The importance of getting collective agreements right first time

Emma Williams (pictured), senior associate from Mills & Reeve LLP, shares her insight on this topic.

Thanks to a recent Supreme Court ruling, we know that it is possible – at least in some circumstances – for a mistake in a collective agreement to be corrected via legal proceedings. But it is a complicated process, and that is partly why we haven’t had a definitive answer to this question before.

Why does this issue matter?

Because of the environment in which they are created, and the fact that they are not legally binding, it is not unusual for collective agreements to be unclear.

Much of their content can be regarded as aspirational and not “apt” for incorporation into contracts of employment. A degree of imprecision arguably doesn’t matter in that context.

But it is particularly important to use precise wording to record collectively agreed terms which will be incorporated into the employment contracts of workers represented by the union.

Unfortunately, it is still fairly common for collective agreements to fail to meet this standard.

What happened in this case?

The underlying dispute goes all the way back to 2012 when Nexus, the operators of the Tyne and Wear Metro, agreed with the two unions they recognise to consolidate a productivity bonus into basic pay.

This was recorded in a letter which did not address what would happen to shift allowances, which had previously been calculated as a percentage of basic pay.

The employers argued that it had always been intended that the shift allowances would continue to be calculated as a percentage of the original basic pay, excluding the consolidated productivity bonus.

Despite arguments from the unions that this was not what the letter said, Nexus continued to calculate and pay the shift allowances in the old way. In the end this approach was challenged by a group of workers who brought claims for unlawful deduction from wages.

In those proceedings the employment tribunal ruled that on the face of the letter the unions’ interpretation was the correct one. That ruling was upheld by the Employment Appeal Tribunal and then by the Court of Appeal.

The employers then changed their approach. They brought proceedings relying on the legal principle that in some circumstances an agreement can be corrected (“rectified”) to reflect what the parties actually intended it to mean. These proceedings started in the High Court and were finally ended by the Supreme Court’s recent ruling.

Conclusions

If employers are to avoid a repeat of what happened in this case, the obvious answer is to make sure that agreements reached with recognised trade unions over changes to terms and conditions are recorded accurately.

That is easier said than done, because typically negotiations with a union will cover a number of overlapping areas, some of which will not create legally binding changes to the contracts of individual employees.

In addition, it will not always be easy to isolate their existing terms, since they will typically be derived from a number of different sources, including staff handbooks and earlier collective agreements. 

That’s why it can be important to get legal advice to tease out the key contractual provisions and assess the legal impact of any proposed changes to collectively agreed terms.