Appeal No. EAT/0609/01/ILB

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
	On 25 July 2002
Judgment delivered on 6 February 2003

Before
THE HONOURABLE MR JUSTICE NELSON
MR B V FITZGERALD
MR P M SMITH

PHILIPS COMPONENTS LIMITED	APPELLANT

(1) MR A SCOTT	RESPONDENTS
(2) MR J ROBSON
(3) MR J CONWAY
(4) MR D GUTHRIE

Transcript of Proceedings

JUDGMENT

Revised

	APPEARANCES

For the Appellant	CHRISTOPHER JEANS
(One of Her Majesty’s Counsel)

MR MARTIN ARMSTRONG
(Group Legal Adviser)
Philips Electronics UK Ltd
The Philips Centre
420-430 London Road
Croydon
Surrey CR9 3QR

For the Respondent	ANDREW SHORT
(of Counsel)
Instructed by:
Messrs Rowley Ashworth Solicitors
Kennedy Tower
St Chads Queensway
Birmingham B4 6JG	

MR JUSTICE NELSON:

1	This appeal concerns the meaning and effect of a collective agreement reached in 1993, and the meaning and effect of the Employments Rights Act 1996 (“The Act”).  The collective agreement was negotiated between the Appellant (“Philips”) and the Respondents’ Union “(the Union”).  Its terms were incorporated into individual employees’ contracts of employment.

The Facts

2	Philips make colour television tubes at their premises in Durham. Demand is seasonal and in periods of low demand employees had on occasions to be laid off. From about 1980 this situation was dealt with in an agreement incorporated into the employees’ contracts of employment entitled the Guaranteed Week Agreement (GWA).  Clause 2 of this agreement provided that: -

“In the event of work not being available, employees sent home are guaranteed payment of their normal earnings for time lost within their standard working week up to a maximum of twenty five working days in any continuous twelve month period.”

3	This guarantee was subject to various conditions. In order to avoid the need for employees to be sent home or to minimise loss of production there had to be full co-operation with Management including the working of reasonable overtime and the flexibility of working arrangements (Clause 2 (b)).  The flexibility of working arrangements could include “agreed re-arrangement of the hours of the standard working week” (Clause 2 (c)).  Where such a re-arrangement of the hours of the standard working occurred, provisions as to the appropriate premium payment were set out in Clause 2 (c) as follows: -

“(i)	All hours worked outside the normal start and finish times of the standard working week attract the premium element, and the basic rate for these hours is not paid until more than forty hours have been worked in any week.
(ii)	 	Correspondingly, where Management has not required a re-arrangement of the standard working week, hours worked outside the normal start and finish times of the standard working week will be paid in accordance with an existing overtime arrangement.
(iii)	 	Where overtime working is required in addition to a re-arrangement of the standard working week, the overtime hours will be paid in accordance with existing overtime arrangements.”

4	Failure to attend during the re-arranged hours resulted in a proportional reduction in the normal earnings guaranteed (Clause 2 (d)).  This clause provided the employers with the power to set off against normal earnings guaranteed under the agreement, sums due for re-arranged hours of the standard working week which were not in fact worked. 

5	There were disputes between the unions, AEEU and EESA and the employers relating to the operation of the GWA.  These led to a formal ‘Failure to Agree’ notice issued by AEEU in late 1992, shortly after the reintroduction of the GWA which had ceased to be operative in 1989 by agreement between the employers and the unions.  Such a notice formed part of the system of dealing with problems and grievances which was described by the Employment Tribunal as a sophisticated means of communication not only with the unions but with the workforce.  Philips had issued a notice on 4 September 1992 entitled ‘Payment of shift premiums and overtime during short time working’ about which the AEEU made four complaints; firstly they had not been consulted on it, secondly parts of the GWA had been left out and taken out of context, thirdly the employer’s notice was not in line with the GWA as it currently stood, and fourthly that the use of general overtime as ‘rearranged hours’ was unacceptable:

“…overtime working after completion of a standard working day does not fall into the category of re-arranged hours because it is outside the hours of your normal working day and is therefore subject to normal overtime agreed payments.”

6	The Union’s disagreement was discussed at a meeting on 11 September 1992 at which the unions raised the above matters and in addition expressed concern about the company’s intention to reduce basic earnings if the employees did not work overtime.  At the conclusion of this meeting the unions reserved their position.

7	It was against that background that the Annual Hours Agreement (AHA) was made in 1993.  This varied the GWA, and, like that agreement, was incorporated into the employees’ contracts of employment.  It covered lay off arrangements, allowed for the retention of the GWA for periods of low demand, and guaranteed the employers additional capacity to meet seasonal production requirements.  That additional capacity:

“comprises six additional shifts per employee (eighteen in total) on specified rostered shifts between Philips calendar weeks 37-49.” [Clause 1]

8	Employees laid off were to be paid in accordance with the GWA up to a maximum of twenty-five working days in any twelve months period (Clause 3.1).  For each shift for which they were laid off and paid they were obliged to work an additional shift, for which they were paid premium rates and shift allowance but not basic pay.

9	Additional shifts worked in place of laid off shifts were referred to as ‘recovered shifts’ which would be worked at premium time only and additional shifts required not for lay offs but for seasonal demand, referred to as ‘stand alone additional shifts,’ were paid at normal overtime rates.

10	The additional shifts, whether recovered shifts or stand-alone shifts, were defined in clause 3.3 of the AHA as “6 additional rostered shifts per employee”.  They were specifically identified in clause 3.3 as additional Sunday production shifts on weeks 37, 39, 41, 43, 45 and 47.

11	Clause 7 of the agreement entitled ‘Review and Future Arrangements’ states: -

“The company will review with the Trade Union the operation of Annual Hours later in 1993 on the basis that the principle of using 6 additional shifts per employee will be used in future years if needed.”

12	Clause 7 also envisages the discussion of any new shift patterns in 1993 which would incorporate the principle of Annual Hours/seasonality.

13	The AHA was approved by workforce ballot.  The Employment Tribunal found that a joint statement of the agreement contained in the annual review was sent to the workforce on 9 November 1993.  We have a joint statement relating to the annual review 1993 in the EAT papers which is dated 11th January 1993.  This was drafted before the ballot had taken place.  It is not a contractual document but shows the basis of the agreement which formed the AHA.  It shows that an increase in the basic wage or salary of all full time employees and of shift allowances came into effect on the 1st July 1993 and that in return for that and other payment conditions and thresholds the Annual Hours Agreement was introduced at the maximum level of six lay off/recovered shifts per employee.

14	The joint statement included the precise words used in Clause 7 of the AHA and also stated at paragraph 5 (ii): -

“.. these changes to take effect on the due dates and to be in settlement of all outstanding pay and conditions claims. No further claims for improvement of pay and conditions to be made from implementation and during the life of this agreement i.e. before 1st January 1994.”

15	In fact business improved and no lay offs were required during 1993.  Nor did the proposed review take place.  The joint statement in 1994 again noted that the basis that the principle of using six additional shifts per employee “will be used in future years if needed”, and further noted that there was a disagreement as to whether the six additional shifts could be “carried forward as pure overtime”.

16	It appeared in 1996 that there might be lay offs and the Annual Hours Agreement was discussed.  Mr Moreland, the Union representative, agreed that the Agreement:

“did establish a principle but it was against committed rostered shifts i.e. at weekends. The Trade Union never envisaged that this agreement would be used in this new context…working a Sunday when it was principally  in a return for a Friday night shift was quite different from the company’s proposals for 1996.”

He accepted that the principle for lay off and recovered shifts in 1993 was agreed but this was based on “predicted lay off and recovered shifts”.

17	During 1996 the company acknowledged the ‘principle of mutuality’ which would allow flexibility as to when recovered shifts would be paid back, either on a weekday or on a weekend provided individuals did not ‘cherry pick’.

18	No agreement was reached between the unions and Philips during 1996 as to how lay-offs or recovered shifts were going to be treated. In fact no lay offs were required.

19	It is important to note that the ‘new context’ referred to by Mr Moreland at the meeting on 18 April 1996 referred to the change in working patterns which had occurred between 1993 and that date. As the Employment Tribunal found at paragraphs 20 and 25 of its decision, Philips worked a five day week in 1993 so that the additional shifts were arranged for weekend work, whereas by 1996 seven day working had been established so that it was not possible thereafter to lay down specific shifts to be worked at weekends to recoup the lay off payments.

20	In November 1998 it was anticipated that the Annual Hours Agreement would have to be implemented. At a meeting of 29 November 1998 Philips made various proposals in relation to the use of the recovered lay off procedure for week 1.  In 1999 the Trade Unions still disagreed with midweek lay offs while weekends remained in the roster.  It is to be noted that the meeting agreed, in conclusion, that the proposal made was the best way forward. Mr Beasley, who was employed by Philips as the Human Resources Manager, expressed the opinion in evidence before the Employment Tribunal that this amounted to an agreement with the Union and whilst it was not a collective agreement it was equivalent to one.  He did not however consider that it changed the contracts of employment of the employees; the Employment Tribunal agreed with that.

21	Employees were laid off in 1999 in weeks 1 and 18. The Employment Tribunal found that: -

“Each employee was required to recover during 1999 those hours that they had been laid off in week 1 and week 18. They had to do so by working overtime, designating that overtime as the recoupment of the laid off basic pay. For the overtime worked they received no basic pay only premium rate and shift allowance. During the lay off period they had been paid basic pay only. At the end of the year calculations were made by the Respondents as to the number of hours that had been worked under this arrangement by each employee. If an employee had not worked sufficient hours to make up those during the two lay off periods, a calculation was made of the number of hours not worked and a deduction from the salary due to the individual employees in January was made from their pay.” [Paragraph 12]

22	Some employees, including the four Respondents, did not work a sufficient number of hours, so deductions were made from their pay in January 2000 to reflect the fact that they had not worked the recovered hours required for the year 1999.

23	The four Respondents sought recovery of those deductions under section 13 of the Employment Rights Act 1996.

The Employment Tribunal decision

24	The Employment Tribunal held that the Respondents were entitled to recover these deductions which were unlawful under section 13 of the Employment Rights Act 1996 as: -

(i)	The AHA created no enforceable obligation for the years after 1993. It provided for the workforce to work specific shifts at specific times.  It did not allow them to recoup payments made in the guaranteed lay off period except by requiring employees to work another different shift (ET decision paragraph 24).

(ii)	The ‘principle’ under Clause 7 of the AHA did not oblige the employees to work additional shifts or hours after 1993 in the absence of any agreement as to what additional shifts should be worked.

(iii)	The agreements did not allow the deductions to be made (ET decision paragraph 26).

(iv)	Philips were not recovering an ‘overpayment of wages’ under section 14 (1) of the Employment Rights Act 1996 when they deducted the employees wages.

The Statute

25	The relevant part of section 13 of the Employment Rights Act 1996 provides: -

“(1)	An employer shall not make a deduction from the wages of a worker employed by him unless –
(a)	the deduction is required or authorised to be made by virtue of 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.
(2)	In this section ‘relevant provision’ in relation to a worker’s contract means a provision of the contract comprised
(a)	in one or more written terms of the contract of which an employer had given the worker a copy on an occasion prior to the employer making the deduction in question; or
(b)	in one or more terms of the contract (whether express or implied and, if express, whether oral or in writing) the existence and effect, or combined effect of which in relation to the worker the employer has notified the worker in writing on such an occasion.”

26	Section 14 (1) of the Act relating to ‘excepted deductions’ provides as follows: - 

“(1)	Section 13 does not apply to a deduction from a worker’s wages made by an employer where the purpose of the deduction was the re-imbursement to the employer in respect of
(a)	an overpayment of wages; or
(b)	an overpayment in respect of expenses incurred by the worker in carrying out his employment,
made (for any reason) by the employer to the worker.”

The Appellant’s submissions

27	The Employment Tribunal’s approach to the proper construction of the Annual Hours Agreement was erroneous the Appellant submits.  They appear to have concluded that in the absence of detailed provisions specifying the shifts to be worked in subsequent years there was no binding obligation for the years after 1993, that a ‘principle’ was too generalised a concept to give rise to a contractual obligation and that there was no necessary intent to enter into legal relations between the employers and the unions.  Each of these reasons demonstrates, the Appellant submits, that the Tribunal was wrongly construing the AHA as a commercial contract rather than as the collective agreement that it in fact was.

28	Custom and practice plays a considerable part in the way that collective agreements are made and the court should not be looking at a collective agreement for contractual language of the sort which lawyers demand in commercial agreements. (Harvey on Industrial Relations and Employment Law section N-1733).  We note that in Adams v British Airways Plc [1996] IRLR 574 Sir Thomas Bingham MR, as he then was, said: -

“A collective agreement has special characteristics, being made between an employer or employer’s organisation on the one side and the trade union or trade union’s 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.”

29	The Appellant submits that by taking an unnecessarily legalistic approach the Employment Tribunal failed to appreciate that there was a specific binding agreement for 1993 under the AHA and a general binding agreement beyond 1993 under Clause 7.  There was good consideration for both 1993 and thereafter as is clear from the joint statement, so that even if the terms of the AHA were to be construed as a commercial agreement there would be a heavy onus on the employees to show that it was not intended to be binding after 1993 (See Edwards v Skyways Limited [1964] 1WLR 349). The court there held that a collective agreement to pay ex-gratia sums on redundancy ‘approximating to pension contributions’ was binding despite the vagueness of the language used.

30	Mr Christopher Jeans QC on behalf of the Appellant accepted that there was a significant disagreement between the parties as to how lay off payments were to be recovered but the principle that the company could require up to six laid off shifts to be recovered was established by Clause 7 of the Agreement, which expressly stated that the principle of using six additional shifts ‘will be used in future years if needed.’

31	The unions were submitting that payments could only be recovered post 1993 as had been agreed for 1993, that is against specific shifts, whereas Philips contended that time could be recouped after 1993 from general overtime.  The fact that this disagreement was significant however did not mean that there was no enforceable obligation for the years after 1993. In the absence of detailed arrangements being agreed between the parties the gap had to be filled by implied terms.  Such terms would have to be reasonable and in accordance with the implied term of trust and confidence between employer and employee.  Here this was amply satisfied by the fact that Philips had permitted the employees to work off the guaranteed lay-off payments they had received at any time they wished, whether by another shift or by overtime.  By accepting this principle, described by Philips as one off ‘mutuality’, the company had conceded everything.

32	In any event the GWA concerned re-arranged hours and dealt with hours rather than shifts, and whilst the AHA referred to shifts, a shift was simply so many hours.  Shifts and hours are therefore, the Appellant submits, the same thing.

33	The unions had in effect accepted the principle of mutuality as the meeting of 29 November 1998; this was demonstrated when the union representative acknowledged the changes the company had made and agreed that the proposal was the best way forward.  Even though the union did not formally agree the principle of mutuality, as the company’s statement of 24 June 1996 notes that it had not been possible to reach agreement with the Trade Union, the company concession on this issue meant that no further argument was available to the union. The change in shift pattern did not affect this as in the changed circumstances the company simply had to act in accordance with trust and confidence and reasonably. This is what they did.

34	This was not a case where it could be said that the term was too uncertain to be enforced as it was clear that Clause 7 was intended to be binding and for good consideration, and was perfectly workable by the application of reasonable implied terms.  There was in such circumstances no reason to deny the effect of Clause 7.

35	The Employment Tribunal were also incorrect in concluding that there was no power to deduct beyond 1993.  The GWA paragraph 2 (d) gave a power to make a proportionate reduction and the power to deduct was in any event implicit in the agreements.

36	Philips were entitled under the AHA to require six shifts whether recovered or stand alone shifts to be worked in the years following 1993. As a matter of law, on its proper construction as a collective agreement the AHA gave Philips the right to demand recovered shifts after 1993. 

37	The Respondent’s submission that there can be no binding obligation after 1993 under the AHA, and that there is no scope for implied terms, can be tested by imagining the position in reverse.  Suppose for example, the Appellant submits, the company had not awarded the wage rises which were in fact granted in return for the amendment of the Guaranteed Week Agreement but had agreed that there would be a minimum of six recovered shifts per annum in the event of lay-offs and that each recovered shift would be paid at a special bonus rate.  It would not be open to the company, the Appellant submits to argue in such circumstances that it was not obliged to make recovered shifts available or pay special bonus rates on the grounds that the precise mechanics or timing of those shifts had not been laid down in the original agreement.  The absence of such detail would not prevent a plain agreement to work recovered shifts in lieu of time laid off from being enforced.

38	Mr Jeans QC submitted, in the alternative, that Philips were in effect seeking to recover an overpayment of wages so that the deduction was an ‘excepted deduction’ under section 14 (1) of the Act. If the AHA entitled the company to recover shifts in 1999 the deductions would be ‘required or authorised’ by a relevant provision under section 13 (1) (a) of the Act.  The employees had failed to work all the hours for which their wage was payable by failing to work their recovered shifts. At the end of the year it could therefore be seen that those employees had been overpaid by the amount paid for the laid off shifts for which they had failed to work recovered shifts in lieu.  There was therefore an overpayment of wages.  Even if this was not so however it was sufficient if the purpose of the deduction was to recoup a sum which Philips regarded as being overpaid.  This is so because of the scope of section 14 (1): -

“Section 14 (1) does not require that the deduction must be a lawful one. The Tribunal simply has no jurisdiction to enquire into or determine the issue of lawfulness of a deduction falling within one of the categories set out in section 14 (1). If the deductions fall within that section the procedure is not to make a complaint to a Tribunal but rather to issue proceedings in the ordinary courts.” [Harvey on Industrial Relations and Employment Law and SIP Industrial Products v Swinn [1994] ICR 473, Sunderland Polytechnic v Evans [1993] ICR 392]

39	The Employment Tribunal dealt with this issue very briefly in its decision and failed to apply section 14 (1) or the authorities properly.

40	The Appellant is therefore, it submits, entitled to succeed either under section 13 (1) (a) of the Act as the deductions were required or authorised by the AHA or alternatively because the deductions were made for the purpose of reimbursing the company for an overpayment of wages and were therefore an excepted deduction under section 14 (1) (a).

The Respondents’ submissions

41	The Respondents submitted that agreement as the exact timing of the additional shifts was central to the Annual Hours Agreement.  Six additional shifts in 1993 were expressly agreed and designated in the body of the agreement.  The matter was of such importance that there was a ballot of the workforce before the agreement could be concluded.

42	Whilst it was accepted that the AHA did establish a principle that employees would work up to six additional shifts, in the absence of detailed agreement as to the timing of such additional shifts the agreement remained incomplete and in principle only, that is ‘subject to final agreement’.  This was because the ‘principle’ related to six additional rostered shifts under clauses 7, 3.3 and 1.  There was no basis for interpreting ‘six additional shifts’ under Clause 7 as meaning the equivalent number of hours.  Nor did the AHA authorise any deductions from wages in such circumstances.

43	The gap could not be filled in by implying reasonable terms as this is not what had been agreed between the parties.

44	The AHA was properly construed by the Employment Tribunal who took the appropriate approach to a collective agreement in the circumstances in which it was made by the parties. Clause 5 (2) of the joint statement of 11 January 1993 showed that in the absence of further agreement as to how laid off payments were to be recovered after 1993, the life of the agreement was limited to 1993.

45	The formal ‘Failure to Agree’ issued by the union in 1992 showed that there was a disagreement between the employers and the union as to whether overtime working after the completion of a standard working day fell within ‘re-arranged hours’ under the GWA.  The fact that there was already a dispute as to how the GWA operated in relation to overtime meant that if the Annual Hours Agreement was to have permitted recovery of wages in respect of ordinary overtime it would have said so.  As it was, the AHA effectively excluded ordinary overtime as the only additional hours which had to be worked were those within the six specified shifts.

46	Working during those specified shifts covering six Sundays was entirely different to 48 hours general overtime spread over the year.  The AHA referred to factory shifts not hours worked by any individual employee.  Neither expressly nor by implication could it be said that the agreement meant ‘…or the equivalent in hours’.

47	The change in shift patterns completely changed the manner in which the AHA could operate but Philips’ response was simply to change from rostered shifts to hours even though the exact dates of the shifts had been central to the agreement of the AHA.

48	The fact that a ‘review’ was due to take place later in 1993 under Clause 7 reinforces the contention that further agreement was needed in relation to when the shifts were to occur before they could be used.

49	There was therefore an incomplete agreement which left a central part of the bargain still to be agreed.  There was therefore no concluded contract between the parties (See May & Butcher Limited v The King [1934] 2 KB 17).

50	Whether or not there was an intention to be bound was a matter of fact for the Tribunal and reliance upon matters arising after the written contract as amounting to a variation were also questions of fact.  Thus whether or not a principle of mutuality had been agreed was a matter of fact for the Tribunal who were entitled to find that the contract was limited to 1993 (Carmichael & National Power Plc [1999] ICR 1226).

51	There had been no meeting of minds as to whether general overtime could be used to recoup lay off payments made under the GWA.  Where the right to recover such payments was limited, as it was in the AHA for 1993 to additional shifts only, it did not eat into the employee’s right to earn overtime at full rates for the rest of the year.  It was much less favourable to an employee to be obliged to work at reduced overtime rate for 48 hours during the year rather than attend specific shifts on a limited number of designated occasions when all lay off payments would be recovered over a short space of time.

52	The AHA did not in any event provide any authorisation for the deductions under section 13 (1) (a) of the Act.  Nor did section 14 (1) of the Act provide the Appellant with an alternative ground of appeal.  If the Appellant failed on the first ground, as the Respondent’s submit he must, he must also fail on the second ground as there can have been no overpayment.

53	The authorities do not entitle the Appellant to say that it sought the payment for the purposes of recovering overpayment even though its belief that it had made an overpayment was wrong.  This, the Respondents submit, is contrary to both Sunderland and SIP where it was entirely clear on the facts that money had been overpaid; in the case of Sunderland in respect of a strike and in the case of SIP where the money had in effect been stolen by a dishonest claim for expenses.

54	In any event this is not a case about overpayment. Each Respondent was paid for work he was supposed to have been paid for under the GWA.  It was an artificial argument to submit that in such circumstances to construe that the deduction of wages in January 2000 was a recovery of an overpayment under section 14 (1) of the Act.

Conclusions

55	The interpretation of the Guaranteed Week Agreement and the Annual Hours Agreement is a matter of law.  Both agreements were in writing and there is no evidence to suggest that the parties intended any oral exchange to form part of their agreement when it was made or recorded.  The words must be construed in their factual context as Lord Bingham said in Adam but the construction of the agreement remains a matter of law.

56	When the Appellant proposed what it described as the principle of mutuality in 1996, the matter was not the subject of agreement by the unions and does not amount to a variation of the AHA.  The fact that Philips were prepared to be flexible is however relevant to whether implied terms could be agreed or whether those relied upon by the Appellant were reasonable.

57	What does amount to a finding of fact by the Tribunal is what was said by Mr Blakelock on behalf of the unions at the meeting of 29 November 1998 and whether the parties intended what was then said to amount to an oral variation of the AHA (Carmichael). That finding can only be challenged if it was perverse.  There is no basis for alleging perversity, nor can it be said that a verbal statement that the ‘proposal was the best way forward’ can amount to an oral variation of the AHA or an express agreement of how ‘additional shifts’ was to be interpreted under that agreement.  The words are too imprecise and may mean no more than a recognition that what was going to happen, although not agreed, was the best that could be expected in the circumstances.

58	The AHA was, as the Appellant accepts in its skeleton argument, an amendment of the Guaranteed Week Agreement.  Laid off shifts were still to be paid in accordance with the GWA as specified in clause 3.1 of the AHA.  For each shift that they were laid off and paid, the employees were obliged to work an additional shifts for which they were paid premium rate and shift allowance but not basic pay.

59	It is important to note the factual context in which the GWA was varied by the AHA.  The notes of the meeting of 11 September 1992 make it clear that there was a disagreement about the way in which the GWA was being operated.  In particular the unions objected to overtime working after the completion of a standard working day being treated as re-arranged hours when, on their contention it should have been subject to normal overtime payment.  This issue was regarded as sufficiently important to merit being part of a formal Failure to Agree issued by the union to Philips.

60	When the AHA was negotiated at the beginning of 1993 it made no reference to re-arranged hours.  Nor did it make any reference to overtime.  Instead, it referred to six specified rostered shifts between Philips calendar weeks 37 – 49.  These additional shifts gave the employers additional capacity in which case the additional shift was referred to as a stand alone shift, or the right to require the employees to work additional shifts to recoup sums paid out when they were laid off, referred to as a recovered shift.

61	The six additional shifts were specifically identified for 1993 by reference to week numbers 37, 39, 41, 43, 45 and 47 and by reference to the date of the Sundays in each week when they were to operate. These additional shifts, specifically identified as they were, were clearly only applicable to 1993.

62	The clause upon which the Appellant relies, clause 7, states that the principle of using ‘six additional shifts per employee will be used in future years if needed’.  On its face therefore the AHA imposed specific requirements in relation to additional shifts in 1993 and the acceptance by both parties of the principle of using ‘additional shifts’ in future years if needed.

63	The joint statement dated 11 January 1993 notes that the Annual Hours Agreement with six lay off/recovered shifts per employee was agreed in return for wage increases, shift allowance increases and modification of the performance improvement payment scheme.  There is no reason to believe that Clause 7 was not included as part of the consideration in return for the wage increases.  Clause 5 (ii) of the joint statement suggests that the life of the AHA is until the end of 1993. This does not however have the consequence that clause 7 is of no meaning or effect at all beyond 1993 as that clause relates expressly to future years.

64	What then is the meaning of Clause 7?  Can the Appellant fill the gap created by the absence of any agreement with the unions as to how the additional shifts were to be worked, by implying a term that such shifts could be worked as and when the employee wished, or is the agreement one in principle only which was subject to final agreement, which is what in essence the Employment Tribunal found.

65	Firstly it should be noted that Clause 7 envisages a review with the Trade Union later in 1993 and a discussion of any new shift patterns as appropriate in 1993.  This use of language suggests that further discussion was envisaged before the agreement could be applied to future years or shift patterns, but we heed the Appellant’s contention that this is a collective agreement not a commercial agreement and must be considered accordingly.

66	The language of the rest of the clause itself however, when considered in the factual context known to the parties, indicates that there was no completed agreement.  The use of the word ‘principle’ is an unusual choice of word if there had been a substantive agreement.  Its very use suggests that there it had not been possible to agree the detail or that it was necessary to qualify the use of six additional shifts by broadening it into ‘the principle of’.  This is particularly so in view of the disagreement as to the meaning of ‘re-arranged hours’ under the GWA and its application to general overtime.  Against that background the use of the word ‘principle’ is consistent with the interpretation that the unions were agreeing no more than that when future discussions and negotiations took place there would be no dispute during those discussions or negotiations as to the employer’s right to require the employees to work additional shifts to recoup guaranteed lay off payments.  The word ‘principle’ had therefore been chosen specifically because there had been no express agreement as to the future.

67	Furthermore, the use of the words ‘additional shifts’ should, given the factual context, be taken to be deliberate and a consequence of the fact that there had been disagreement about how general overtime hours could be used to recover lay off payments.  Against the background of that disagreement we see no basis for implying the words ‘…or their equivalent in hours’ or construing ‘additional shifts’ so as to include such words.  Had it been the intention of the parties to agree this it would have been simple for them to have said so.

68	We conclude therefore that Clause 7 was an incomplete agreement in relation to future years and required further agreement before it could become binding.  The fact that consideration was given for the AHA, including Clause 7, does not alter this conclusion.  This is not a case where there was a clear intention by both parties to be bound with vague or imprecise language creating difficulties as to how that could be achieved, but a case where the factual context makes it clear that there was no intention to be bound in the absence of further agreement between the employers and the union.  It is not therefore a case which is the same as Edwards, but even if it was, the heavy onus of showing that there was no agreement to be bound in relation to the future years without further agreement, would have been discharged.  The background demonstrated that the agreement related to ‘additional shifts’ not general overtime hours.

69	We do not consider that the agreement can be made complete and binding in respect of future years by terms being implied into the contract.  The history of disagreement as to the use of overtime would render it impossible for any terms to be implied into the contract which purported to enforce upon one party the very thing it had not been prepared to agree in negotiations and which was accordingly not included in the contract.  It is to be noted that in the extract from the 1994 Joint Statement the refusal to accept the six additional shifts as ‘pure overtime’ was still present.

70	The importance of the issue as to precisely how lay off payments were to be recovered is demonstrated by the need for the ballot of the workforce before the AHA could be agreed.  The Joint Statement of 11 January 1993 shows that a ballot was required to determine which particular shift option was to be accepted.  As was submitted by the Respondents in argument, the workforce clearly regarded the distinction between having to work on a number of designated shifts over a short space of time, and having to work at a reduced overtime rate for 48 hours during the year as being very important.  Hence the Failure to Agree in late 1992, the meeting of 11 September 1992 and the 1994 Joint Statement.  The latter merely reinforces the fact that this concern was still continuing after the AHA.

71	There is in our judgment another obstacle in the path of implied terms.  This is the change in shift patterns after the AHA came into force.  This was itself envisaged by the second half of clause 7 which referred to discussing ‘any new shift patterns as appropriate in 1993 which will incorporate the principle of Annual hours/Seasonality.’  After the change from five day working to seven day working the agreement of the AHA as to six additional rostered shifts, was no longer applicable.  The implication of terms in such circumstances became impossible. It could not be either reasonable or consistent with the implied term of trust and confidence between the employer and employee for such terms to be implied in the new circumstances of changed shift patterns.  We therefore reject the Appellant’s contention that the gap in Clause 7 could be filled by implied terms.  The choice of working shifts for overtime was no longer the same as it had been when there was five day working as opposed to seven day working. An implied term which in practice forced upon many employees the recovery of lay off payments through general overtime when they had not been prepared to agree and had not agreed that option could not properly be described as either reasonable or consonant with the duty of trust and confidence.

72	The GWA in clause 2 (d) gave the employers a power to set off sums due for re-arranged hours which were not worked against lay off payments made.  Contrary to the decision of the Employment Tribunal upon this matter, we consider there was an intrinsic power to deduct earnings so as to achieve the appropriate reduction in this clause in the GWA.  It was however disagreement about the operation of the GWA, and in particular the use of normal overtime as rearranged hours, which led to its amendment and hence the AHA.  The meeting of 11 September 1992 shows that Philips decided to start from a clean sheet rather than be caught up in detailed discussions about particular interpretations of the GWA.  When the AHA was concluded it contained no clause providing the employers with a power of set off or an intrinsic power to deduct earnings.  There was therefore no express power to deduct earning under the Annual Hours Agreement.  This agreement did give Philips the right to demand six additional rostered shifts as recovered shifts in 1993 but not thereafter in the absence of further agreement in view of the wording of Clause 7 and the change in shift patterns.  In any event Clause 7 only refers to ‘additional shifts’ and does not expressly or impliedly include ‘the equivalent in hours’.  It is not therefore possible to imply into the AHA any power to deduct earnings for general overtime hours not worked.

73	As to the Appellant’s alternative submission under section 14 (1) of the Act, we consider that this also must fail.  On our findings the Appellant has not established that any overpayment was made.  Section 14 (1), properly construed, requires there to have been an overpayment.  The words ‘The purpose of the deduction was the re-imbursement of the employer in respect of (a) an overpayment of wages’ cannot properly be read as ‘The purpose of the deduction was the re-imbursement of the employer in respect of (a) a payment which the employer regarded as an overpayment of wages.’  There is no justification for such a reading and it is to be noted that in the cases of SIP and Sunderland upon which the Appellant relies there clearly had been an overpayment. That is not so in this case on the findings we have made. Section 14(1) does not therefore apply.

74	The Employment Tribunal did not err in law in finding that the deductions made by Philips from the Respondents earnings were not authorised by a relevant provision of the Respondents contracts under section 13 (1) (a) of the Employment Rights Act 1996.  Nor did they err in finding that section 14 (1) of the Act was inapplicable.  We do not share each and every strand of their reasoning but we are satisfied that there conclusions are correct.  The appeal is therefore dismissed.