Certain terms

For a contract to be enforced, the terms have to be clear and unambiguous. In Anderson and ors v London Fire & Emergency Planning Authority, the Employment Appeal Tribunal (EAT) said that an agreement that allowed for a pay increase to be awarded in one of two ways was certain enough to be enforceable.

The claimants’ union, UNISON and GMB, instructed Thompsons to act on their behalf.

Basic facts

Following negotiations, the employer and the relevant trade unions agreed a three year pay deal on revised terms and conditions of employment including a single pay scale and job evaluation.

Clause two stated that from April 2009, staff pay would be increased by 2.5 per cent or by the National Joint Council (NJC) for Local Government Services settlement, plus any uplift required to ensure the increases were 1 per cent above the NJC settlements.

In the third year the authority only awarded an NJC increase of 1.575 per cent. The employees brought a claim for unlawful deductions from wages under section 23 of the Employment Rights Act 1996, arguing that the collective agreement guaranteed them a minimum increase of 2.5 per cent in 2009.

Tribunal decision

The tribunal, however, did not agree. It said that the pay increase for the third year was simply an “agreement to agree” or to “negotiate”. There was no indication which of the options took primacy - the fixed percentage or the calculation of 1 per cent above NJC settlements.

The unions had accepted the options put forward by the employer and made no changes to the wording to ensure that the pay increase would be the “greater of 2.5% or 1% above the NJC”.

In addition, on the date that the agreement was signed, the NJC figure had not been agreed and the final percentage had not been set. The tribunal therefore concluded that the wording of the agreement was too uncertain to be enforceable.

EAT decision

The EAT, however, said it was irrelevant that the NJC figure for 2009 had not been known in 2007 as the amount of the increase (the NJC figure plus 1 per cent) was sufficiently certain to give rise to a contract.

The tribunal was also wrong to conclude that the agreement for the 2009 increase could not have contractual effect because it contained two alternative methods of calculating the increase, without making clear which took primacy. Nor was the tribunal right that it was just “an agreement to agree”. All the evidence indicated that the parties were entering a three year deal.

However, the tribunal was right to conclude that the agreement did not require the employer to pay the higher increase as the meaning of clause two was unambiguous - there was, therefore, no need to imply the words “whichever is the greater” into the clause.

Clause two offered one of two options, separated by the word “or” which meant exactly what it said. The authority had fulfilled their contractual obligation by paying in accordance with one alternative. They were not contractually obliged to pay 2.5% or whichever one would give the highest increase.

It was irrelevant that the union negotiator would not have agreed to it otherwise, as “the subjective intentions of the parties to the ... agreement were irrelevant when considering its interpretation”.

The tribunal was also right to be guided by the wording of the collective agreement rather than the negotiations which led up to it, even if the parties had discussed whether the higher of the two options should be paid (which the evidence suggested they had not).