United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	MR R DOWNEY (of Counsel) Instructed by: Messrs Comptons Solicitors 90-92 Parkway Regents Park London NW1 7AN
For the Respondent	MR B COOPER (of Counsel) Instructed by: Messrs Thompsons Solicitors Congress House Great Russell Street London WC1B 3LW


 


HIS HONOUR JUDGE J McMULLEN QC

1. This case is about unlawful deductions from pay and involves the application of principles for the incorporation of collectively negotiated agreements into a contract of employment. We will continue to refer to the parties as Applicants and Respondent.

Introduction

2. The Respondent appeals against the decision of an Employment Tribunal sitting at London (South), Ms J Wade Chairman registered with Extended Reasons on 7 May 2002; and in respect of Mr Harris the Respondent appeals against the decision of an Employment Tribunal sitting at London (South), Ms C E Taylor Chairman registered with Extended Reasons on 13 December 2001.
3. The Tribunal decided in each case that the Respondent had made unauthorised deductions from the wages which were due and ordered the Respondent to pay Mr Gonsalvez £540 and to Mr Harris 6 days' wages. Each Applicant was represented by Counsel; the Respondent by Counsel or Consultant. Today, both the Applicants are represented by Mr Ben Cooper and the Respondent by Mr Raoul Downey. Both appeared in the Gonsalvez hearing.
4. At a Preliminary Hearing on 11 July 2002 Judge Levy QC and members, allowed the Harris appeal to go to a full hearing, expressing little enthusiasm and contrary to what, in their considerable industrial experience, the case told them. On 25 October 2002 Mr Justice Burton President and members allowed Mr Gonsalvez's case to go forward to a full hearing.
5. In each case the unauthorised deductions found by the Employment Tribunal arose from an alleged failure by the Respondent to pay full holiday entitlement. The main issue, as determined by each Tribunal, was to establish the contractual entitlement to holiday pay and it was, according to the competing claims, 20 days (the Respondent) or 20 days plus public holidays (the Applicants). The Tribunals decided both of the Applicants' claims succeeded.
6. The Respondent appeals against those findings on grounds set out in a Notice of Appeal and a Skeleton Argument and oral submissions today. Essentially, the Employment Tribunal wrongly construed the collective agreement said to regulate the relationship between the parties and wrongly construed the effect of the Respondent's handbook.

The Legal Framework

7. Section 1 of the Employment Rights Act 1996 provides for a statement of terms and conditions to be provided to employees which should include (at section 1 (4) (d)) the following:

"(d) any terms and conditions relating to any of the following-

(i) entitlement to holidays, including public holidays, and holiday pay (the particulars given being sufficient to enable the employee's entitlement, including any entitlement to accrued holiday pay on the termination of employment, to be precisely calculated)"

Thus there is a statutory right to be told exactly what an employee's entitlement is to holidays, including Public Holidays.

8. Section 13 deals with the protection of wages and provides as follows:

Right not to suffer unauthorised deductions

13 (1) An employer shall not make a deduction from wages of a worker employed by him unless-

(a) the deduction is required or authorised to be made by virtue of a statutory provision or a relevant provision of the worker's contract, or

(b) the worker has previously signified in writing his agreement or consent to the making of the deduction."

Regulation 13 of the Working Time Regulations, specifies an entitlement to four weeks' annual leave for employees within the scope of those Regulations.

9. The Trade Union and Labour Relations (Consolidation) Act 1992 section 178 provides

"Collective Agreements and Collective Bargaining

178 (1) In this Act "collective agreement" means any agreement or arrangement made by or on behalf of one or more trade unions and one or more employers…and relating to one or more of the matters specified below; and "collective bargaining" means negotiations relating to or connected with one or more of those matters."

Section 178 (2) provides a list of substantive and procedural matters covered by collective bargaining. Section 178 (3) provides as follows:

178 (3) "In this Act "recognition", in relation to a trade union, means the recognition of the union by an employer … to any extent, for the purpose of collective bargaining; and "recognised" and other related expressions shall be construed accordingly."

The facts

10. We will take the facts from a composite of the findings of the two Tribunals. The Respondent is in the business of providing catering services to film crews. The Applicants were at the relevant time employed as chefs. They became members of BECTU, the appropriate Union for this industry.
11. In 2001 Mr Harris went on holiday for 10 days and was paid for only 4. Mr Gonsalvez sought to take 10 days but was told he would not be paid and left soon after in October 2001. Mr Gonsalvez had been employed by the Respondent (or its predecessor) since 1997. Neither had contractual entitlement to holiday pay.
12. The result of that was that in February 2000 the employees decided that they would organise themselves into a trade union. For that purpose Mr Tom Bell, national official of BECTU, became involved and negotiated on behalf of the Union with Mr Tim Johnson, who acted on behalf of the Respondent. At the time it was expected that Mr Johnson would buy the shares in the company owned by its proprietor Mr Ray. Mr Johnson held himself out as Managing Director of the company and signed the collective agreement to which we will come.
13. The collective agreement consists of two parts. The first is a contract of employment and the second contains terms and conditions of employment. In due course the Respondent also introduced a handbook. The relevant provisions of those documents are the matters for the construction here.
14. In March 2000 an agreement had been reached between Mr Johnson and Mr Bell. At a meeting on 6 March Mr Bell read out the documents and in particular the document containing the clause on holidays. The collective agreement was a fully concluded agreement and not simply a draft. Mr Gonsalvez had understood his entitlement to be 20 days plus public holidays and Mr Harris had done the same.
15. The documents comprised the following. The first two have footers which read "Wood Hall Catering (Europe) Ltd Contract of Employment" and "Wood Hall Catering (Europe) Ltd Terms and Conditions of Employment". There is no finding as to the source of these documents. We think it likely that they emanated from Mr Johnson of the Respondent.
16. The first document is headed "CONTRACT OF EMPLOYMENT" and provides as follows:

"The employer's obligation to provide employees with a written contract or statement of their main terms and conditions of employment are set out in section 1-3 of the Employment Rights Act 1996.

This contract gives you details of your employment with Wood Hall Catering (Europe) Ltd.

The company and BECTU agree that the spirit and intention of this Agreement is to create, maintain and further good relations between the company and its employees. Both parties (Wood Hall Catering (Europe) Ltd and BECTU) accept this Agreement is binding in honour upon them but both expressly agree that it is not intended to constitute a legally enforceable agreement between them."

That document is signed by Mr Johnson and Mr Bell.

17. The next page is what might be described as a standard form, meeting the terms of section 1 of the Employment Rights Act 1996. Blanks are left for certain matters to be inserted but the rest are in common form. As far as we are concerned the following is relevant:

"Holidays

You are entitled to 20 days holiday per annum. For details on the administration of the holiday entitlement please refer to the terms and conditions of employment."

18. That refrain is taken up elsewhere in this document so that the employee for details of matters within the contract of employment is referred to the Terms and Conditions of Employment. These too are attached to the document and, in relevant part, provide as follows:

"TERMS AND CONDITIONS OF EMPLOYMENT

These terms and conditions of employment should be read in conjunction with your contract of employment with Wood Hall Catering (Europe) Ltd. The sections on holidays, sickness absence and the disciplinary rules form an integral part of your contract of employment with Wood Hall Catering (Europe) Ltd.

Holiday Entitlement

Unless otherwise specified in your statement of terms and conditions, your annual leave entitlement is 20 days plus British Public and Bank Holidays."

19. After the signing of this Agreement and its reading to the Union members, including the two Applicants, the Respondent created a document called "Staff Hand Book". This document contains a good deal about the way in which work goes on and the conditions applied to it within the Respondent. So far as is relevant it provides as follows:

"4.5 Holidays

Unless otherwise specified in your statement of terms and conditions, your annual leave entitlement is 20 days, including British Public and Bank Holidays."

20. Of importance to the relationship between these documents is this clause in the terms and conditions of employment:

"Recognised Trade Union

Wood Hall Catering (Europe) Ltd recognises BECTU as the sole trade union for the purpose of representing the interests and negotiating pay and working conditions of employees engaged under the terms of this Agreement."

21. There are express references to the Working Time Regulations 1998. That is fully understandable in a modern contract of employment and illuminates the relationship in these cases. The Agreement came into effect, the Tribunal found, precisely because of the requirement that employees were entitled, since the introduction of the WTR, to a minimum period of holidays. At the relevant time it was four weeks which, it is common ground, is translated as 20 days. It is little understood, but is in fact the case, that there is no separate entitlement in law to paid time off on statutory holidays.
22. Mr Downey told us that the employees had generally worked on Bank Holidays in the past, such is the nature of their business; but that they were compensated by additional pay over and above what would otherwise be earned for the hours put in. Thus, he accepts, there was a custom of payment for Bank and Statutory Holidays within the Respondent.
23. It will be noted that in certain parts of the Working Time Regulations express reference is made to collective agreements which can be made between trade unions or employee representatives and employers. So it is common sense that in considering changes to contracts of employment to accommodate the Working Time Regulations the employees would look to be represented by a trade union and the employers, as was engagingly put to us, would seek the assistance of a trade union in the negotiation of such provisions.
24. The Tribunals found the Respondent had unlawfully deducted the holiday pay of each Applicant. It found that the Hand Book subsequently adduced by the Respondent may have been a practical document containing many matters material to the employment but it did not change the collective agreement.
25. The Tribunals rejected the contention that it was highly improbable that the Respondent would have agreed what Counsel submitted were "generous" terms on holidays.
26. In Mr Gonsalvez' case the Tribunal found that the collective agreement between Respondent and BECTU "acted to incorporate terms into the contract of employment of Mr Gonsalvez." Despite the resistance of Mr Cooper recorded in paragraph 11 on behalf of Mr Gonsalvez to this contention, the Tribunal accepted it. Mr Cooper very properly accepts, as we will show, that this was an error by the Tribunal. Nevertheless the Tribunal made the correct construction, he argues.
27. The Tribunal construed the agreement as being an intention by the company to negotiate pay and working conditions with BECTU and that the details of holiday entitlement were set out in the terms and conditions, as agreed on 6 March.
28. The Tribunal also found that all those involved in the negotiations realised that a final agreement had been reached between the company and BECTU meaning Mr Johnson, Mr Bell, the Applicants and their colleagues, since Mr Bell had recited the terms of the agreement to them. The purpose of the negotiations was to accommodate the Working Time Regulations. The Tribunal found that the attempt to introduce the Hand Book with its change in the terms relating to holidays was an attempted variation and was unenforceable since it was not agreed.
29. Mr Gonsalvez had signed a contract, but that made no difference since the Respondent had not signed the other side of it and that matter is taken no further by Mr Downey today. The Tribunal found that Mr Gonsalvez did not waive his claim to his contractual entitlement.
30. In Mr Harris's case the Tribunal found that the trade union had not been shown copies of the Hand Book and when Mr Bell was alerted to the apparent discrepancy between what he had agreed and what the Hand Book contained he raised the matter forthwith. Mr Harris was issued with the agreed contract of employment and a Staff Hand Book, but not with the agreed terms and conditions of employment. In other words, he did not have a document including the term of 20 days holiday plus Statutory Holidays. Nevertheless, it seems implicit in its finding that he had continued to work on the basis the recital of the terms and conditions at the meeting conducted by Mr Bell.

Directions

31. Each Tribunal directed itself by reference to the relevant provisions of the Employment Rights Act 1996 section 13 to which we have referred above.

The submissions

32. The Respondent submitted that the Tribunal had erred in law in its construction of the relevant documents. Mr Downey on behalf of the Respondent accepts that entitlement was to be to 20 days irrespective of the agreement, by virtue of the Working Time Regulations. We say he accepts that, because, since the Tribunal decided that the whole purpose of the coming together of the union and the company was to accommodate the Working Time Regulations, there would be nothing more for them to say if all they had achieved was embodying in contract the statutory entitlement to 20 days.
33. Secondly, Mr Downey accepts that the evidence before the Gonsalvez Tribunal was that the employees would work on Bank Holidays and be compensated therefor. Nevertheless, he contends that the correct construction of the whole of the contractual relationship between the parties is to provide a holiday term at the lower amount. The Tribunal had erred, he contended, in its approach to the incorporation of a collective agreement. He contended that agency had not been in issue or argued, i.e. that the union had signed the agreement as an agent of the employees, and Mr Cooper did not take the matter further.
34. Mr Cooper contended that the correct construction of the documents against the factual matrix in March 2000 was that the employees were indeed entitled to 20 days plus Statutory Holidays.

The legal principles

35. In our judgment the propositions which we should apply are as follows:

(1) A collective agreement is not legally enforceable in itself, but it may have a normative effect on the individual contract of employment: see Alexander v Standard Telephones & Cables Ltd (No. 2) [1991] IRLR 287, paragraph 27 per Mr Justice Hobhouse, who said this:

"The so-called 'normative effect' by which it can be inferred that provisions of collective agreements have become part of individual contracts of employment is now well recognised in employment law (see, for example, Harvey on Industrial Relations and Employment Law, vol. 235). However, serious difficulties still arise because the principle still has to be one of incorporation into the individual contracts of employment and the extraction of a recognisable contractual intent as between the individual employee and his employer. The mere existence of collective agreements which are relevant to the employee and his employment does not include a contractual intent…"

(2) Where such incorporation takes place, the incorporated terms become legally enforceable by individual employees as against their employer: see Marley v Forward Trust Group Ltd [1986] IRLR 369 per Lawton LJ at paragraphs 11-12 and per Dillon LJ at paragraphs 14-15.

(3) Incorporation of terms found in collective agreements may be express or by implication; where by implication, ordinary contractual principles apply. This means that contractual intent has to be found in the individual contract: see Alexander at paragraph 27 cited above, and at paragraph 31 where Mr Justice Hobhouse said this:

"The principles to be applied can therefore be summarised. The relevant contract is that between the individual employee and his employer; it is the contractual intention of those two parties which must be ascertained. In so far as that intention is to be found in a written document, that document must be construed on ordinary contractual principles. In so far as there is no such document or that document is not complete or conclusive, their contractual intention has to be ascertained by inference from the other available material including collective agreements. The fact that another contractual document is not itself contractual does not prevent it from being incorporated into the contract if that intention is shown as between the employer and the individual employee…Where it is not a case of express incorporation, but a matter of inferring the contractual intent, the character of the document and the relevant part of it and whether it is apt to form part of the individual contract is central to the decision whether or not the inference should be drawn."

(4) A term may be implied in the contract according to the usual rules and the application of the officious bystander test: see Shirlaw v Southern Foundries (1926) Limited [1939] KB 206, 227 per MacKinnon LJ.

(5) It is legitimate to look at all of the surrounding circumstances to consider what terms of a collective agreement are apt for incorporation and also to consider the background knowledge of the parties to the contract: see Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 892, at 912-913 per Lord Hoffman who said this:

"The principles may be summarised as follows.

(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.

(2) The background was famously referred to by Lord Wilberforce as the "matrix of fact", but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.

(3) The law excludes from the admissible background the previous negotiations…

(4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of its words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. That background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reasons, have used the wrong words or syntax: see Mannai Investments Co. Ltd v Eagle Star Life Assurance Co. Ltd [1997] AC 749.

In that case and in Mannai, memorable examples were given by Lord Hoffman and Lord Steyn as to the proper meaning to be given to words which actually say something quite different. That is because the court is looking for what was reasonably understood by persons "circumstanced" as the parties to the contract were, and having their knowledge.

(6) In the search for such meanings and constructions it is legitimate to consider all of the facts and circumstances of the relationship between employer and employee: see Mears v Safecar Security Ltd [1982] IRLR 183 at paragraph 37 per Stephenson LJ who said:

"I am of the opinion that when, in exercising its statutory jurisdiction under [section 1 of the Employment Rights Act now] an Industrial Tribunal has to imply and insert missing terms, it is not tied to the requirements of the test propounded by Lord Justice Scrutton and Lord Justice MacKinnon, a test for commercial contracts which goes back to The Moorcock (1889) 14 Probate Division 64, but can and should consider all the facts and circumstances of the relationship between the employer and employee concerned, including the way in which they had worked the particular contract of employment since it was made, in order to imply and determine the missing term which ought to have been particularised by the employer and so to complete the contract."

(7) When looking at section 1 (4) (d) (ii) of the Employment Rights Act 1996 and the obligation to convey to the employee the precise calculation of holiday and Statutory Holiday pay to see what meaning can be attributed to the contract as a whole or to supply a missing term which ought to be supplied by statute, it is legitimate to look at the way in which the contract has been worked between the parties. If a term in the statutory statement does not enable the employee to calculate precisely his or her entitlement, the Tribunal is entitled to insert it.

Conclusions

36. The document which starts the collective relationship between the Respondent and the Union is very short. It was found by the Tribunal to be a collective agreement since of course it does regulate the relationship between the Respondent and the Union. But collective agreements are not made in a vacuum. The whole purpose of the employees joining BECTU was so that negotiations could ensue upon certain contractual conditions and they certainly focused on the Working Time Regulations. Since Mr Bell's purpose in entering into this agreement was to ensure either conformity with the Regulations or improvements in conditions of employment of his members, it seems to us that this collective agreement provided for the terms and conditions of employment of the employees to be regulated by collective bargaining, as the term on union recognition provides.
37. Mr Johnson knew that Mr Bell was negotiating on that basis. Part of the difficulty in this case is found in the apparent authority given to Mr Johnson to negotiate, and the dissatisfaction felt by Mr Ray when Mr Johnson had indeed negotiated for 8 statutory holidays to be paid in addition to the 20 days which it is common ground exist within the contract.
38. The fact that the collective agreement included within the "contract of employment" is expressed to be not legally enforceable and binding in honour only is simply a reflection of the law. Without exception, before the statutory procedures for recognition of unions introduced in 1999 to the Trade Union and Labour Relations Act 1992, collective agreements were unenforceable: see e.g. the analysis of Scott J in NCB v NUM and UDM [1986] ICR 736 at 762, 770-3. Since the repeal of the Industrial Relations Act 1971 in 1974 it has been common for such expressions to be included out of caution, or maybe as a tribute to the ideals of free collective bargaining, and to the traditionally perceived abstention of the law from industrial relations. One response to that Act by unions was the creation for history of the acronymic character TINA LEA: this is not a legally enforceable agreement, inserted, quite unnecessarily, into collective agreements down the years. She is a younger sister of Mr Solomon Binding, the solemn agreement binding in honour but not in law.
39. We have no doubt that the employees' contracts of employment were regulated by collective bargaining between BECTU and the employer. Part of that regulation includes the provision of holidays, as set out in the contract of employment and the terms and conditions of employment. It is true that there is a distinction between those two documents. The first does not specify Statutory Holidays; but since it directs the employee to the specific provision relating to holidays in the terms and conditions of employment, the latter must prevail. Thus it was that a collective agreement providing for terms and conditions to be agreed on behalf of the employees, which the employees had accepted would be incorporated into their contracts of employment, was made on 6 March 2000 and the entitlement therein is for 20 days plus Statutory Holidays. So when an attempt was made by the Staff Hand Book to reduce the entitlement from 28 days to 20 that was a unilateral attempt and was, as the Tribunal found, ineffective to change the terms already negotiated.
40. Those were the findings of the two Employment Tribunals. They reflect what happens every day in employment relationships where trade unions or employee representatives are recognised by employers for the negotiation of terms and conditions of employment. The result achieved in this case accords with what happens in collective bargaining throughout the United Kingdom.
41. We thank both counsel for their help. The Tribunals made no errors of law and the appeals are dismissed. Leave to appeal is refused.