Anderson & Ors v London Fire & Emergency Planning Authority

A term incorporated from a collective agreement is legally enforceable where it is capable of meaningful construction. The existence of two clear methods of performance does not itself make the term uncertain.

A collective agreement is construed objectively, like any other contract, but with regard to its character as an industrial bargain and its known factual context. A literal interpretation must yield where it defeats the evident purpose of a long-term pay settlement and flouts industrial common sense. A provision promising an increase of a stated percentage or an increase calculated by a separate formula may therefore establish the stated percentage as a guaranteed minimum where that is the only interpretation that gives meaningful effect to both alternatives.

Employees of the London Fire and Emergency Planning Authority claimed unlawful deductions from wages under Part II of the Employment Rights Act 1996. A three-year collective agreement, incorporated into their employment contracts, provided that pay in its third year would increase by 2.5% or by reference to a national settlement and an additional uplift. The employer implemented the lower figure produced by the latter formula.

The Employment Tribunal held that the third-year provision was merely an agreement to agree and created no enforceable entitlement. The Employment Appeal Tribunal, in UKEAT/050511SM, dismissed the employees' appeal on the different basis that the employer could choose either alternative. The employees appealed, while the employer maintained by respondent's notice that the provision was not contractual. The central issues were whether the provision was enforceable and, if so, whether it guaranteed a minimum increase of 2.5%.

1. Appeal allowed unanimously. Maurice Kay LJ delivered the leading judgment. Moses and Davis LJJ agreed that the third-year pay provision entitled the employees to an increase of at least 2.5%.

2. Although section 178 of the Trade Union and Labour Relations (Consolidation) Act 1992 prevented the collective agreement from being enforceable as a contract between the employer and the unions, it was common ground that its terms had been incorporated into the employees' individual contracts. The third-year provision was neither an agreement to agree nor an agreement for further negotiation. The parties' central purpose was to conclude a three-year pay deal, with fresh negotiations beginning only after that period. The provision prescribed methods by which pay was to be determined and was capable of contractual enforcement.

3. The provision was not void for uncertainty. Even if it had conferred a choice between two clearly defined methods of performance, the existence of that choice would not itself have made the contract uncertain. Since the term was capable of meaningful construction, it was no less apt for incorporation than the provisions governing the first two years.

4. Contractual meaning is ascertained objectively from the words used and the background knowledge reasonably available to the parties. A collective agreement has the special character of an industrial bargain, but it is construed like any other contract by giving its language a fair meaning in its known factual setting. An interpretation that flouts industrial common sense should not prevail merely because it appears linguistically literal.

5. The Employment Appeal Tribunal's interpretation, under which the employer could choose either increase, was wholly improbable. It would reduce the third-year promise to an unfettered choice and deprive the stated 2.5% figure of meaningful content. The omission of the express words “whichever is the greater” was neutral, and the percentage was neither an indicative forecast nor a maximum. Properly construed, the provision promised 2.5% or the formula-based increase, whichever was greater.

6. Davis LJ considered that the appeal could be decided from the language of the clause in its pay-related, three-year context. He expressed doubt about the admissibility of some wider materials relied upon by the employees, but agreed that a guaranteed minimum made commercial and industrial sense whereas a guaranteed maximum did not.

1. Court of Appeal (Civil Division): Allowed the employees' appeal in [2013] EWCA Civ 321. It held that the incorporated pay provision guaranteed an increase of at least 2.5% and rejected the employer's respondent's notice.
2. Employment Appeal Tribunal: In UKEAT/050511SM, dismissed the employees' appeal. It held that the employer had discharged its obligation by selecting and paying under one of the two alternatives.
3. Employment Tribunal: Dismissed the unlawful-deduction claims. It held that the third-year provision was an agreement to agree or negotiate further and created no legal entitlement to a 2.5% increase.