Tribunal can “construe contract” in unlawful deductions claim


Anyone who regularly commutes by train is likely to be aware that from time to time the trains are disrupted by industrial action. This usually is as a result of a breakdown in negotiations in relation to wages and other conditions of employment, (collective bargaining). In the recent case of Tyne and Wear Passenger Transport Executive (t/a Nexus) v S Anderson & Ors [2018] EAT, we get a closer insight into what can happen when a train provider over promises but under delivers on a deal struck at the negotiation table.

Following a period of collective bargaining between the RMT trade union and Nexus the pay rise which was eventually agreed between the parties, subsequently turned out to be a “bad bargain”, for Nexus. Whilst it’s unclear when Nexus realised it had struck a bad bargain, what is clear is that the method in which the pay rise was then applied temporarily resolved that issue for Nexus.

What caused the dispute between Nexus and the RMT members?

Following the pay negotiations, and without the agreement of RMT, Nexus decided to divide the basic pay into two portions, “basic pay 1” and “basic pay 2”. It then decided to only pay the shift allowance on the portion which related to basic pay 1. The result of this was that the claimants did not receive the entirety of the pay rise that had been agreed. Consequently, the claimants complained to an employment tribunal that the method which Nexus used to apply the pay rise resulted in an unlawful deduction from their wages.  An employment tribunal agreed with the claimants and upheld their claim. Nexus appealed to the EAT.

The grounds of appeal

The basis for its appeal was that when the employment tribunal had attempted to undertake a “contractual construction” of the agreement that had been reached, the tribunal approached the situation incorrectly because it considered, whether or not a term ought to be implied into the contract. This Nexus said was the wrong question to consider and was contrary to the EAT ruling in Agarwal v Cardiff University and another [2016]. In that case it was held that it was beyond the jurisdiction of the tribunal to “construe a contract”.

The decision

The EAT judge commented that, “the mechanism adopted by EJ Hunter [the tribunal judge] for the construction of this agreement was erroneous and that he was aiming at the wrong target”. The judgement went on to say that the employment tribunal were wrong to consider that it was necessary to, “imply a term”, into the contract using the “officious bystander” principle. Instead what the tribunal ought to have done is approach the case using conventional methods and in doing so the tribunal would have considered and applied the following question to the facts before it;

"what [would] a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean"?

Surprisingly, even though the judge stated that the tribunal had approached the case incorrectly, it held however that the tribunal had come to the correct conclusion on the facts. In reaching this decision the judge closely examined three Court of Appeal decisions, and noted that these judgments all accepted that in;

"deciding whether a deduction was authorised the terms of the contract, express or implied, had to be considered”. 

Consequently, the EAT held that Nexus had made unlawful deductions when it failed to apply the agreed pay rise in its entirety. It should be noted that the judge also remarked that the judgement of Agarwal v Cardiff University and another [2016] which stated that the tribunal had no jurisdiction to, “construe a contract”, was wrongly decided and should not be followed.

Point of reflection

It’s clear that Nexus, firstly struck a bad deal at the negotiation table when it overpromised on a pay rise. Secondly, rather than reopen the discussions and lower the offer, it tried (but failed) to ingeniously remedy the situation by applying the pay rise to only one half of the basic pay due to the employees. It would have been better for Nexus to explain that they couldn’t deliver on the deal rather than confuse the employees with paperwork after the event. Transparency and frankness is usually the best policy.