application of the principle on facts rather different from those of Preston. The case concerned the effect of alterations to the terms of employment of three carers employed by Cumbria County Council. Each of the claimants had been employed for a number of years before the changes. Because the new terms were expressed as “superseding” any previous contracts, it was held that the previous employments had been terminated and replaced. However, following an intervention by the Equality and Human Rights Commission, the argument was widened to include a submission that, notwithstanding the commencement of new contracts, “stable employment relationships” continued. 
20.	Mummery LJ (giving the judgment of  the court, with Janet Smith and Goldring LJJ) summarised the respective contentions, and the court’s conclusion (paras 97-100):
“... the concept of "a stable employment relationship" in the context of time limits for equal pay claims emerged in the judgment of the Court of Justice in Preston. That was a case of a succession of contracts with breaks between the contracts. The Council emphasised that that was the context in which there was room for the concept and that it was not necessary for the Court of Justice to consider the operation of time limits in a case like this of an unbroken succession of contracts. It was argued that the stable employment case does not cover these cases either by reason of the ruling of EC law or as a result of the 2003 Regulations implementing the ruling of the Court of Justice into the provisions of domestic law. 
The claimants disagreed. They submitted that there is no logic in a distinction confining the concept of a stable employment to cases in which there are contract-free breaks in the succession of employment contracts. The irresistible logic of the reasoning of the Court of Justice and of the purpose of the 2003 Regulations is that an uninterrupted succession of contracts is an a fortiori case of a stable employment relationship.” 
21.	The court agreed with the claimants’ submissions, with the result that in two of the three cases the appeals were allowed:
“In our judgment, on the facts found by the ET, the relationship between the Council and both Mrs Slack and Mrs Elliott was a case of stable employment. They did the same work for the Council over very many years without any break in the work they did or in the succession of contracts. The only variation made in the new contracts in 2001 was in the reduction of working hours.”  
22.	In the third case, the claimant (Mrs Athersmith) had started as a “relief carer”, but at the time of the new contract she had become a “permanent carer”, acquiring also a right to sick pay. These facts were considered “not clear enough” for the court to decide whether or not there was a stable employment relationship. The case was remitted to the tribunal to investigate and determine that issue.
23.	In the present case, Mr Linden QC for the claimants relies on the reasoning of Slack as equally applicable to the present case, and as showing that Judge McMullen’s approach was too narrow. It is not necessary for there to be a succession of short-term or intermittent contracts. The key question is whether the employment relationship is stable. The terms of the contracts are relevant only to the extent that they throw light on this issue. For the Council, Mr Clarke QC accepts that Slack represents a limited departure from Judge McMullen’s approach, in that the new principle is now seen to apply even if there are no gaps between contracts. However, he maintains that, in line with Judge McMullen’s judgment in Thatcher (para 18 above), a radical change in the terms of the employment may be sufficient even if the “work done” remains unchanged. On the facts of this case, as I understood his submission, the changes of terms were sufficiently “radical”, for much the same reasons as the tribunal found them to be sufficiently “fundamental” under the Dow test.
Discussion
24.	At the end of the argument on this issue, we indicated that we agreed with the claimants’ submissions on the new ground of appeal, and that it was unnecessary therefore to hear argument on the issue which divided the tribunals.
25.	I would have been content simply to adopt the reasoning of Mummery LJ.  On the facts found by the tribunal in this case, these were “stable employment relationships”. As in Slack, the nurses in the present case continued to do the same work for the Trust, without any break in either the work itself or the succession of contracts. Although the tribunal found that there was a “fundamental” change, that judgment was based entirely on the differences in the terms of employment, most notably the introduction of the KSF requirement. There was no suggestion that the nature of their jobs as nurses changed materially, nor that there was any other practical break in the employment relationships. 
26.	It would probably be enough to say that we are bound by the judgment in Slack, and that there is no reason to distinguish it. However, since the message of that case seems to have taken a little time to sink in with the profession, it may be helpful to add some supporting explanation. 
27.	In the first place, although the principle is now enshrined in a domestic statute, it is relevant to have in mind its European roots. That to my mind is the necessary consequence of the fact that the amendment was made, not by primary legislation, but by regulations (the Equal Pay Act 1970 (Amendment) Regulations 2003) under section 2(2) of the European Communities Act 1972. That section authorises regulations for the purpose of implementing the “Community obligations of the United Kingdom”. In this case, according to the Explanatory Note accompanying the regulations, the changes were deemed necessary to reflect the equal pay provisions of the Rome Treaty (Article 141) “as applied in a number of recent cases before the European Court of Justice and the domestic courts”. The footnote refers to Preston both in the ECJ and in the House of Lords. That it is appropriate therefore to have regard to the scope of the relevant European obligation, is apparent from those authorities. Indeed, if the new provision were found to differ significantly from the European obligation, its validity as an exercise of the 1972 Act power would be open to question.
28.	Secondly, although the ECJ adopted the new concept with reference to a case in which there was a “succession of short-term contracts” (reflecting the facts of the cases before it), their language does not confine it to that factual situation. On the contrary, if stability of the relationship is the guiding principle, it would be perverse to hold that a succession of long-term contracts cannot achieve the same result. 
29.	Thirdly, it is significant that the concept of a “stable employment relationship”, as adopted by the ECJ in Preston, appears to have been entirely new. We were not referred to any direct parallel in UK legislation or in that of any other member state. Nor was it prefigured in the submissions of the parties to the ECJ, or the opinion of the Advocate General (who reached the opposite conclusion to that of the court). The ECJ gave no further guidance as to the constituents of a stable employment relationship. 
30.	It is of interest, however, to contrast that phrase with the various expressions used by the parties in addressing the third question (as recorded in the Report for the Hearing: [2000] IRLR 506, 520ff): 
i)	The applicants referred to employment “under a series of identical, or substantially similar, contracts…”; and argued that time should run from the end of “the contractual relationship in general”. They referred by analogy to the Pensions Act 1995 s 63(4), by which the six-month rule in section 2(4) of the EPA was applied to pension benefits by reference not to individual contracts of employment, but to employment “in a description or category of employment to which the (pension) scheme relates”. (This argument had been more fully developed, but rejected, in the House of Lords: [1998] 1 All ER 528, 537-8).
ii)	Southern Electric, on the other side, contrasted the possibility, recognised in domestic law, of a “global” or “umbrella” contract, the test being whether there are “mutual obligations between the parties during the intervals between in the individual contracts”. In the instant cases the agreed facts excluded that possibility.
iii)	The Commission, supporting the applicants, pointed to the artificiality of directing attention to the individual contracts – “despite the fact that all claims will be directed towards the one overarching pension scheme and that the employment relationship continues”. Their proposed answer to the third question referred to the case of “a series of successive but non-continuous employment contracts in the context of a single pension scheme…”
iv)	Advocate-General Léger also referred to the possibility of a series of contracts covered by “an umbrella” contract, under which the parties are under mutual obligations to renew the individual contracts. Under such “a permanent employment relationship”, time would run from the end of the employment relationship. He contrasted the instant cases in which, in the absence of an umbrella contract, the parties were “free to renew or not their various employment contracts”. It was therefore impossible to determine precisely the time when the employment relationship ends (paras 122, 138).  
31.	By adopting an entirely new expression, the court was, as I read the judgment, signalling a wish to distance itself from all these various formulations: on the one hand, to reject the Advocate-General’s proposal which depended on the concept of an “umbrella contract”, involving mutual obligations of renewal, and, on the other, to adopt a broad, non-technical test, looking at the character of the work and the employment relationship in practical terms. 
32.	In particular, as I understand it, the word “employment” in this phrase was intended to refer to the nature of the work, rather than the legal terms under which it is carried out. Thus, in stipulating that a “succession of contracts” must be in respect of “the same employment”, the court cannot have intended to use the word “employment” in the legal sense of a contract of employment, since that would make nonsense of the sentence. The natural alternative is a reference to the type of work, or “job”. (I note that the French text uses two different words, distinguishing between, on the one hand, the existence of one or more “contrats du travail” and, on the other, the need for them to concern “le même emploi”. Whether this is of more than linguistic interest I am not qualified to judge.) 
33.	I am satisfied, therefore, that on the facts of the present cases, the new terms imposed following Agenda for Change did not interrupt the stability of the employment relationship. Accordingly, albeit on different grounds, the decision of the EAT should be upheld.  
Lady Justice Smith : 

34.	I have read the judgment of Carnwath LJ in draft and I agree with it. As Carnwath LJ has explained, the argument before this Court was whether the expression ‘stable employment relationship’ should be given a narrow meaning, applying only to cases factually similar to Preston as HH Judge McMullen QC had decided in Thatcher and Rance (see paragraph 18 above) or whether it should be given the wider construction to be derived from the ordinary and natural meaning of the words.  In Slack, this Court held that the wider construction was correct.  We are bound by that decision and in any event I think it is right.     
35.	In the present case, the issue before the tribunal was whether the claimants’ attempts to add a new cause of action were in time.  Because it was not suggested that the situation was covered by the stable employment provision, the tribunal found it necessary to make a detailed examination of the contractual arrangements and the changes consequent upon Agenda for Change.  It concluded that the changes had brought the existing contracts to an end that the claimants were now working under new contracts.  On appeal, after an equally careful and painstaking examination of the contractual position, the EAT reached the opposite conclusion and held that the old contracts of employment had been varied.  
36.	In my view it is unfortunate that this exercise was undertaken. Much time and cost would have been saved if it had been realised that there is now a far simpler route to the answer to the limitation question.  Consideration of whether a stable employment relationship has continued to exist will be straightforward in most cases. In the present cases, the answer to that question was obvious. I hope that, in future, tribunals will be able to dispose of these limitation issues without difficulty.   
Lord Justice Rimer :
37.	I also agree with Carnwath LJ’s judgment.