Appeal No.	 EAT/429/97

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
	On 8 October 1997
Judgment delivered on 4 March 1998

Before
HIS HONOUR JUDGE D PUGSLEY
MR L D COWAN
MR J D DALY

MR K TOACH & MR I HAYTO	APPELLANTS

BRITISH UNITED SHOE MACHINERY LTD	RESPONDENTS

Transcript of Proceedings

JUDGMENT

Revised

	APPEARANCES

For the Appellants	MR B CARR
(of Counsel)
Messrs Rowley Ashworth
Solicitors
247 The Broadway
Wimbledon
London
SW19 1SE	
For the Respondents	MR T LINDEN
(of Counsel)
Instructed by:
Mr R Linskell
EEF
Broadway House
Tothill Street
London
SW1H 9NQ	

	JUDGE PUGSLEY:      This is an appeal from a decision of the Industrial Tribunal sitting in Leicester in which they dismissed the applications which were brought for breach of contract. Both applicants claimed breach of contract concerning an agreement which existed between their union, AEEU, and the respondents.

	Both appellants were long-serving employees of the respondents, and both were made redundant at the end of August 1996. Their redundancies fell within a large number of job cuts which were made commencing in the middle of that year, and which were ongoing. 

	The argument before the Industrial Tribunal centred on whether an agreement first entered into between ASTMS (later MSF) was incorporated into the contract of the appellants who were both members of the AEEU. Under the terms of that agreement, each would have been entitled in addition to statutory redundancy and notice entitlements, to a company ex gratia payment calculated by reference to their service. 

	By July 1996 the respondents’ financial difficulties reached such a stage that they were looking to make what savings they could. The respondents approached the Redundancy Payments Service to see if they would make a loan to fund the redundancies. The Redundancy Payment Service agreed to do this provided the respondents only made statutory redundancy payments or payments that were due under contract, i.e., payments that could not otherwise be avoided. The respondents took the view that where redundancies had been negotiated they were committed to making the ex gratia payments but in those cases where no commitment was given no ex gratia payments would be made. The cut-off date was 16th August 1996, thus explaining why one of the appellants, Mr Toach, had been offered an ex gratia payment when he volunteered for redundancy but not when he was selected for redundancy in August.

	The tribunal set out their conclusions in paragraph 7 of their decision. And their decision was that:

“7.1 ... there has been a binding agreement between the respondent and MSF to make payments, described as “ex gratia”, on redundancy, which agreement would not apply should a major redundancy situation arise.”

The tribunal held that the payments, although described as ex gratia, were not that, and that:

“7.2 That binding agreement was extended to the shop floor by virtue of the negotiations ...”

which took place in 1981. The tribunal further found in paragraph 7.5:

“7.5  However, the events of 1996 constituted a “major redundancy situation” as referred to in paragraph A.5 of the 1977 agreement. It seems to us that a large number of redundancies at a time when the respondent was in financial difficulties, finding it difficult, if not impossible to make the necessary payments, must be exactly the type of circumstance envisaged when the paragraph was agreed.”

The tribunal went on to find that by virtue of that finding, it followed that the respondent employer was not in breach of contract in failing to make the redundancy payments.

	The employer’s appeal against the finding that the agreement although described as “ex gratia” was not such, has been abandoned, and the sole issue for our consideration is the construction of paragraph A.5 which reads as follows:

“This Agreement is concerned with redundancy situations which may arise from time to time in the Company’s continuing operations. Should a major redundancy situation occur at a future date, this Agreement would not apply and redundancy arrangements would be discussed in the light of circumstances at the time.”

	The central plank of the appellants’ case, is that it is necessary for this clause to be construed so that there is a requirement upon the employer to give notice of the intention to invoke this clause and that there should be consultation and negotiation concerning what constitutes a major redundancy situation. Mr Carr points out that the agreement itself operates within a framework of consultation and negotiation as outlined in various paragraphs such as A.1, A.3 and A.4.; and that the agreement does not in itself give the employer the unilateral power to abandon the enhanced redundancy payment scheme. Mr Carr argues that there needs to be a determination that a major redundancy has occurred; that the absence of a definition makes it imperative that it is identified at the time. Further, Mr Carr suggests it cannot have been the intention of the parties that an Industrial Tribunal should months after the event determine whether the issue has or has not occurred. Mr Carr’s contention is that the agreement should be construed so as to import the requirement of consultation and that the agreement provides an escape clause for the employer but before that clause can be activated, on its true construction, there is a requirement for consultation and negotiation.

	Mr Carr relies on the case of Davis v Hotpoint Ltd [1994] IRLR 538, a decision of the Employment Appeal Tribunal in which Mummery J presided. In that case the terms of a collective agreement incorporated into individual contracts of employment which allowed for a proportionate reduction of a guarantee wage “where approved short time is worked as an alternative to redundancy”, correctly construed, required the approval of the relevant unions on behalf of the employees before the employers were entitled to pay wages less than the guaranteed minimum. At paragraph 19, page 540, Mummery J sets out the position:

	“In our judgment, the following submissions on behalf of the appellants demonstrate that the 1984 agreement, correctly construed, requires approval on behalf of the employees before Hotpoint is entitled to pay them less than the guaranteed wage:
(1)	The context of the collective agreement is a guaranteed minimum wage negotiated between management and the unions on behalf of the workforce. If the guarantee is to have any substance, it cannot have been the intention of the parties that it should depend solely on the unilateral decision the employer to abandon the guarantee by deciding on short-time working.
(2)	The common law background to the conclusion of the collective agreement  is that employees must consent to, or acquiesce in, short-time working if it is to result in a reduction of pay guaranteed for the working week. On the argument advanced by Hotpoint, the unions have surrendered the right of their members to withhold consent to pay reductions as and when proposed, without any corresponding advantage for them. The contract itself does not contain any express provision for such consent or acquiescence by conferring on Hotpoint a unilateral right to pay less than a working week’s pay.
(3)	The collective agreement does not provide any express machinery for determining whether the employers’ proposal for short-time working is genuinely an alternative to redundancy. On Hotpoint’s construction it would be all too easy for the employer to make the proposal and difficult for the employees to challenge it, thereby enabling an employer to side-step and nullify the guarantee.
(4)	The use of the word ‘approved’ indicates, as a matter of ordinary English, a requirement of the consent or agreement of someone other than the person making the decision to be approved. ‘Approved’ means ‘agreed to’, ‘agreed by’, ‘consented to’, ‘confirmed or sanctioned’ usually in the context of approval by one person in relation to the action, words, products and so on of another person. A self-approving action or decision is theoretically possible, but is hardly likely in this context. The word ‘approval’ is redundant if it means ‘approved by the employer’.
(5)	Other provisions in the agreement demonstrate overall a consensual approach to the resolution of mutual problems rather than an intention to put one side in a position to dictate to the other. Approval of the trade unions to the short-time working, rather than approval by the employer of his own decision, is more consistent with that approach.”

	Mr Carr invites us to say that the same principles apply, that the employer cannot without negotiation or consultation decide that there is now a major redundancy situation and resile from the obligation to pay the extra payments due under the scheme.

	Mr Linden’s submission is that the tribunal made a crucial finding of fact in paragraph 7.5, namely:

“7.5   However, the events of 1996 constituted a “major redundancy situation” as referred to in paragraph A.5 of the 1977 agreement. It seems to us that a large number of redundancies at a time when the respondent was in serious financial difficulties, finding it difficult if not impossible to make the necessary payments, must be exactly the type of circumstance envisaged when the paragraph was agreed.”

Mr Linden points out that this finding was fully justified by the tribunal’s findings that advance notice had been given of 110 redundancies and that a further two notices had been given showing increasing numbers, at paragraph 4.13 of the decision; and about 35 employees were made redundant on 30th August 1996 along with the appellants at paragraph 4.12 of the decision. 

	The employer’s case is that there is no warrant for importing into the agreement that the redundancies payments should continue to apply until such time as there had been consultation on this basis of the words in A.5., namely, that “this Agreement would not apply and redundancy arrangements would be discussed in the light of circumstances at the time.” Mr Linden’s argument is that taken as a whole clause A.5 clearly contemplates that in a major redundancy situation the agreement would be set aside; there would be a need for there to be discussions which would then apply to the particular situation which had arisen; but that there is no basis for importing into that paragraph the requirement that such discussions would and must precede the decision by the company that there was a major redundancy situation to which the agreement would not apply.

	Mr Linden has referred us to the case of Alexander and others (plaintiffs) v Standard Telephones & Cables Ltd (defendants) (No. 2), Wall and others (plaintiffs) v Standard Telephones & Cables Ltd (defendants) (No. 2) [1990) IRLR 55. The principle on which Mr Linden relies is well set out in the head note where it is stated as follows:

“... Where a document is expressly incorporated by general words it is still necessary to consider, in conjunction with the words of incorporation, whether any particular part of that document is apt to be a term of the contract; if it is inapt, the correct construction may be that it is not a term of the contract.”

Mr Linden pays particular attention to the paragraph set out in paragraph 30 of the judgment of Hobhouse J which reads as follows:

	“In the case National Coal Board v National Union of Mineworkers [1986] IRLR 439, to which some individual employees were also parties, Mr Justice Scott reviewed the authorities on incorporation at pp. 453 and following. In that case there was an express provision in the individual contracts of employment that the employees’ ‘wages and conditions of service shall be regulated by and subject to such national, district and pit agreements as are for the time being in force’. The question was the application of that clear contractual intent; the question in the action therefore was: what was the extent of the resultant incorporation? He drew a distinction which was derived from the argument of Mr Dehn before him, at p.454 (151).
‘He seeks, however, to draw a distinction between the terms 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 ... dismissing an employee also would fall into the first category. But conciliation agreements setting up machinery designed to resolves by 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 whether or not referred into the individuals contract of employment. ...’”

Hobhouse J followed Scott J in adopting this formulation.

	Mr Linden says that the clause in A.5:

“Should a major redundancy situation occur at a future date, this Agreement would not apply and redundancy arrangements would be discussed in the light of circumstances at the time.”

clearly contemplates that the employer has the right to determine that there is a major redundancy situation which means that the scheme is inapplicable, and that, thereafter, the company and the relevant unions would discuss the position in the light of the circumstances which had arisen. Mr Linden says that redundancy arrangements would be discussed in the light of the circumstances at the time, clearly contemplates the setting up of a machinery of negotiation between the unions and the employers to discuss matters, and that it is not a matter that is directly enforceable into the individual’s contract of employment; rather, it is a useful way of setting out a machinery to determine the issue that had then arisen. 

Conclusions
This is a claim founded on contract. A contractual claim has a different cultural context than decisions which are within the ambit of unfair dismissal which have the all pervading concept of reasonableness. We can see nothing objectionable in the context of a contractual claim that the tribunal itself should determine and define what constitutes a major redundancy situation. We accept the employer’s submission that the crucial finding of the tribunal is that an event has occurred which constituted a major redundancy situation. Shorn of the elegant language in which it is couched, Mr Linden’s submission in our view is correct when he says, in effect, the appellants cannot have their cake and eat it. If this agreement is enforceable it means the tribunal must have the right to determine what is or is not a major redundancy situation. If the phrase is so vague then the whole agreement is unenforceable. 

	We can see no conflict in law or more germanely any affront to good industrial practice, between the Hotpoint case and the Alexander case in the context of the facts of this particular case. Quite clearly in Hotpoint any other construction than that reached by the Employment Appeal Tribunal would have robbed the agreement of any substance. That is not the position in this case. If the employers had purported to resile from the agreement on inappropriate grounds then the appellants would succeed because the employer could not show that there was a major redundancy situation, and therefore, there would be an agreement for the enhanced payments which would be enforceable. That is a totally different situation than that which pertained in the facts of the Hotpoint case, where if the definition of what was approved was purely dependent upon the employers’ view of the matter, then the employees were left without a remedy and the agreement was totally without any substance. 

	In our view, this is a case where the tribunal were right to construe the contract in that way, and we therefore dismiss the appeal.