Appeal No.	 EAT/478/96

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
	On 19 November 1996
Judgment delivered on 3 December 1996

Before
HIS HONOUR JUDGE PETER CLARK
MR E HAMMOND OBE
MRS R A VICKERS

BRITISH BAKERIES LTD	APPELLANTS

MR R HOGGANS	RESPONDENT

Transcript of Proceedings

JUDGMENT

Revised

	APPEARANCES

For the Appellants	MR CLARKE
(of Counsel)
Messrs Jacksons
Solicitors
1-15 Queen’s Square
Middlesborough
Cleveland
TS2 1AL
	
For the Respondent	MR GRIFFITHS
(of Counsel)
Messrs Watkins & Gunn
Solicitors
Glantorfaen House
Hanbury Road
Pontypool
Gwent
NP4 6XY	

	JUDGE PETER CLARK:   This is an appeal by the employer, British Bakeries Ltd, against a decision of a Regional Chairman of Industrial Tribunals, Mr M E Woods, sitting alone at Bristol on 14th and 15th March 1996, upholding the applicant’s complaint of unlawful deductions from his wages over a period from 10th April 1994 until 6th October 1995. The computation of such deductions was adjourned. Extended reasons for that decision are dated 19th March 1996. Having heard oral submission on behalf of the parties on 19th November 1996 we dismissed the appeal. Our reasons for so doing now follow.

The factual background
Mr Hoggans was one of 167 applicants to the Industrial Tribunal, all of whom were employed by the employer at their bakery premises at Avonmouth, Bristol at the relevant times. His case was typical and was taken as the lead case.

	His terms and conditions of employment were contained in a Collective Agreement negotiated between the employer and the recognised trade union, BFAWU, and incorporated into his contract of employment.

	The background to this dispute may be found in the decision and reasons of an Industrial Tribunal sitting at Bristol under the chairmanship of Mr C G Toomer over a period of five days, which heard and determined Mr Hoggans complaint of unfair dismissal against his employers. We stress that the circumstances outlined in that Industrial Tribunal’s reasons dated 28th February 1995 are summarised here purely by way of background to the instant dispute.

	That tribunal found that the original collective agreement, made in 1982 and subsequently revised, contained a number of terms and condition more favourable to the employees than those applicable to other workers in the bakery industry nationally.

	The appellant business underwent a number of transfers of ownership. In October 1992 Rank Hovis McDougall acquired the business. Shortly thereafter a new General Manager, Mr Maycock, was appointed.

	During the course of the following year Mr Maycock and his superior, Mr Jenkins, looked closely at the benefits enjoyed by the employees under the existing agreement. They were operating in a highly competitive market. On 3rd December 1993 a draft of a new agreement was presented to the union. The new proposed terms would inevitably lead to a drop in income for the workforce.

	Negotiating meetings followed. After a marathon meeting held on 17th December Mr Maycock insisted that the package hammered out on that occasion was conditional upon the union negotiating committee strongly recommending its acceptance to the membership. Reluctantly the committee agreed. The matter went to a ballot; the membership overwhelmingly rejected the proposed package.

	The employer was unmoved. It exercised its right to terminate the existing contracts of employment of the workforce on notice, and offered new employment on the proposed terms.

	In the case of Mr Hoggans, notice of termination was given on 12th January 1994 to take effect on 9th April. On 7th April he signed an acceptance of the new terms and conditions. Although the tribunal found that he was dismissed by the employer, his employment continued under the new terms from 10th April 1994.

	On 6th October 1995 he presented the instant complaint.

	The essence of the complaint was that the employer had unlawfully deducted from his wages certain overtime payments to which he was entitled under the new terms and conditions which came into effect on 10th April 1994, contrary to section 7(1)(a) of the Wages Act 1986 (now section 27(1)(a) of the Employment Rights Act 1996).

	Section 7(1)(a) of the 1986 Act defined ‘wages’ inter alia as:

“ ... any sums payable to the worker by his employer in connection with his employment, including-
(a) 	any fee, bonus, commission, holiday pay or other emolument referable to his employment, whether payable under his contract of otherwise;”

	We pause to record that Mr Griffiths, on behalf of the applicant wished to advance an argument that the provisions of the Wages Act had been breached by the employer even if the disputed overtime payments were not strictly due under the contract of employment. In the event we found it unnecessary to hear argument on the point, which was disputed by Mr Clarke for the employer, and accordingly we make no ruling on that issue.

The relevant terms
In his extended reasons Mr Woods sets out the following clauses from the agreement which applied until 10th April 1994 [“the old Agreement”]:

“HOURS OF WORK
(1)	The hours of work for employees in paragraph 1 of this Agreement are forty per week for those who are employed on a full time basis.
(4) When the working day of an employee exceeds 5 hours, an interval of not less than 30 minutes duration shall be arranged;
(7) Employees defined in paragraph 1 of this Agreement are paid only for hours worked.”

	He further found as a fact that under the old Agreement the 30 minute meal interval during the shift was paid time. Accordingly the meal interval was paid working time which counted towards the basic 40 hour working week, after which overtime became payable.

	Under the new terms and conditions the following provisions arise for consideration:

“DURATION OF BASIC WORKING WEEK
The basic working week for a full time employee shall be 39 hours spread over 5 days.
DURATION OF BASIC WORKING DAY
... Overtime shall only be paid at appropriate rates after 39 basic hours have been worked.
Meal Intervals
When the working day of an employee exceeds five hours, an interval of not less than 30 minutes’ duration shall be arranged without pay.
OVERTIME, SUNDAY AND NIGHT WORK
Calculation of Overtime and Rest Day Payment
Any time worked by an employee over and above his basic 39 hours shall be regarded as overtime. Any time worked on a sixth shift or nominated rest day shall also be regarded as overtime, provided that 39 hours has been completed. Any day of authorised absence customary or annual holiday, or an employer’s certified sickness to be treated for this purpose as a day worked.”

The issue
The dispute between the parties may be shortly stated. Should the time taken for unpaid meal intervals count towards the 39 hour basic working week, after which overtime is payable, or not?

The tribunal decision
The Chairman answered that question in the affirmative. He directed himself as to the law in this way; what is the proper and reasonable construction to be put upon the terms of the agreement having regard to its express terms and if these do not resolve the issues the factual setting in which it was made and in the event of ambiguity in these terms to construe any such ambiguity against the respondents in accordance with the contra proferentum rule as it was their document?
	
	He then set out various factors which led him to the conclusion that “the basic working week” should include the half hour meal interval on each shift.

Our approach
At first blush the rôle of an appellate tribunal considering a construction of the express terms of a written contract of employment is not easy to discern.

	We raised, by way of example in the course of argument, two cases concerned with the vexed question of whether a contract is one of service or for services. In Davies v Presbyterian Church of Wales [1986] ICR 280 the relationship between a paid minister of religion and his church was governed by the church’s book of rules. An Industrial Tribunal found that he was employed under a contract of service. That decision was reversed by the Employment Appeal Tribunal, whose decision was affirmed by the Court of Appeal, and ultimately by the House of Lords. In the course of his speech in the House of Lords, Lord Templeman said at p. 288 F-H:

“	On behalf of the applicant it was first submitted, on the authority of Edwards v. Bairstow [1956] A.C. 14 that the decision of the industrial tribunal that the applicant was employed under a contract of service was not susceptible to reversal by an appellate court because the tribunal instructed itself correctly as to the law, took into account all relevant circumstances and reached a conclusion which was reasonable. In my opinion this submission confuses fact and law. The decision in Edwards v. Bairstow has nothing to do with this case. An appeal from the industrial tribunal is expressly conferred by statute on a question of law. The question to be determined is a question of law, namely, whether upon the true construction of the book of rules a pastor of the church is employed and is under a contract of service. If the industrial tribunal erred in deciding that question, the decision must be reversed and it matters not that other industrial tribunals might have reached a similar erroneous conclusion in the absence of an authoritative decision by a higher court.”

	However, in McMeechan v Secretary of State for Employment [1995] ICR 444, a division of this appeal tribunal presided over by Mummery J, was asked to consider an appeal by an applicant against an Industrial Tribunal decision that he had not been employed under a contract of service by an employment agency which became insolvent. The Employment Appeal Tribunal upheld that appeal and reversed tribunal’s finding. The relevant contract had been reduced into writing, and Mummery J said at p. 450 G-H:

“	(1)	The industrial tribunal adopted the wrong approach to the determination of the question for decision. The applicant’s relationship with Noel Employment Ltd was governed by printed conditions of service. Where the relevant contract is, as here, wholly contained in a document or documents, the question whether the contract is one of employment is a question of law to be determined upon the true construction of the documents in its factual matrix.”

	Perhaps an answer to an apparent tension between the “black letter law” approach of Lord Templeman, and the “factual matrix” approach of Mummery J, is that Davies ought to be regarded as an exceptional case, depending on its own facts, as explained by the Privy Council in Lee v Chung [1990] ICR 409, and that in any event the question there was not one of construction of the terms of a written contract (what they mean), but the legal effect of that contract - did it create a relationship of employer and employee at law, or not?

	We have been greatly assisted in this case by the submissions of counsel, and for present purposes feel able to follow with confidence the approach set out by Sir Thomas Bingham MR in Adams v British Airways Plc  [1996] IRLR 574. The issue which arose in that case followed BA’s take-over  of British Caledonian [“B-Cal”]. The question was whether ex B-Cal pilots who transferred to BA should enjoy seniority within BA commensurate with their former seniority with B-Cal. For the plaintiffs, original BA pilots, it was argued that the terms of a collective agreement, incorporated into the contracts of all pilots employed by BA, required that ex B-Cal pilots should be treated as “new entrants” and accordingly take their place at the bottom of the seniority queue. Laws J upheld that argument. His decision was reversed on appeal. In the course of the leading judgment in the Court of Appeal, delivered by the Master of the Rolls, he said this at paragraphs 21-22:

“	The court is not concerned to investigate the subject intentions of the parties to an argument (which may not have coincided anyway). Its task is to elicit the parties’ objective intentions from the language which they use. The starting point is that the parties meant what they said and said what they meant. But an agreement is not made in a vacuum and should not be construed as if it had been. Just as the true meaning and effect of a mediaeval charter may be heavily dependent on understanding the historical, geographical, social and legal background known to the parties at the time, so must a more modern instrument be construed in its factual setting as known to the parties at the time. Where the meaning of an agreement is clear beyond argument, the factual setting will have little or no bearing on construction; but to construe an agreement in its factual setting is a proper, because a common-sense, approach to construction, and it is not necessary to find an agreement ambiguous before following it.
	On the facts here, it was a collective agreement which was incorporated into the contracts of the individual plaintiffs. A collective agreement has special characteristics, being made between an employer or employers’ organisation on one side and a trade union or trade unions representative of employees on the other, usually following a negotiation. Thus it represents an industrial bargain, and probably represents a compromise between the conflicting aims of the parties, or ‘sides’ as in this context they are revealingly called. But despite these special characteristics, a collective agreement must be construed like any other, giving a fair meaning to the words used in the factual context (known to the parties) which gave rise to the agreement.”

	We shall apply that valuable dictum in our approach to this appeal.

The parties’ submissions
Whilst accepting the approach outlined in Adams and cited above, Mr Clarke submits that the factual setting does not help in construing the relevant contractual provisions here. He contends that the contract can be interpreted in only one way and it is this. The new agreement expressly provides that half hour meal intervals taken on each shift shall be unpaid. The agreement further provides that overtime only becomes payable after 39 hours have been worked. That must mean paid hours, otherwise an employee would begin to receive overtime pay without having worked 39 paid hours. He will be paid for either 37 or 36½ hours at the basic rate, depending on whether four or five meal intervals are taken during the basic five day week. That cannot be right.

	In response Mr Griffiths submits that this argument depends upon the expression “39 basic hours” being read as “39 paid basic hours”; there is no warrant, either in the words of the agreement, or when looked at in its factual setting, for such an addition. Working hours need not be paid hours.

	It is right to record that this pares down each side’s submissions to the bone. Mr Clarke raises a number of criticisms about the Chairman’s approach in this case. However, he accepts that it is strictly unnecessary to consider those complaints if, on a proper approach, we conclude that the applicant’s construction is to be preferred to that of the employer.

Conclusion
We do prefer the construction advanced by Mr Griffiths, and we do so not simply by reference to the words used in the new agreement in a vacuum, but by placing that agreement in its factual context.

	The new agreement altered the terms of employment contained in the old agreement. It is immaterial whether that alteration came about by variation of the old terms, or re-engagement following dismissal under the new terms. Under the old agreement meal intervals were not only paid, they counted towards the basic hours to be worked before overtime became payable. Under the new agreement time taken for meal intervals was no longer to be paid. However, in the absence of an express provision that overtime should only be paid after 39 paid hours have been worked, we conclude that on a proper construction meal intervals continued to count as working hours. The factual setting helps us to take the view that for 39 basic hours to be worked it is not necessary for the employee to be physically working throughout those hours. A meal break, whether paid or not, may form part of a man’s working hours, and in this case did.

	It follows that we are not required to consider Mr Clarke’s further submissions. We uphold the Chairman’s conclusion and therefore the appeal must be dismissed. However, we should deal with one point which initially gave us cause for concern. In his reasons the Chairman refers to the “proper and reasonable construction” to be put upon the terms of the agreement. We questioned whether the use of “reasonable” imported an impermissible approach, namely, to decide what was a reasonable term of the contract, rather than to discern the objective intention of the parties. However, we are satisfied that what he had in mind was the need to give a fair meaning to the words used in the new agreement. At all events, that is the approach which we have sought to adopt in our construction of the relevant terms.