Appeal No. EAT/39/96

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
On 19 September 1996
Judgment delivered on 16 December 1996

Before
HIS HONOUR JUDGE J HICKS QC
MRS T A MARSLAND
MR J C SHRIGLEY

GARY WHENT & OTHERS	APPELLANTS

T CARTLEDGE LIMITED	RESPONDENTS

Transcript of Proceedings

JUDGMENT

Revised

	APPEARANCES

For the Appellants	MR P ROSE
(of Counsel)
National Legal Department
GMB
22-24 Worple Road
London
SW19 4DD	
For the Respondents	MR D BROWN
(of Counseil)
Messrs Nabarro Nathanson
Solicitors
50 Stratton Street
London
W1X 6NX	

	JUDGE HICKS:  Mr Whent and his co-appellants were until 11 April 1994 employed by the London Borough of Brent.  Their individual contracts of employment with the Borough were for present purposes identical and each such contract contained, as clause 1, the following:

“During your employment with the authority, your rate of remuneration, overtime and premium payments, standard hours of work, entitlement to holidays and holiday period, holiday pay (including the basis for calculation of accrued holiday pay), sick leave and sick pay, and the periods of notice required to terminate your employment, will be in accordance with the agreement made by the National Joint Council for Local Authorities’ Administrative, Professional, Technical and Clerical Services and set out in the scheme of Conditions of Service, as supplemented by the authority’s rules and wages records, and as amended from time to time. Copies of the relevant documents are available for reference in departmental personnel sections.”

	The agreement referred to, which we shall call the “NJC Agreement”, was a collective agreement between a number of associations of employing authorities and a number of trade unions.  We understand it to be common ground, although not among the facts found in the Industrial Tribunal's reasons, that Brent was a member of one of the participating associations and thus indirectly represented on the National Joint Council itself (the “NJC”), and that the appellants were and are all members of one or other of the participating unions and thus also indirectly represented on the NJC, but that employees of Brent were not required to be members of participating unions, or of any union, and that any non-union employees were employed on the same terms as the appellants, including the term quoted above. 

	On 11 April 1994 the activities of the Borough which the appellants and others were employed to fulfil were taken over by  T Cartledge Ltd, the respondent to Mr Whent's application and to this appeal, under a transaction which was a “transfer of undertaking” within the scope of the Transfer of Undertakings (Protection of Employment) Regulations 1981 (“TUPE”).  Those regulations include the following:

	5  Effect of relevant transfer on contracts of employment, etc.

	(1) .... a relevant transfer shall not operate so as to terminate the contract of employment of any person employed by the transferor in the undertaking .... but any such contract which would otherwise have been terminated by the transfer shall have effect after the transfer as if originally made between the person so employed and the transferee.

	(2) Without prejudice to paragraph (1) above .... , on completion of the relevant transfer -

 	(a) all the transferor's rights, powers, duties and liabilities under or in connection with any such contract, shall be transferred by virtue of this Regulation to the transferee; and

	(b) anything done before the transfer is completed by or in relation to the transferor in respect of that contract or a person employed in that undertaking .... shall be deemed to have been done by or in relation to the transferee.

	6  Effect of relevant transfer on collective agreements

	Where at the time of the relevant transfer there exists a collective agreement made by or on behalf of the transferor with a trade union recognised by the transferor in respect of any employee whose contract of employment is preserved by Regulation 5(1) above, then -

	(a) .... that agreement, in its application in relation to the employee, shall, after the transfer, have effect as if made by or on behalf of the transferee with that trade union, and accordingly anything done under or in connection with it, in its application as aforesaid, by or in relation to the transferor before the transfer, shall, after the transfer, be deemed to have been done by or in relation to the transferee; and

	(b) .... .

	12  Restriction on contracting out

	Any provision of any agreement (whether a contract of employment or not) shall be void in so far as it purports to exclude or limit the operation of Regulation 5 .... above .... .

	It is common ground that by virtue of TUPE the appellants became, as they still are, the employees of the respondent.  In paragraph 3 of the Industrial Tribunal's reasons that is stated to have occurred “pursuant to rule 6”, but it is clear that the operative provision in relation to the appellants' contracts of employment was Regulation 5.  It seems, moreover, to be implicit in the tribunal's reasons (although not expressly found), and was not disputed by either party before us, that by virtue of Regulation 6 the NJC Agreement had effect, after the transfer, as if made by or on behalf of the respondent with the appellants' unions.

	On 21 April 1994 the respondent's personnel officer wrote letters to the GMB (and presumably to any other relevant unions) and to the appellants (and presumably to any other relevant employees).  The letter to the GMB withdrew recognition and stated that any collective agreements which the union might have had with regard to the employees transferred from Brent would no longer have effect.  The Industrial Tribunal set out in their reasons the material parts of that letter and found that the respondent was entitled to, and did, thereby withdraw from the NJC Agreement, and that finding is not appealed.  

	The tribunal, however, by quoting that letter only, and not even referring to the one written to employees, treat the former as the operative document in relation to individual contracts of employment also, whereas in our view the reverse is clearly the case.  The relevant parts of the letter to employees read as follows:

“We have today informed the relevant unions that any formal or implied recognition arrangements or collective agreements or related arrangements will no longer have any effect and will be regarded as having ended with immediate effect.
This means that you will continue to have the right to belong to a union and the right not to belong to a union, this right being guaranteed by law. Also you will continue to have the right to have a trade union representative, if you so choose, at any disciplinary or grievance hearings in accordance with the current rules.
We are pleased that we have been able to talk freely with each other and we believe that your pay and your conditions are so important that you should be able, as are our other employees, to discuss and agree these matters direct with us in order that together we can ensure that we understand each other fully and that we can take all aspects of your work and conditions into account.
...
I would also confirm that your rights and terms of employment have been guaranteed by the TUPE Regulations 1981 when you transferred to become our employees.”

	Despite the reference to direct discussions the respondent did not, as we understand it, ever propose to any of the appellants a variation of the term of their contracts of employment quoted above.  It became apparent, however, that the respondent and the appellants took different views of the effect of the letters of 21 April 1994.  The procedure under the NJC Agreement was that there was an annual round of negotiations resulting in the fixing of pay scales and such associated matters as London weighting allowances - in practice always upwards.  The respondent's contention was that upon its withdrawal from that agreement the appellants' pay was “frozen” at the level last fixed before that withdrawal (subject, presumably, to such increases as the respondent might choose to make voluntarily or might agree in direct negotiations with the appellants individually).  The appellants' contention was that their pay was still to be ascertained by reference to the rates from time to time established by the NJC for their respective grades.  In due course, it would seem (we have no particulars), the time came when on the appellants' case they should have received an increase, but it was not paid.  They then complained to the Industrial Tribunal.

	In form the appellants' claim was for declarations (i) under section 11 of the Employment Protection (Consolidation) Act 1978 as to the particulars which should have been included in statements under section 1, and (ii) under section 5 of the Wages Act 1986 that the respondent had made unauthorised deductions from their wages.  In substance the question before the tribunal was simply which of the rival contentions summarised above was correct.  The tribunal found in favour of the employer and the employees appeal to this tribunal.

	Once it is accepted, as it is, (i) that Regulation 5(1) and (2) applied, and (ii) that there has been no relevant subsequent variation in the contract of employment, the issue becomes simply one of the true meaning of clause 1, quoted at the outset of this judgment.  Leaving aside for the moment the opening phrase, to which we shall return, the relevant words are “your rate of remuneration .... will be in accordance with the [NJC Agreement]”.  There is no dispute that until the transfer to the respondent that, on its true construction, incorporated the result of the annual round of negotiations.  There is no apparent reason why the transfer should cause any change in the meaning of the words.  Our initial conclusion, therefore, is that Mr Whent and his colleagues are right and their employer wrong.

	Before giving effect to that conclusion by allowing the appeal, however, we must consider the reasons to the contrary relied upon by the Industrial Tribunal or advanced by the respondent.

The relevant passage in the reasons of the tribunal is as follows:

“6	Both parties referred to Robertson and Jackson -v- British Gas Corporation [1983] IRLR 302. The Court of Appeal in that case held that the plaintiffs were entitled to arrears of wages pursuant to an incentive bonus scheme, notwithstanding that the employers had unilaterally given notice under the collective agreement of the plaintiff’s trade union of termination of the scheme.
7	We referred to the decision of Lord Justice Kerr in that case in which he held that the terms of the collective agreement are incorporated into the individual contracts of employment. It is clear from his decision that it is the individual terms of the contracts of employment to which he is referring and not to the collective negotiating machinery. If the Respondents had attempted to alter, for example, the Applicants’ rights to holiday pay or sickness pay, or the rights to wages in lieu of notice, this they would not be entitled to do since there were terms incorporated into the collective agreement. However, we find that any party is entitled to opt out of any collective agreement machinery. Indeed, Lord Justice Kerr, in his decision states that either side can withdraw from the collective agreement, although the terms and conditions incorporated into the individual contracts must remain.
8	The Respondents ceased to recognise the trade union and thereby withdrew from the collective agreement machinery. This, we find as a fact, that they are entitled so to do. It cannot be right that an employer is bound ad infinitum by the terms of a collective agreement negotiated by bodies other than themselves. It is true that certain bodies, who are not local authorities, do abide by the terms of the National Joint Council agreement. However, we note that these bodies are funded by the local authorities concerned.
9	We do not find that there has been an unlawful deduction from the Applicants’ wages pursuant to the Wages Act 1986. We find, as a fact and as a matter of law, that the conditions in relation to the Applicants’ wages and London weighting allowances are those pertaining to the agreement made in November 1993, backdated to July 1993, which was the last agreement prior to the Respondents terminating their recognition with the trade union on 21 April 1994.”

	In Robertson and Jackson the employees were gas meter readers whose contracts of employment incorporated an incentive bonus scheme which was the subject of a collective agreement between the employer and the employees' union.  The employer terminated the scheme on notice in accordance with the terms of the collective agreement and made no bonus payments in respect of the period after that termination.  The trial judge held that the employer was obliged to make bonus payments on the basis operative immediately before the termination of the scheme, and the Court of Appeal dismissed the employer's appeal.  Ackner LJ said:
“	In my judgment the learned judge was right, as I have indicated, in concluding that the contract was to be found in the letter of 19.10.70 and in concluding further that the Gas Board could not alter the tariff in relation to the bonus which was payable by unilaterally determining the collective agreement which it had made not with the respondents but with their union.”

Kerr LJ said:

“	It is true that collective agreements such as those in the present case create no legally enforceable obligation between the trade union and the employers. Either side can withdraw. But their terms are in this case incorporated into the individual contracts of employment, and it is only if when those terms are varied collectively by agreement that the individual contracts of employment will also be varied. If the collective scheme is not varied by agreement, but by some unilateral abrogation or withdrawal or variation to which the other side does not agree, then it seems to me that the individual contracts of employment remain unaffected. This is another way of saying that the terms of  the individual contracts are in part to be found in the agreed collective agreements as they exist from time to time, and, if these cease to exist as collective agreements, then the terms, unless expressly varied between the individual and the employer, will remain as they were by reference to the last agreed collective agreement incorporated into the individual contracts.”

Sir David Cairns agreed with the reasons given by both.

	The relevant statements of principle there, as the Industrial Tribunal accepted, were those of Kerr LJ that the terms of a collective agreement can be incorporated into and become legally binding terms of individual contracts of employment, and that unilateral abrogation of or withdrawal from the collective agreement does not affect the latter.  Those principles, however, lead in the present case to the opposite conclusion from that at which the tribunal arrived.  If the individual contracts of employment of the appellants remain unaffected by the respondent's withdrawal from the NJC Agreement, and the latter remains in existence and in operation, the contract term referring to it can and should continue to have effect.

	In so far as Robertson and Jackson is prayed in aid, not for those principles, but because on the facts it resulted in a “freezing” of the position immediately before the employer's unilateral act, it is of no assistance to the respondent here because of two distinguishing features.  In the first place the employer there was the only management party to the collective agreement, whereas here Brent, to which the respondent was the successor, was only one of several members of one of many participating employer associations.  Secondly, and crucially, the employer in Robertson could and did dismantle the  whole “machinery” of the bonus scheme, whereas here the means of fixing pay rates remains intact and in full operation.  The “freeze” in Robertson was for the benefit of the employees, as the nearest that could be achieved to a continuation of the bonus scheme in the form which their contracts envisaged, not one to their detriment in a situation in which the original contractual intention was fully achievable.

	We accept the tribunal's finding that the respondent was entitled to and did “opt out of [the] collective agreement machinery”, but the outcome, as distinct from the process, of the annual negotiation in our judgment plainly went to each appellant's substantive rights, not to the respondent's participation in the collective apparatus.  The difficulty of treating pay rates as part of the “machinery” is illustrated by the impossibility of distinguishing them on any principled basis from the examples of rights which the tribunal itself says the respondent would not have been entitled to alter.  Mr Rose, for the appellants, submitted, we think with force, that remuneration is a “classic example” of a term fit for incorporation, citing in support the following passages from the judgment of Scott J in National Coal Board v National Union of Mineworkers [1986] ICR 736:

“	Robertson v. British Gas Corporation establishes that a term of a collective agreement which are of their nature apt to become enforceable terms of an individual’s contract of employment and terms which are of their nature inapt to become enforceable by individuals. Terms of collective agreements fixing rates of pay, or hours of work, would obviously fall into the first category. Terms which deal with the procedure to be followed by an employer before dismissing an employee also would fall into the first category . But discussions between employers’ representatives and union representatives, or by arbitral proceedings, questions arising within the industry, fall, submitted Mr Dehn, firmly in the second category. The terms of conciliation schemes are not intended to become contractually enforceable by individual workers and do not become contractually enforceable by individual workers whether or not referred to in the individuals’ contracts of employment.
...
	In my judgment, Mr Dehn’s distinction is a sound one. The procedural provisions of conciliation agreements such as the 1946 scheme are not, in my opinion, in the least apt for contractual enforcement by individual employees.”

	The tribunal's next reason is that it “cannot be right that an employer is bound ad infinitum by the terms of a collective agreement negotiated by bodies other than themselves”.  In our view that is fallacious for a number of reasons.  In the first place the employer is not in any event bound “ad infinitum”.  It can at any time, without breach of contract, negotiate variations of contract with individual employees, as its letter of 21 April 1994 professes it as being eager to do, or terminate their contracts on due notice and offer fresh ones.  The latter course may no doubt lead to its incurring obligations to compensate for unfair dismissal, but that is a matter for it to weigh commercially.  The words “ad infinitum” are in truth no more than colourful surplusage; the question is simply whether the employer is still bound by the NJC Agreement, so far as incorporated in individual contracts of employment, notwithstanding its “withdrawal” from collective participation.  The second reason why this argument is fallacious is that if correct there seems to be no reason why it would not have applied from the moment of transfer, whether or not the respondent had “withdrawn”, since there is no finding, and little likelihood, that it had any representation on the management side of the NJC.  The third is that there is simply no reason why parties should not, if they choose, agree that matters such as remuneration be fixed by processes in which they do not themselves participate.  The tribunal themselves accept that that is true of some employers who are not local authorities.  It must, on the agreed facts set out near the beginning of this judgment, equally be true of non-union employees.  

Mr Brown, in addition to supporting the tribunal's reasons, advanced the alternative or supplementary argument that its conclusion could be justified on the basis of an implied term in the contract of employment.  After some discussion he formulated this term as being to the effect that if the employer ceased to be a party to the NJC process neither party would continue to be bound by the results of any subsequent NJC negotiations.  (No such implied term was suggested to or found by the tribunal, so if we found any merit in this argument a question would arise as to how to proceed.)

	It might appear that a much more direct approach than an implied term would be to construe literally the opening words of clause 1: “During your employment with the authority” (our emphasis), so that the clause ceased to apply upon the transfer of undertaking to the respondent.  Mr Brown, however, conceded, in our view rightly, that as so construed the clause, or any implied term to similar effect, would have been void as an attempt to contract out of Regulation 5 of TUPE, by virtue of Regulation 12.  Moreover such an approach would have entailed that the NJC Agreement would have ceased to apply even if the respondent had not “withdrawn”, a result contended for by no-one and contrary to the Industrial Tribunal's unappealed finding.

	That no doubt explains why Mr Brown's implied term is couched not by reference to the employer's ceasing to be Brent, or ceasing to be a local authority, but in terms of its ceasing to be a party to the NJC Agreement.  The consequence, however, is that Brent itself, or any successor authority, could at any time have opted out.  That alone would be fatal to the implication of any such term, but in our view it would come nowhere near satisfying the requirements for implication even if that feature were eliminated, for example by the insertion after “employer” of such words as “not being a local authority”.  Implied terms must be necessary, and whichever of the customary tests of necessity is applied this term does not pass it.  It was not on any view needed at the date of the contract (the relevant time for this purpose) in order to give it business efficacy.  Had the “officious bystander” raised the question then the idea that Mr Whent, or even Brent, would have responded with a testy “of course” in favour of the implied term is fanciful to the point of absurdity.

	Consideration of the reasons of the Industrial Tribunal and the submissions of the respondent therefore confirms, rather than weakens, our initial conclusion.  The appeal is therefore allowed.  The application is remitted to the Industrial Tribunal in order to give effect to our judgment and make the appropriate declarations and orders.  Unless there are any submissions to the contrary the tribunal should be constituted as before if the original members can be reconvened.