ABG Employment Newsletter – May 2013

Interpretation of pay agreement

In many large organisations, particularly in the public sector, pay rates are set out in collective agreements between the employer and the recognised trade union. In a recent case an ambiguity in the wording of the agreement resulted in litigation and three hearings by three Tribunals/Courts, each of which came to a different conclusion.

In 2007 the employers and the union entered into a 3 year pay deal. The collective agreement set out percentage increases for 2007 and 2008. For 2009 the agreement said that pay would be increased “by 2.5% or by the NJC Local Government services settlement plus any uplift required to ensure general pay increases for the period 2007-9 are 1% above the NJC settlements for the same period”.

The agreement did not specify which of these two alternatives was to take precedence. It was this that resulted in the litigation. A group of employees brought unlawful deductions from wages claims in the Tribunal arguing that the purpose of the agreement was that the 2009 pay increase would be guaranteed to be no less than 2.5%, but they were entitled to the NJC settlement plus an uplift if greater than 2.5%.

Their claim failed at the Employment Tribunal which ruled that there was an inherent uncertainty in the agreement which meant it was unenforceable and that it was only an “agreement to agree” the final rate increase in 2009 after the NJC settlements had been concluded.

The claimants appealed to the EAT which disagreed with the Employment Tribunal’s conclusion, but still rejected the claim for an increase greater than 2.5%. The EAT said the agreement was effective despite the apparent ambiguity, but that the employer was free to choose between the two rates and was entitled to implement the lower rate of increase. This was in accordance with the general principle that a party is entitled to operate an agreement in the way most favourable to itself.

The case then went to the Court of Appeal which disagreed with both the Employment Tribunal and the EAT. The Court of Appeal upheld the claims, ruling that the real meaning of the agreement must have been that the employees would receive an increase of 2.5% or NJC plus 1%, whichever was the greater. The Court of Appeal felt that no other meaning would have made industrial sense and that no trade union would have agreed to a 3 year pay deal in which the third year was covered by two alternatives and the employer could choose between them.

In practical terms the Court of Appeal was prepared to add the words “whichever is greater” into the agreement. But the lesson to be learned is that of course parties should always avoid ambiguity when drafting agreements or contract terms. The costly litigation in this case could have easily been avoided had more care been taken to spell out what the Court of Appeal felt was obvious – even though it was not obvious to the Employment Tribunal or the EAT. The saga also demonstrates the inherent difficulty in predicting a Tribunal or Court decision as these three different judicial bodies came up with three different conclusions.

Dismissals due to breakdown in working relationships

There are 5 potentially fair reasons for dismissal, the fifth reason being a sweeping up category: “some other substantial reason” of a kind such as to justify dismissal. Employers sometimes rely on “SOSR” when they consider there has been a breakdown in the working relationship, but a recent case shows that it is not enough simply to say that the relationship has broken down, but there must be some objective evidence to demonstrate that this has been the case and that continued employment is untenable.

In this case the company dismissed one of its senior managers after a dispute arose about his share of the company’s profits and the draft terms of the service agreement he had been offered. After his solicitors had written to the company saying he had lost all trust and confidence in his employer and referring to a potential constructive dismissal claim, the company decided to dismiss him after attempts to reach a settlement had failed.

The company claimed that there had been a breakdown in the working relationship and that he had therefore been dismissed for “some other substantial reason” justifying dismissal, but this argument was rejected by both the Tribunal and the EAT. Although the situation had become contentious, in reality it was no more than a power struggle over pay and the contract terms and the relationship had not deteriorated to such an extent as to merit the termination of employment.

This decision highlights that although a breakdown in relations can amount to some other substantial reason, it is not enough merely to say that the employer has lost trust and confidence in the employee and something more is required.

Employee in Germany could not bring unfair dismissal claim

The right not to be unfairly dismissed applies to employees who work in Great Britain. Case law has also established that some employees who work or are based abroad may be covered by unfair dismissal law in exceptional circumstances. Where the employee’s place of work is not Great Britain, British law may apply where the employee has a strong connection with Great Britain and with British employment law which is closer than their connection with any other country’s system of law.

Whether unfair dismissal law applies will depend on the specific facts in each case. In a recent case the EAT ruled that the Employment Rights Act did not apply to a German national who worked on a British military base in Germany and was married to a member of the British Armed Forces posted in Germany. She worked at a children’s centre on the military base and, although there was a link to the armed forces, her employer operated wholly in Germany. In these circumstances it was ruled that there was an insufficient connection between her employment and Great Britain for British law to apply.

Important factors which led to the rejection of the attempt to rely on British law were that, although married to a British national, the employee remained a German national and her employer had little, if any, connection with Great Britain. The situation may well have been different had she been an ex-patriate employee who had been posted abroad by an employer based in Great Britain.

Collective redundancy consultation and appropriate representatives

When an employer embarks on a redundancy programme involving 20 or more redundancies, it has a duty to carry out collective consultations with “appropriate representatives” of the affected employees. The appropriate representatives will be the trade union representatives where a union is recognised by the employer. If there is no recognised trade union, the employer must consult with employee representatives who either have been directly elected for the purposes of collective redundancy consultation or alternatively have been appointed or elected otherwise than for the purposes of collective redundancy consultation but who have authority from the affected employees to be consulted about the proposed redundancies.

In most cases an existing consultative body may fall within the definition of “appropriate representatives”, but a recent case shows that this will not necessarily be so and that the existing body must be appointed or elected by the workforce and also have authority to enter into a consultation process.

In the case there was an existing Joint Consultative Committee, but it did not have a negotiating function and although the workforce nominated and elected members of the JCC, the employer was also allowed to co-opt people on to the committee. The employer entered into a collective redundancy consultation process with the JCC, but two of the employee representatives disputed the process and argued that they were not “appropriate representatives” within the meaning of the legislation. Although an Employment Tribunal rejected their argument, the Tribunal’s decision has been set aside by the EAT. The EAT pointed out that the employer’s power to co-opt people on to the committee meant that it had to be decided whether there were sufficient representatives who were appointed or elected by the employees. Further, the fact that the JCC did not have a negotiating function called into question whether it had sufficient authority to carry out consultations as opposed to simply receiving information.

The case shows that employers should not automatically assume that, where there is no recognised trade union, an existing employee body can be consulted about the redundancy process.

Victimisation for discrimination proceedings against previous employer

It is unlawful for an employer to victimise an employee for bringing discrimination proceedings. A recent Tribunal ruling confirms that an employee is protected against victimisation not only where the previous discrimination proceedings were brought against the current employer, but also where a new employer victimises the employee because of proceedings brought against a previous employer.

The employee had brought discrimination claims against employer A. She resigned and then joined employer B. During the recruitment process she was asked why she had left employer A. She said she had wanted to work in a smaller team and had lost trust in management, but she did not mention her discrimination proceedings.

Her discrimination claim was later reported in the press, at which point she told her new employer about the claim and the new employer challenged her as to why she had not disclosed the litigation when asked. It concluded that she had been selective with the truth, was dishonest and could not be trusted and on that basis she was dismissed.

She then brought a victimisation claim against employer B which was upheld by an Employment Tribunal. The Tribunal found that the employer had dismissed her because she had brought the previous discrimination proceedings and not simply because she had failed to disclose them. The Tribunal felt the employer had reacted in a kneejerk way to the information about the previous case coming to light and that the decision to dismiss had been emotionally driven rather than having been analytically reached on grounds such as a breakdown of trust and confidence.


The comments in this note are of a general nature only. Full advice should be sought on any specific problems.

Christopher Gigg 
[email protected] 
+44 (0)115 934 3310

Kathryn Meir
[email protected]
+44 (0)115 934 3308