UK Supreme Court decides mistakes in collective agreements can be rectified

Emma Noble, employment law expert at Pinsent Masons, was commenting after the UK’s highest court found that employers can defend employee wage claims by arguing that renumeration terms in collective agreements that have been incorporated in contracts of employment are wrong and should be rectified.

Following the decision, Noble said: “Collective agreements are often loosely drafted but increasingly contentious industrial relations call for precision.”

The dispute arose when Nexus, the Tyne and Wear Passenger Transport Executive, interpreted collectively agreed changes to remuneration differently from the National Union of Rail, Maritime and Transport Workers (RMT).

The contracts of employment involved here expressly incorporated terms relating to pay and conditions negotiated through collective bargaining. In 2012, a letter from Nexus to the unions amended a collective agreement to consolidate a productivity bonus into basic pay. It was Nexus’ intention that the enhancement to basic pay should not be taken into account when calculating shift allowances. The unions disagreed and individual employees brought a successful employment tribunal based on unauthorised deduction of wages due to Nexus’ failure to incorporate the enhancement to shift allowances. Their claim was upheld by the Court of Appeal in 2018.

Nexus then successfully started litigation against the unions in the High Court, arguing that because the amended collective agreement required the payment of an enhanced shift allowance it should be rectified. This was because it did not correspond to the common intention of the parties or the unilateral intention of Nexus, which the unions were aware of or should have been aware of.

The union successfully appealed to the Court of Appeal which decided that rectification was only available for legally binding agreements and the collective agreement was not legally binding. Despite this, the contracts of employment which incorporated the collective terms could be a “correct target” for rectification.

The Supreme Court disagreed with the Court of Appeal, stating that the contracts of employment cannot be the correct “target” for rectification because they contain no mistake and do what they are supposed to do by simply incorporating the terms of any collective agreement. However, if the collective agreement is rectified, it follows that the contracts of employment will then incorporate the rectified collective terms. Although a non-legally binding agreement cannot normally be judicially rectified, a collective agreement can be as it indirectly impacts rights and obligations incorporated in an employment contract.

The court held that any rectification argument should be against the employees whose right are affected and not the unions. The employer can also raise the issue of rectification as a defence in any employment tribunal claim. Whilst an employment tribunal does not have the power to order rectification, a document can be treated as rectified for the purposes of determining legal rights.

Nobel said: “The legal point that collective agreements can be rectified is interesting, but the greater lesson is the increasing need to ensure collective agreements are documented in detail”.

“Under new frameworks for industrial relations in the Employment Rights Bill, the reach of collective bargaining may increase. Unions will be able to seek access to non-unionised workplaces to canvas for membership. Recognition and industrial action mechanisms will also be simplified. Employers should not be relaxed about the wording agreed because it can have legal and/or industrial relations implications even if the collective agreement itself will not being legally binding. It’s worth taking time to make sure documenting the outcome of collective bargaining is done precisely, even if that process flushes out areas of ambiguity that might need further negotiation to pin down,” she said.

In another recent decision (51 pages / 417 KB) on industrial relations, the Supreme Court held that trade unions are entitled to enforce contractual check-off provisions in employees’ contracts of employment.

Check-off is a system where union subscriptions are deducted by employers from members' salaries through payroll and transferred directly to unions. It avoids individual employees each needing to set up individual direct debits to make payments. Public sector employers had cancelled the check-off arrangement that they had in place and the unions’ attempt to enforce the provisions as a third party has now been successful before the Supreme Court. It decided that legislation on third party rights to enforce a contract to which they are not a party creates a strong presumption that a relevant term in favour of a third party is enforceable by that party. This presumption applied to check-off.

Noble said: “Check-off is still used by some unions to collect subscriptions, especially in the public sector. It is an easy way for them to collect subscriptions and the unions in this case found their subscription income fell after check-off was withdrawn. Employers wanting to withdraw check-off, whether as part of wider industrial relations strategy or even to reduce payroll administration costs, should be aware that unions and employees may bring legal challenges following this decision”.