The Court of Appeal has held that a trade union would not have agreed to a provision in a collective agreement that provided an employer with an unfettered right to choose between two possible rates of pay.
The employer in this case was a local authority. Traditionally, employees had been paid in accordance with the rates set by the National Joint Council Agreement for Local Government Services (known as ‘the Green Book’). The authority entered into a collective agreement with a trade union which specified percentage pay increases that employees would receive for 2007 and 2008. However, the term specifying pay increases for 2009 stated that employees would receive an increase of 2.5% or the Green Book settlement plus any pay increases necessary to make sure that pay rates for 2007 and 2008 were at least 1% over the Green Book rates for the same period. There was no indication of which of the two pay rates was to be applied in practice.
In 2009, the employer applied the lower of the two pay rates. Employees claimed unlawful deduction from wages, and argued that it was intended that they receive a pay rise of at least 2.5%. The Employment Tribunal held that the employees were not entitled to the higher rate of pay, as the clause was unenforceable due to inherent uncertainty, and had not been incorporated into the employee’s contracts of employment.
On appeal to the Employment Appeal Tribunal, the EAT took the view that the clause was enforceable, but, taking a literal interpretation, the employer was free to choose which of the two pay rates to apply. The EAT therefore held that the employer had not breached the employee’s contracts. The employees appealed again.
The Court of Appeal agreed that the clause was enforceable, but considered that the intention must have been that the employer would pay the greater of the two salary increases. The Court considered it was ‘inconceivable’ that the Union would have negotiated a pay deal allowing the employer to pay the lower of the two figures unless this was made explicitly clear, and that the employer must have known this. The Court therefore held that the employees were entitled to the higher of the two pay increases.
This decision highlights the importance of drafting contractual obligations clearly so that there is no room for ambiguity. If a term is ambiguous, the parties run the risk that the court will look beyond the literal interpretation of the wording, which may work to the detriment of the employer.