Colette Smith & Ors v The Commissioners for HMRC

Check-off arrangements may form contractual terms where the relevant documents use language apt for incorporation, form part of contractual materials, reflect applicable Civil Service Codes, and concern an important aspect of the employment relationship.

An employer cannot imply a unilateral power to terminate such a right where the contractual materials identify limited circumstances for withdrawal. Continued employment, direct-debit arrangements and delay do not establish variation or waiver unless the employee’s conduct is clear and unequivocal. Under section 1(2) of the Contracts (Rights of Third Parties) Act 1999, the presumption of third-party enforcement is displaced only where the combined objective intention of the contracting parties shows that result.

The individual claimants were HMRC employees and members of the Public and Commercial Services Union. Until 1 May 2015, HMRC collected their union subscriptions through payroll under check-off arrangements. HMRC withdrew the facility after consultation.

The individual claimants sought declarations that check-off remained a contractual entitlement and that its withdrawal breached their employment contracts. The union claimed enforcement rights under the Contracts (Rights of Third Parties) Act 1999. The court determined whether check-off was contractual, whether HMRC could terminate it on reasonable notice, whether the claimants had accepted a variation or waived their rights, and whether the union could enforce the term.

1. Contractual entitlement. The check-off provisions in the handbooks, policies and applicable Civil Service Codes were contractual. They were expressed in language apt for incorporation, appeared among provisions intended to have contractual force, were mirrored in the Codes, and concerned an important aspect of the employment relationship. The 2005 merger and Blue Book arrangements did not expressly or impliedly remove the right. The court accepted and followed the reasoning in Alexander and others v Standard Telephones and Cables Ltd (No 2), Keeley, Hussain, Hickey, Cavanagh, Cox and Crane.

2. Implied termination term. No term permitted HMRC to terminate check-off on reasonable notice. The relevant materials limited withdrawal to official industrial action. The proposed term was not necessary for business efficacy and was not so obvious that it went without saying. The court applied the principles in Marks and Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd and declined to imply a unilateral variation power consistently with Wandsworth London Borough Council v D’Silva and Securities and Facilities Division v Hayes.

3. Variation and waiver. The claimants did not agree to the removal of check-off. Collective objections by the PCS, the threatened litigation, the disadvantage caused by withdrawal, and the absence of any unequivocal acceptance meant that continued employment and direct-debit arrangements were equivocal. Direct debits were mitigating steps, not acceptance. The court applied Abrahall and Solectron, and treated the issue as fact-sensitive. Mere passage of time did not create acceptance or waiver within the ordinary contractual limitation period.

4. Third-party enforcement. The check-off term conferred a benefit on the PCS. Section 1(2) did not disapply section 1(1)(b), because the objective combined intention of HMRC and the employees did not show that the term was not to be enforceable by the PCS. The fact that the term originated in a collective agreement, or that HMRC charged the PCS for the service, did not alter that conclusion. The court applied Nisshin Shipping Co Ltd v Cleaves and Co Ltd and Cavanagh.

5. The counter-factual issue under section 2 of the 1999 Act did not arise because no variation or waiver was established. The court declined to express a view on the precise legal consequences of that counter-factual.

6. The issues were determined in favour of the claimants, except for issues that it was unnecessary to resolve.