Colette Smith & Ors v The Commissioners for HMRC

The Court held that the Individual Claimants had a contractual right to have their trade union (PCS) subscriptions collected by means of check-off. The court treated relevant provisions in staff handbooks, pay policies and Civil Service Codes as apt for incorporation into individual contracts and followed authorities such as Hickey, Cavanagh and Cox. The court rejected HMRC's submission that an implied term permitted unilateral removal of check-off on reasonable notice and rejected the contention that the Individual Claimants had, by conduct, accepted a variation, waived or were estopped from enforcing the right. Finally, the court held that the PCS (a non-party) could enforce the check-off term under section 1(1)(b) of the Contracts (Rights of Third Parties) Act 1999, and that nothing in the contracts showed the parties did not intend third-party enforcement.

This Part 8 claim was brought by four HMRC employees and the Public and Commercial Services Union (PCS). The Individual Claimants sought declarations that HMRC's termination of payroll check-off for PCS subscriptions was a continuing breach of their contracts and that they retained a contractual entitlement to check-off. The PCS sought a declaration and compensation under the Contracts (Rights of Third Parties) Act 1999 that it could enforce the check-off term on behalf of members.

The court framed the principal legal issues as:

• Whether check-off was a term of the Individual Claimants' contracts and, if so, where that term was found and whether it was incorporated;
• Whether an implied term allowed HMRC to remove check-off on reasonable notice;
• Whether HMRC breached contracts by removing check-off and/or doing so without reasonable notice;
• Whether the Individual Claimants accepted a variation or otherwise lost the right by conduct, waiver, estoppel or acquiescence;
• Whether the PCS obtained third-party enforcement rights under the 1999 Act and whether the parties intended to exclude such enforcement;
• Consequential issues under sections 2 and 3 of the 1999 Act if variation/waiver were proved.

On the facts the court concluded:

• The check-off related provisions in the Inland Revenue Handbook, G3 pay policy, TG3 and HMRC policies (HR41100/HR41101) were apt to have contractual effect and were to be read in the context of the Civil Service Codes. The court followed earlier authorities (Hickey, Cavanagh, Cox, Crane) in finding a contractual entitlement to check-off.
• There was no implied term permitting HMRC to terminate check-off on reasonable notice: implication was not necessary for business efficacy and would be inconsistent with the Code-based limitations on withdrawal (limited to industrial action circumstances).
• The question of a reasonable notice period therefore did not arise; HMRC's 3-month notice was not a cure for the absence of an implied unilateral termination right.
• The Individual Claimants did not, by their conduct (continuing to work, setting up direct debits, delay in commencing proceedings), unequivocally accept a variation or waive their rights; the PCS had made formal protest and taken steps (including threatened litigation) which justified employees leaving enforcement to the union.
• The PCS was entitled to enforce the check-off term under section 1(1)(b) of the 1999 Act: the contracts did not show an intention to exclude third-party enforcement.

The court therefore determined the agreed issues in favour of the Claimants, but did not need to decide counterfactual questions about the operation of section 2 of the 1999 Act.

The court determined the issues in favour of the Claimants. It held that the Individual Claimants had a contractual right to payroll check-off for PCS subscriptions; there was no implied term allowing unilateral withdrawal on reasonable notice; the Individual Claimants had not accepted the removal or waived the right; and the PCS could enforce the check-off term under section 1(1)(b) of the Contracts (Rights of Third Parties) Act 1999 because the contracts did not show an intention to prevent third-party enforcement.