Secretary of State for the Home Department v James Cox & Ors.

Continuing to work after an employer implements a contractual change may amount to acceptance, but only where the employee’s conduct unequivocally indicates agreement. Collective protest, union-led litigation, employer equivocation, direct-debit arrangements intended to preserve membership, and delay may prevent that inference. No rule requires protest after implementation, and waiver of earlier breaches likewise requires clear evidence.

Under the Contracts (Rights of Third Parties) Act 1999, a term purporting to confer a benefit on a third party is enforceable unless, on proper construction, the contracting parties’ common objective intention was otherwise. A check-off facility incorporated from a non-enforceable collective agreement was intended for employees, not enforcement by the union as a third party.

Three conjoined appeals concerned check-off arrangements under which government employers deducted union subscriptions from employees’ salaries and paid them to the Public and Commercial Services Union. The High Court held in Cox ([2022] EWHC 680 (QB)), Crane ([2022] EWHC 1626 (QB)) and Smith ([2022] EWHC 3188 (KB)) that the arrangements were contractual.

The employers challenged findings that continued employment had not varied the contracts or waived earlier breaches, and that the union could enforce the contractual term under section 1 of the Contracts (Rights of Third Parties) Act 1999. In Cox, the Court also considered whether later changes to two employees’ terms created new contracts to which the Act applied.

The appeals were allowed in part. The employees had not unequivocally accepted the withdrawal of the check-off facility, but the contractual term was not enforceable by PCS under section 1(1)(b) of the Contracts (Rights of Third Parties) Act 1999.

1. Variation and acceptance. The principles in Abrahall v Nottingham City Council [2018] EWCA Civ 796 applied. Continuing to work after a proposed variation can indicate acceptance, but the inference must be unequivocal. If the conduct is reasonably capable of another explanation, it cannot establish acceptance of a significant diminution in contractual rights.
2. Collective protest may negative an inference of individual acceptance. There was no rule that protest had to occur after implementation. The protests made by PCS had not been withdrawn, and the Cavanagh litigation against another department was a strong indication that the variation was disputed. The employers had not made clear that continued work would be treated as acceptance. Direct debits were reasonably capable of being viewed as mitigation to preserve union membership, and the passage of time did not alter the position. The evidence therefore did not establish acceptance or waiver of earlier breaches.
3. Third-party enforcement. Section 1(1)(b), read with section 1(2), required the court to determine whether the term purported to confer a benefit and, on proper construction, whether the contracting parties objectively intended it to be enforceable by the third party. The relevant intention was the common intention of both parties; it was insufficient that only one party lacked such an intention.
4. The collective agreement’s origin was relevant background, although not conclusive. The contractual term principally required the employer to offer a facility to employees. It was unlikely that the parties intended every possible recipient of deductions, including savings schemes, lotteries and social clubs, to enforce the facility. The natural inference was that the term was enforceable by employees but not by third-party recipients, including PCS. The appeals therefore succeeded on this issue.
5. New contracts. Lewis LJ stated, obiter, that under section 10(2) of the Act whether post-2000 changes created a new employment contract depended on all the circumstances, including the degree and significance of the changes and the parties’ intention. A fundamental change might support an inference of a new contract, but temporary promotion or altered working hours did not automatically do so. The evidence was insufficient and the issue would have required remittal if it had remained live.

Separate opinions

Underhill LJ gave separate supporting reasons, treating the statutory context of the collective agreement as decisive. Stuart-Smith LJ dissented on third-party enforcement. He considered that the statutory presumption had not been rebutted and that the collective agreement’s former unenforceability did not establish a joint intention to exclude PCS’s contractual right.

1. Court of Appeal (Civil Division): appeals from the three High Court judgments were allowed in part. The variation and waiver ground failed; the section 1(2) third-party enforcement ground succeeded. The new-contract issue did not arise, but would have been remitted for further findings.
2. High Court, Choudhury J: in Cox, [2022] EWHC 680 (QB), and Crane, [2022] EWHC 1626 (QB), held that check-off was contractual, had not been accepted by conduct, and was enforceable by PCS under the Contracts (Rights of Third Parties) Act 1999.
3. High Court, Freedman J: in Smith, [2022] EWHC 3188 (KB), reached materially similar conclusions.