Appeal No. UKEAT/0505/11/SM

EMPLOYMENT APPEAL TRIBUNAL

FLEETBANK HOUSE, 2-6 SALISBURY SQUARE, LONDON, EC4Y 8JX

At the Tribunal

On 23 March 2012

Judgment handed down on 19 July 2012

Before

THE HONOURABLE MRS JUSTICE SLADE DBE, MR C EDWARDS, MR P GAMMON MBE

(1) MS ANDERSON AND OTHERS; (2) MR A PHILIPS AND OTHERS (APPELLANTS)

LONDON FIRE & EMERGENCY PLANNING AUTHORITY (RESPONDENT)

Transcript of Proceedings

JUDGMENT

For the Appellants
MR S BRITTENDEN (of Counsel)

Instructed by:
Messrs Thompsons Solicitors
22-24 Worple Road
Wimbledon
London
SW19 4DD

And:

Unison Legal Services
Unison Centre
130 Euston Road
London
NW1 2AY

For the Respondent
MR J GOUDIE (One of Her Majesty's Counsel) & MS H STOUT (of Counsel)

Instructed by:
London Fire & Emergency Planning Authority
Legal Services
169 Union Street
London
SE1 0LL

CONTRACT OF EMPLOYMENT

Whether established

Implied term/variation/construction of term

The Employment Tribunal erred in holding that the agreement reached between the Respondent and Trade Unions for the third year of a three year pay deal was not legally enforceable because it gave the employer two options for the pay increase to be awarded with no agreement as to which took precedence. The Employment Tribunal wrongly held that the agreement for the third year was an agreement to agree or to negotiate. The Employment Tribunal did not err in holding that on its construction the Collective Agreement did not provide a guarantee that the pay increase in the third year, 2009, would be no less than 2.5%. The Claimants' appeal from the dismissal of their claims under section 23 of the Employment Rights Act 1996 for unlawful deduction of wages was dismissed.

1. The Appellant employees appeal from the judgment of an Employment Tribunal ('ET') sent to the parties on 6 June 2011 which dismissed their claims under section 23 of the Employment Rights Act 1996 ('ERA') for unlawful deduction from wages. The Claimants claimed the difference between a pay increase of 2.5% which they alleged was due from 1 April 2009 and one of 1.575% which was paid. The parties will be referred to as Claimants and Respondent. References to paragraph numbers below are to the judgment of the ET unless otherwise indicated.

1. The claims turned on the meaning and effect of Clause 2 of a Pay and Conditions Agreement between the Respondent and Recognised Trade Unions in July 2007 for terms for Craft, Manual, Main and Principal Officer Grades (Fire and Rescue Staff) (the 'Collective Agreement') which provided:

"On 01/04/09 pay will be increased by 2.5% or by the NJC for Local Government services settlement plus any uplift required to ensure general pay increases for the period 2007-09 are 1% above the NJC settlements for the same period."

1. The issues raised by the Claimants' appeal are:

(1) Whether the ET erred in holding that there was no contract between the parties to make a specified percentage increase in pay from 1 April 2009 but only an agreement to agree or negotiate pay increase for that period; and

(2) Whether the ET erred in failing to hold that, properly construed, the Collective Agreement gave the Claimants an entitlement to an increase in pay of 2.5% from 1 April 2009.

1. The Collective Agreement was entered into following negotiations between the Respondent and recognised trade Unions on revised terms and conditions of employment including a single pay scale and job evaluation. The Collective Agreement was ratified by the Respondent at a meeting on 26 July 2007. The Collective Agreement included the following provisions:

"General Pay Settlement 2007-09

2. In recognition of the agreement of GMB and Unison to the terms set out in this agreement, the LFEPA shall increase the rates of pay of all employees covered by the ICSS by 2.9% with effect from 01/04/07. On 01/04/08 there will be a further pay uplift of 2.75% save for those covered by the pay protection arrangements set out in paragraph 11 below. On 01/04/09 pay will be increased by 2.5% or by the NJC for Local Government Services settlement plus any uplift required to ensure general pay increases for the period 2007-09 are 1% above the NJC settlements for the same period.

Salaries on Promotion

13. Save as set out in the 'Implementation Arrangements', any employee promoted permanently or temporarily to a higher grade will be entitled to receive the minimum of the grade or an increase of 5% whichever is the greater...

**Implementation Arrangements**

3. On 01/07/09 all staff below the maximum of the range, who are eligible in accordance with paragraph 7 of the Pay and Conditions Agreement 2007, will receive an SPI of 3%, or the balance between their current salary and the salary maximum, whichever is the lesser."

Pay Assimilation

4. Staff who are promoted between 01/10/07 and 30/06/08 will be appointed to the salary point which represents the closest to a 5% increase, or the minimum of the salary range, whichever is the greater. For promotions from 01/07/08 the increase shall b 5% or the minimum of the salary range whichever is the greater."

1. The ET made findings of fact about the background and events leading to the Collective Agreement. In general pay for the Respondent's workers had followed those agreed in the NJC (National Joint Council) for Local Government staff. In 2007 there was a need to make higher pay awards in order to effect change in terms and conditions of employment. The body charged with negotiating the pay agreement was the Joint Committee for Support Staff, 'JCSS'. The JCSS comprised representatives of the Respondent and representatives of the GMB and Unison on the staff side.

1. The first meeting of the JCSS took place on 23 April 2007. At the second meeting of the JCSS on 23 May, the possibility of a three year pay deal was discussed. The next meeting took place on 8 June 2007. Staff side asked Brigade, the employer's side, whether they would extend the three year pay offer to four years. At paragraph 16 the ET set out part of the minutes of the meeting which included the employer's response to this request:

"Brigade said it did not have authority to agree a four year deal. It had been happy to maintain the historic linkage to NJC pay awards but this had been broken by the staff side. No doubt in negotiations in 2010 the NJC settlement figure would be a major consideration."

1. A further meeting of the JCSS took place on 14 June 2007 at which the first of two pay options which the employer's side had outlined on 8 June was accepted:

"This was confirmed by an email dated 3 July 2007 from Mr. Greene for the Unions, to Mr. Dalgleish."

The agreement required the approval of the Respondent which was given at a meeting on 26 July 2007.

1. The ET recorded the concession made on behalf of the Respondent that the Collective Agreement was incorporated into individual contracts of employment. In paragraph 1 of the section of the judgment headed 'Decision' the ET recorded that the pay increase for the third year of the agreement was:

"couched in the alternative, giving an option as set out in our findings of fact for a pay deal of 2.5% or by the NJC for local government services settlement plus any uplift required to ensure general pay increases for the period of 2007-09 of 1% above the NJC settlements for the same period. There was no indication as to which took primacy, the fixed percentage or the calculation of 1% above NJC settlements for the three year period."

1. On the evidence the ET concluded at paragraph 6:

"That the agreement reached for 2009 was an agreement to agree. On the date the agreement was signed the NJC figure had yet to be agreed and the final percentage figure had yet to be set. Although Mr. Philips told the Tribunal that 2.5% was the minimum figure the Union would find acceptable, this aspiration was not reflected in the wording of the agreement neither is it reflected in the minutes of the meetings. The Unions accepted the option put forward by the Respondent and made no changes to the wording to ensure that the pay increase would be the greater of 2.5% or 1% above the NJC."

The ET made a finding at paragraph 7 that a PowerPoint slide in a presentation by the Respondent to staff in June 2007 showing a 2.5% increase in pay in 2009 was for illustrative purposes only. They held that there was no evidence before them that the agreement contained a further guarantee that the pay increase in 2009 would be not less than 2.5%. The ET held that:

"The only guarantee that was given was to ensure that the value of the pay deal kept up with the NJC settlements plus 1% over the three year period."

1. At paragraph 8 the ET held:

"Looking at the terms of the agreement and the minutes of the meetings of JCSS and the wording of the final agreement it was evident that the parties had concluded an agreement to agree the final figure in 2009, after the NJC settlements had been concluded...There was also no evidence that the parties had agreed a formula, stating which option was to take primacy over the other. In the event of agreement not being reached, all the parties had was an agreement to enter into further negotiations."

1. The ET concluded in paragraph 11 that the 2009 pay deal was not apt for incorporation into employees' contracts and was no more than an agreement to agree. They held that the Respondent was therefore entitled to pay the Claimants the lesser of the two options for calculating pay increases as the Collective Agreement was silent as to which should prevail. They were therefore not obliged to pay an increase of 2.5% in 2009.

1. Mr Brittenden, counsel for the Claimants, contended that the ET erred in concluding that clause 2 of the agreement between the Unions and the Respondent for the calculation of the pay increase in the third year was not apt for incorporation into individuals' contracts. Further, the ET erred in their construction of the clause. It was submitted that the clause gave employees an entitlement to whichever of the two options, 2.5% or JNC plus 1% gave the greater increase in pay.

1. Mr Brittenden's oral submissions before us were principally on the issue of the construction of the agreement for a pay increase in 2009. In the Notice of Appeal he alleged that the conclusion of the ET that in respect of Year 3 all the parties had was an agreement to enter into further negotiations was perverse. In support of this contention Mr Brittenden contended in the Notice of Appeal and his skeleton argument that:

(1) There was no reference to any need for further negotiations for the Year 3 increase in any of the documentation or negotiations;

(2) The ET failed to give sufficient reasons for their conclusion that the parties had not reached a 3 year pay deal nor did the ET make findings of fact to support such a conclusion;

(3) The ET erred in reaching their conclusion when the Unions were unaware that the only agreement in respect of year three was an agreement to agree and there would be a need for further agreement in respect of the pay increase for Year 3.

1. In support of the contention that the passage in the Collective Agreement dealing with pay in Year 3 is to be construed as entitling the Claimants to an increase of 2.5%, Mr Brittenden relied upon the speech of Lord Hoffman in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] IWLR 896 at page 912H and of Lord Bingham, then Master of the Rolls in Adams and Others v British Airways PLC [1996] IRLR 574 at paragraph 21 to contend that Clause 2 of the Collective Agreement must be construed in its factual setting as known to the parties at the time.

1. Mr Brittenden contended that the relevant clause in the Collective Agreement is to be construed in context as giving employees an entitlement to a pay increase of 2.5% in Year 3 unless NJC + 1% required a higher figure to be paid. Mr Brittenden relied upon the findings of fact by the ET at paragraph 4 that:

"...neither party could have foreseen the financial downturn that occurred in 2008 to 2009, which made the value of 1% above the NJC reduce significantly in value."

He also relied on the PowerPoint presentation made by the Respondent to staff in June 2007 of revised proposals which expressly referred to a 2.5% increase in pay in Year 3. The presentation showed costings based on such an increase. The Notice of Appeal challenges as perverse the finding of fact made by the ET at paragraph 7 that the figures given in the presentation were for illustrative purposes only. Mr Brittenden also challenged as perverse the acceptance by the ET the evidence of Mr Dalgleish that in June 2007 the Respondent did not give a guarantee that the increase in Year 3 would secure an overall increase of NJC + 1%.

1. Further, Mr Brittenden relied upon a Question and Answer document distributed to Staff on 19 June 2007 entitled Pay and Grading Review and Job Evaluation which confirmed that the offer for Year 3 was '2.5% from 1st April 2009'. The document put to the Respondent for ratification at their meeting on 26 July 2007 reworded '+ 2.5% 01.04.09 Base Sal. £' which Mr Brittenden submitted meant that basic salary would increase by 2.5% for Year 3.

1. Based on those facts it was submitted that the clear intention of the parties which could be reasonably understood from the documentation was that an increase of 2.5% would be paid unless NJC + 1% resulted in a higher figure.

1. Further Mr Brittenden contended that to construe the Collective Agreement as entitling the Respondent to pay NJC + 1% rather than 2.5% in Year 3 would be internally inconsistent. It was said that if there was a guarantee to pay NJC + 1% the Respondent may have to pay more than 2.5%. The Respondent could therefore not be entitled to pay the lesser of 2.5% and NJC + 1%. The failure of the ET to hold that such a guarantee was given wrongly prevented them from reaching such a conclusion. Mr Brittenden submitted that an increase of 2.5% was a floor for the increase in pay in Year 3 which was only displaced if the NJC + 1% guarantee produced a higher figure. It was merely an oversight in drafting of the final agreement that the words 'whichever is the higher' were not included. A reasonable person in possession of the facts relating to the context of the Collective Agreement would conclude that both parties so intended. Since 2.5% resulted in a higher figure than NJC + 1% the Claimants were entitled to an increase based on 2.5% in Year 3.

1. For the Respondent Mr Goudie QC with Miss Stout contended that the ET did not err in their conclusions. The ET did not err in deciding that the agreement in Year 3 was not a concluded contract. Since the agreement gave two alternative bases for calculating the pay increase in Year 3 the agreement in relation to that year was incomplete or uncertain. It was not apt for incorporation. It was not ambiguous but there was an absence of any provision as to which option was to be preferred. This leads to an uncertainty which is inconsistent with contractual obligation.

1. Mr Goudie QC referred to other provisions in the Collective Agreement which gave a clear indication of which of the two items was to be preferred. For example in Clause 13 an employee promoted permanently or temporarily to a higher grade was entitled to receive:

"...The minimum of the grade or an increase of 5% whichever is the greater" (emphasis added).

If Clause 2 were to be construed as providing that the Respondent was obliged to pay an increase of the greater 2.5% or NJC + 1% those words would have been included as they are in Clause 13. Mr Goudie QC pointed out that Mr Brittenden was unable to answer the question 'What is 'or' doing in Clause 2' if it did not provide that the Respondent could increase pay by 2.5% or NJC + 1%.

1. Further, Mr Goudie QC contended that the contemporaneous documentation demonstrated that the two bases for calculating pay increases in Year 3 were two alternatives. The PowerPoint briefing to staff in June 2007 made it clear that the pay offer for Year 3 was:

"2.5% from 01/04/2009 or balance of NJC settlements over the same period plus 1%."

Further, the Questions and Answers document entitled 'Pay and Grading Review and Job Evaluation' given to staff explained:

"2.5% on base salary or the amount needed in order to provide for 1% above the NJC for Local Government Services settlement for this 3 year period."

All other documents clearly presented the pay uplift in 2009 in the alternative. In this regard Mr Goudie QC referred to the Personnel Note of 29 August 2007. He made it clear that the Respondent was not contending that the clause provided for payment of the lesser of the two alternatives. The Respondent could opt for either. Neither had precedence over the other.

1. Mr Goudie QC contended that the Collective Agreement did not contain a guaranteed minimum increase in Year 3 of either 2.5% or NJC + 1%. Such a guarantee is not included in the Collective Agreement or in the minutes of relevant meetings. It was submitted that the Claimants had failed to establish that the ET had erred in concluding that they were not entitled to a pay increase of 2.5% in 2009.

1. It appears that the ET concluded that the agreement between the Unions and the Respondent was an agreement to agree for the following reasons:

"On the date the agreement was signed the NJC figure had yet to be agreed and the final percentage figure had yet to be set." (Paragraph 6).

"Looking at the terms of the agreement and the minutes of the meetings of JCSS and the wording of the final agreement it was evident that the parties had concluded an agreement to agree the final figure in 2009 after the NJC settlement had been concluded." (Paragraph 8).

The ET continued:

"There was also no evidence that the parties had agreed a formula, stating which option was to take primacy over the other. In the event of agreement not being reached, all the parties had was an agreement to enter into further negotiations."

1. The principles of law applicable to determining whether an agreement is legally enforceable as a contract are too well known to require repetition. An agreement which is uncertain is unenforceable as a contract. In Walford v Miles [1992] 2 AC 128 relied upon by Mr Goudie QC, Lord Ackner explained:

"the reason why an agreement to negotiate, like an agreement to agree, is unenforceable is simply because is lacks the necessary certainty."

Whether parties intend to enter into a contract is to be judged objectively as illustrated in Edmonds v Lawson [2000] QB 501 in which the Court of Appeal held that contractual intention was satisfied where a pupil barrister accepted pupillage with a set of chambers.

1. The ET appear to have relied upon uncertainty over the increase in pay to be made for 2009 as being determinative against the existence of a contract in that regard. In our judgment the fact that the NJC figure for pay increases in 2009 had not been agreed in 2007 when the Collective Agreement was entered into is immaterial to the question of whether the agreement had the necessary quality of certainty. The amount of the increase is to be determined by reference to a figure, the NJC + 1% increase, which will be a sum certain. Typically contracts of employment in the public sector contain provisions for pay to be determined by reference to that agreed from time to time in specified Collective Agreements. Contracts of employment of local authority employees may well include a term that pay will be determined by the NJC Agreement for Local Government Services said by the ET in this case to give rise to such uncertainty as to negate the existence of a contract. It is immaterial that the NJC had not in 2007 agreed a pay increase for 2009. The agreement between the Unions and the Respondent to fix a pay increase for 2009 by reference to the NJC agreement was sufficiently certain to give rise to a contract. The ET erred in law in failing so to hold.

1. Further, in our judgment, the ET erred in concluding that the agreement for a pay increase in 2009 was not of contractual effect because it contained two alternative methods of calculating the increase without giving precedence to either. Each option was clear. So too was it clear that it was for the paying party, the Respondent, to choose between the two. The existence of choice in an agreement does not render that agreement uncertain if the choices are clear. Contracts in different contexts may give an option to one party leaving the other party uncertain as to whether or not the option will be exercised. In the employment context a contract may give the employer the right to terminate on giving notice or pay in lieu of notice. The existence of choice in an agreement does not render that agreement unenforceable as a contract.

1. We agree with the contention on behalf of the Claimants that the evidence before the ET did not support their conclusion that the parties had concluded an agreement to agree 'the final figure in 2009' and in the absence of such agreement the parties had 'an agreement to enter into further negotiations'. All the evidence recorded in the judgment of the ET and in the documents before us showed that the parties were entering a 'three year deal' (minutes of the JCSS 8 June 2007), a 'settlement over a three year period' (Questions and Answers circulated to staff), '3 year pay deal' (PowerPoint presentation to staff June 2007) and 'General pay settlement 2007-09' (Heading to paragraph 2 Collective Agreement). Further it is to be noted that in the meeting of the JCSS, when asked whether a four year deal would be possible, the staff side were told that it was not but 'No doubt in negotiations in 2010 the NJC settlement figure would be a major consideration'. Whilst there was evidence of negotiations contemplated for the 2010 settlement there was no evidence in the documents before us or referred to by the ET which indicated that the parties discussed or intended there to be negotiations for a pay increase in 2009 after the Collective Agreement had been entered into. The options for a pay increase in that year were clearly set out in the Collective Agreement. There was no basis upon which the ET could properly conclude that the parties agreed to enter into further negotiations for the 2009 pay increase.

1. In our judgment the ET erred in law and came to a perverse conclusion in failing to hold that the Respondent entered into a contract with the Unions for pay increases in each of three years including the third year, 2009.

1. The construction of Clause 2 of the Collective Agreement contended for on behalf of the Claimants requires the addition of the words 'whichever is the greater' after the two options of 2.5% or NJC settlements plus any uplift required to ensure general pay increases for the period 2007-09 are 1% above the NJC settlements for the same period. The language of the clause is not ambiguous. It presents two alternatives. Some meaning must be given to the word 'or'. The words 'whichever is the greatest' are present in other clauses in the Collective Agreement but not in Clause 2.

1. In Investors Compensation Scheme Lord Hoffman held at page 913:

"(3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.

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

(5) The "rule" that words should be given their "natural and ordinary meaning" reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal document& On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaios Compania Naviera S.A. v Salen Rederierna A.B. [1985] A.C. 191, 201:

'if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense.'"

The ET did not err in holding at paragraph 44 that the subjective intentions of the parties to the Collective Agreement were irrelevant when considering its interpretation. Nor did they err in having regard to the wording of the Collective Agreement rather than the negotiations which led up to it, even if, which was not established on the evidence, paying the higher of the two options had been discussed. Nor was it material that Mr Philips, the Union negotiator, told the ET that he would not have agreed that management could choose the pay increase option which was most advantageous for them. He accepted that a requirement to pay the higher increase in pay had not been made clear in the wording of the Collective Agreement.

1. In Adams and others v British Airways plc [1996] IRLR 574 at paragraph 21 Lord Bingham held:

"The court is not concerned to investigate the subjective intentions of the parties to an agreement (which may not have coincided anyway). Its task is to elicit the parties' objective intentions from the language which they used. 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 dependant 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."

The ET held at paragraph 4:

"Although neither party could have foreseen the financial downturn that occurred in 2008 to 2009, which made the value of 1% above the NJC reduce significantly in value, this eventuality was never considered by the union negotiators and no term was included to ensure all that a minimum pay increase would be offered of 2.5%. The unions never stated this in the JCSS meetings and the unions never sought to add a term to this effect. It was a possibility that this was not in the minds of the parties in 2007 when the agreement was signed."

Further, the ET held at paragraph 6

"Although Mr Phillips told the Tribunal that 2.5% was the minimum figure the union would find acceptable, this aspiration was not reflected in the wording of the agreement neither is it reflected in the minutes of the meetings. The union accepted the option put forward by the Respondents and made no changes to the wording to ensure that the pay increase would be the greater of 2.5% or 1% above NJC."

On the findings of fact made by the ET the Unions did not ask for a minimum pay increase of 2.5% in 2009 to be inserted into the Collective Agreement. There is no provision in the Agreement which required that figure rather than a figure based on the NJC formula or the greater of the two to be paid.

1. In our judgment the meaning of Clause 2 of the Collective Agreement is clear. It provides for a pay increase in 2009, the third year of the Collective Agreement, of 2.5% or the NJC settlement figure plus any uplift required to ensure pay increases for the period 2007-09 were 1% above the NJC settlements for the same period. "Or" means what it says. The Respondent fulfilled their contractual obligation by paying in accordance with one alternative. They were not contractually obliged to pay 2.5% or whichever alternative would give the highest increase. The ET did not err in so finding.

1. The appeal is dismissed.