England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE CIVIL DIVISION
ON APPEAL FROM THE EMPLOYMENT APPEAL TRIBUNAL

		The Royal Courts of Justice The Strand London
		Thursday 22 March 2001

Thursday 21 March 2002

1. LORD JUSTICE PILL: This is an appeal from a decision of the Employment Appeal Tribunal, Lindsay J presiding, delivered on 30 November 2000. The EAT allowed an appeal by London General Transport Services Ltd ("the respondents") against a decision of an Employment Tribunal held at London South on 5 November 1999. The Employment Tribunal had held that the complaint of Mr C Henry and 60 other employees at Stockwell bus station, ("the appellants") of unlawful deduction of wages under section 23 of the Employment Rights Act 1996 was well founded. The EAT dismissed a cross-appeal against other findings of the Tribunal. They remitted the complaint to the Employment Tribunal for rehearing.
2. The Employment Tribunal had found that the respondents were incorporated in 1988 as a wholly-owned subsidiary of London Transport, who until then had operated the bus service in London. Though when the transfer of undertaking occurred is an issue in other proceedings, it can be assumed in these proceedings that the appellants were employees of the respondent at the material time.
3. At the time when privatisation of the respondents was contemplated, on 12 August 1994, an agreement known as a "framework agreement" was made between the respondents and the Transport and General Workers Union ("T&GWU"). The framework agreement purported to provide revised terms and conditions of employment covering, amongst others, the platform staff at Stockwell bus station. The revised terms were to apply to Stockwell garage staff from 5 November 1994 and involved reductions in pay. Notices were displayed stating the changes to pay and conditions of service and all members of staff were asked to sign individual statements of changed terms and conditions.
4. The appellants declined to sign. On 7 November 1994 the respondents received a petition dated 2 November and signed by over 130 staff at Stockwell. They expressed their total dissatisfaction:

"... not only with the new conditions and rota set out in the new contract presented to us, which we consider to be unworkable, but bearing in mind that the same was negotiated without prior consultation with the general body of employees affected, is fundamentally flawed.

We request that immediate talks be entered into to enable all parties concerned to examine, and if necessary, amend the terms and conditions of the contract.

Pending such talks we are prepared albeit under duress, to work the new rota as from the 5th November next."

5. A further petition was received dated 8 December, again signed by about 130 staff and stating, amongst other things:

"1) That we did not vote on any part of or whole of the recently management imposed terms and conditions (1994/1995).

2) On the contrary, we demanded for a ballot to be held on the proposed terms and conditions.

3) To date no ballot has been held on the proposals, instead the said terms and conditions and pay awards has been imposed in its entirety."

6. The appellants continued to work, working the new rotas provided in the revised terms, and many still continue to do so. They were paid in accordance with the terms of the framework agreement. Proceedings were instituted in the Employment Tribunal in November 1996, that is two years after the terms were applied and the petitions sent.
7. The appellants are a very small proportion of the 1,500 staff to whom the framework agreement was intended to apply. Most of them had, as the EAT put it, "reluctantly or otherwise, accepted the terms of the framework agreement."
8. The Employment Tribunal had held that the T&GWU:

"was the only trade union recognised by the Respondent for platform staff and that situation had existed for many years. Indeed a closed shop had been in operation in the past."

9. The Tribunal also found that the union had informed the respondents "that the majority of staff had consented to the terms of the Framework Agreement." They found that the appellants' contracts of employment "do not specifically incorporate the Framework Agreement." There had not been a ballot on the agreement, though ballots had on previous occasions been held. London Transport and the respondents had for many years negotiated collective agreements with the T&GWU as the recognised trade union for platform staff. There had been at least one annual round of negotiation.
10. In their extended reasons the Tribunal found that:

"the burden of proof is upon the Respondent to establish how the contracts of employment were varied so as to permit ... reduction in remuneration."

11. They held that there had been no express incorporation of the terms of the framework agreement in the terms and conditions of employment of individual appellants. They held that:

"the Framework Agreement was dealing in the main with terms and conditions of employment which could be expected to be in individual contracts of employment [and] therefore the Framework Agreement in the main was capable of incorporation into the individual contracts."

12. However, the Tribunal went on to conclude that they were not satisfied that:

"the evidence as to the tradition of negotiation with the trade union is sufficient to establish that such fundamental changes were incorporated by virtue of the collective bargaining."

13. It was further held that there had been no election to affirm the amended terms and conditions of employment by the employees remaining at work. That distinguished the Stockwell garage employees, in the Tribunal's view, from those at Putney garage, who did not indicate until September 1995 that they objected to the new terms and conditions and were held to have elected to affirm the amended terms.
14. On appeal to them, the EAT identified the following issues:

"(i) On the cross-appeal, whether the terms of the Framework Agreement were such as to be capable of incorporation into employees' individual contracts; and on the appeal;

(ii) As to where the onus of proof lay when the Tribunal was determining what the employers' contractual terms were for the purposes of deciding whether the Applicants were or were not suffering deductions from their contractual rate of pay;

(iii) The role of custom and practice in relation to the incorporation into the individual Applicants' contracts of terms agreed between the Company and the Union by way of the Framework Agreement; and

(iv) Whether the Stockwell Applicants had accepted the new and less advantageous terms, (in particular by reason of their working to them and accepting the lower rates of pay) over the period of almost two years from their introduction to the presentation of the IT1s or whether they had, by way of protest, kept alive their ability to insist on employment under the 'old' terms."

15. The EAT rejected the appellants' approach to the burden of proof on the issue whether the new terms were accepted. That issue, the EAT stated, is "more fairly approached neutrally as to burden of proof". They concluded that "in a case such as the one before us such a neutral approach is in law the correct one." As to the role of custom and practice, the EAT made a series of findings. They found that the use of the expression "strict proof" by the Tribunal was inappropriate to proof of custom and practice and they found that the Tribunal had:

"erred in law by distinguishing in the very general manner in which it did between a practice sufficient to effect changes and a practice sufficient to effect fundamental changes."

16. They referred to the evidence about the absence of a ballot and to the absence of reasoning on that issue. As to waiver and acquiescence, they held that the Tribunal had erred in law "by relying as heavily as it did in regarding the petitions as sufficient of themselves to exclude acceptance, despite almost two years working of and payment under the new provisions."
17. Their general conclusion was that there were errors of law such that the case should be remitted to the same Employment Tribunal for rehearing. It was not a case, they decided, where the appeal should be allowed on the basis that only one conclusion was possible.
18. The EAT also referred to the need for a reasoned judgment. In Meek v City of Birmingham District Council [1987] IRLR 250, Bingham LJ stated at paragraph 8:

"It has on a number of occasions been made plain that the decision of an Industrial Tribunal is not required to be an elaborate formalistic product of refined legal draftsmanship, but it must contain an outline of the story which has given rise to the complaint and a summary of the Tribunal's basic factual conclusions and a statement of the reasons which have led them to reach the conclusion which they do on those basic facts. The parties are entitled to be told why they have won or lost. There should be sufficient account of the facts and of the reasoning to enable the EAT or, on further appeal, this court to see whether any question of law arises; and it is highly desirable that the decision of an Industrial Tribunal should give guidance both to employers and trade unions as to practices which should or should not be adopted."

19. I do not accept the EAT's conclusion on the burden of proof, though there is force in their comment that the issue should not have been given the prominence by the Employment Tribunal that it was. The issues to be resolved were not such that their resolution was likely to depend on where the burden of proof rested. The burden of proving that the employees had accepted the revised terms was, on a balance of probability, upon the employer. There is, however, force in the point that, in a case where the revised terms had operated for two years before proceedings were commenced, an evidential burden is placed upon employees claiming not to have accepted the revised terms.
20. The question of affirmation of a contract of employment was considered in WE Cox Toner International Ltd v Crook [1981] ICR 323, Browne-Wilkinson J, President, presiding. Browne-Wilkinson J cited the well-known passage from the judgment of Lord Denning MR in Western Excavating (ECC) Ltd v Sharp [1987] ICR 221 at 226:

"The employee is entitled in those circumstances to leave at the instant without giving any notice at all or, alternatively, he may give notice and say he is leaving at the end of the notice. But the conduct must in either case be sufficiently serious to entitle him to leave at once. Moreover, he must make up his mind soon after the conduct of which he complains: for, if he continues for any length of time without leaving, he will lose his right to treat himself as discharged. He will be regarded as having elected to affirm the contract."

21. In relation to Western Excavating Browne-Wilkinson J stated at 829G:

"This decision to our mind establishes that, provided the employee makes clear his objection to what is being done, he is not to be taken to have affirmed the contract by continuing to work and draw pay for a limited period of time, even if his purpose is merely to enable him to find another job."

22. Browne-Wilkinson J also stated at page 828H:

"Affirmation of the contract can be implied. Thus, if the innocent party calls on the guilty party for further performance of the contract, he will normally be taken to have affirmed the contract since his conduct is only consistent with the continued existence of the contractual obligation. Moreover, if the innocent party himself does acts which are only consistent with the continued existence of the contract, such acts will normally show affirmation of the contract. However, if the innocent party further performs the contract to a limited extent but at the same time makes it clear that he is reserving his rights to accept the repudiation or is only continuing so as to allow the guilty party to remedy the breach, such further performance does not prejudice his right subsequently to accept the repudiation."

23. If the decision of the Employment Appeal Tribunal is upheld, this issue, along with others, will be for reconsideration by the Employment Tribunal. However, I have to say that, applying the principle stated in Cox Toner, with which I respectfully agree, to the facts of this case as found by the Employment Tribunal, I would find it extremely difficult to conclude other than that the employees had accepted the revised terms. I bear in mind the petitions and their content but, having presented them, the appellants worked upon the same rotas and terms of employment as a very large number of fellow employees, who had expressly accepted the terms, for a period of two years before instituting the present proceedings. The Employment Tribunal's conclusion to the contrary is in any event quite unsupported by reasoning and the EAT were correct to state that:

"the Tribunal erred in law in adopting the route which they took to the conclusion at which they arrived."

24. I would not decide the issue on the basis of any alleged "moral repugnancy" of some employees gaining an advantage over others, an expression used in the course of argument.
25. For the appellant, Mr Juss made a submission, not made below, that the statutory provisions as to unlawful deduction of wages (sections 13, 14 and 23 of the Employment Rights Act 1996) precluded an acceptance by conduct of a variation of a contract involving a reduction in wages. I have found nothing in the statute to support the submission that an employee is incapable in law of accepting by his conduct a variation. If he does accept, there is no deduction of the wages (section 31) and no payment of "less than the total amount of the wages properly payable" (section 13(3)).
26. The EAT dealt at considerable length with the second question they had posed. I deal first with two specific points. I agree with their conclusion that the inclusion of the word "strict", when considering the burden of proof on custom and practice, was inappropriate. The burden is upon the balance of probabilities and the word "strict" suggests a different and higher standard. The word "strict" emerges from a pronouncement used in an Industrial Tribunal case, Singh v British Steel Corporation [1974] IRLR 131. Clear evidence of practice is, however, required to establish something as potentially nebulous as custom and practice, and there should be a scrutiny commensurate with the particular circumstances. I also agree with the EAT that the Tribunal erred in law in introducing a distinction between fundamental changes to the contract and other changes without explaining the basis on which they did so. On the face of it, if the appropriate custom and practice is established, it can be expected to cover all contractual terms.
27. I say at this stage that the errors of law already identified are such that in my judgment the decision of the Employment Tribunal cannot stand and the EAT were correct so to hold.
28. In stating the test to be applied when considering custom and practice, the Employment Tribunal referred to the judgment of Peter Pain J in Bond v CAV Ltd [1983] IRLR 360. There was an issue as to whether the right of an employer to lay off without pay was a custom of the trade. Peter Pain J stated at paragraph 54:

"A custom of the trade must be reasonable, certain and notorious, and I refer to a brief passage in the judgment of Mr Justice Jelf, who was the judge at first instance who was upheld in Devonald v Rosser, at page 733 where he says this:

'Now in order to succeed the defendants must prove a custom or general usage so well known as to be properly read into the contract. It must be, as Lord Denman CJ said in Reg v Stoke-upon-Trent, "A custom so universal that no workman could be supposed to have entered into this service without looking to it as part of the contract."In the same case Coleridge J said: "I have always understood that general usage is evidenced in a case of this kind on the ground that its notoriety makes it virtually part of the contract."'"

29. Both parties to the present appeal agree with that test.
30. I have to say that, apart from the conclusion on the points already considered, with which I agree, I find the EAT's reasoning on the custom and practice issue difficult to understand and accept. However, a further point arose when Mr Juss addressed the court in reply. He accepted that the custom and practice in the trade was that an agreement made by the T&GWU would bind all relevant employees provided it had been accepted by the majority in a ballot of the 1,500 staff to whom the framework agreement was claimed to apply. Mr Juss said, on instructions, that the concession was made before the Employment Tribunal, though if that is so it is surprising that the Employment Tribunal made no reference to it in their extended reasons. The point may not have been clearly put. The concession is, however, consistent -- as Mr Juss pointed out -- with the emphasis placed upon the ballot in the petitions and also the submissions of counsel (not Mr Juss) who appeared at the EAT, as recorded in the judgment, that the absence of a ballot was "crucial." It is also consistent with the Employment Tribunal's finding, upheld by the EAT, that the framework agreement was "capable" of being incorporated into the individual contracts.
31. The custom and practice issue, therefore, turns not upon broader considerations of proof of custom and practice but upon a narrow question: does the admitted and accepted practice that an agreement made between the union and the employer is binding on individual employees operate when a ballot has not been held? The appellants submit that a ballot was necessary: the respondents submit that the union's assurance that "the majority of the staff had consented to the terms of the agreement", together with other steps taken to inform the staff, was enough.
32. Since that is the issue on this aspect of the case, I do not find it necessary to analyse the discussion and reasoning by the EAT on the more general question debated before them. The discussion was not appropriate to the issue as it has now emerged, and it would not be helpful or appropriate for this court to attempt to lay down in advance of a rehearing guidelines which should be followed or, with respect to the Employment Appeal Tribunal, for the Employment Tribunal to be influenced by the discussion and reasoning of the EAT on this issue.
33. I only add that, while it may have been no fault of theirs, because the employees' case may not have been clearly put to them, the distinction between fundamental and non-fundamental terms drawn by the Employment Tribunal is even less satisfactory when the real complaint was only about the absence of a ballot.
34. For the reasons I have given, I agree with the Employment Appeal Tribunal that the decision of the Employment Tribunal cannot stand. There will be a remission in the terms ordered by the EAT.
35. LORD JUSTICE LONGMORE: I agree with the judgment of my Lord that the matter will have to be remitted to the Employment Tribunal and, agreeing as I do with the reasons that he has given, I need add nothing of my own.
36. SIR MARTIN NOURSE: I also agree.
ORDER: Appeal refused. The respondent to have two-thirds of the costs of the appeal, summarily assessed as £8,975. (Order not part of approved judgment)