Construing contracts

Although tribunal judges are not supposed to interpret contractual clauses, the Employment Appeal Tribunal (EAT) held in Tyne and Wear Passenger Transport Executive t/a Nexus v Anderson and ors that they can do so in relation to claims for unlawful deductions from wages under PART 11 of the Employment Rights Act (ERA).

Thompsons was instructed by the RMT to represent its members.

Basic facts

Following negotiations between Nexus (which operates the Tyne and Wear Metro) and the RMT union, it was agreed that the “Red Book” bonus and the productivity bonus paid to maintenance workers would be consolidated into basic pay. Nexus said that the offer had to “appear cost neutral”. The collectively bargained terms and conditions provided that shift allowances were calculated with reference to basic pay.

In the course of implementing the changes in April 2013, however, Nexus divided basic pay into two elements, Basic 1 and Basic 2. The former represented the 2011 basic pay amalgamated with the Red Book bonus; the latter represented the consolidation of basic pay with the Red Book bonus and the productivity bonus. Nexus decided to calculate shift allowances by reference to Basic 1 pay, not Basic 2, thereby excluding the element that had been represented by the productivity bonus.

Union members argued that the new calculation, which had repercussions not only for their shift allowance but also their holiday pay, should have been based upon Basic 2, which was their new basic pay once the Red Book bonus and productivity allowance were incorporated into it. They therefore brought claims for unlawful deductions from wages. The claim involved the tribunal deciding what had been agreed between the parties.

Tribunal decision

The tribunal judge held that, although an “officious bystander” might have concluded that the offer was lacking in “particularity”, they could not have concluded that there had been an agreement with the union to vary the terms of the contract and redefine the definition of basic pay so as to exclude the element represented by productivity bonus for calculating the shift allowance. On the contrary, the terms and conditions of employment relating to the shift allowance were “unambiguous”.

Nexus appealed the judgment on the basis that it was contrary to the decision in Agarwal v Cardiff University which found that tribunals do not have jurisdiction to decide on claims for deductions from wages under Part 11 ERA when the parties are in disagreement about the meaning of certain contractual terms.

EAT decision

Holding that Agarwal was wrongly decided and that other conflicting decisions could be distinguished, the EAT said that it could not see how tribunal judges could avoid construing contractual terms nowadays when deciding whether a deduction was authorised or not.

As they routinely deal with complicated matters and as contractual construction is no more complicated than other matters in their caseload, there was no real procedural reason why they should not deal with questions of contractual construction in Part II ERA claims.

The EAT therefore held that, although the employment judge was wrong to consider whether a term needed to be implied relying on the construct of the officious bystander rather than what a reasonable person would have understood the parties to have meant, he had clearly reached the right result based on the facts.

The appeal was therefore dismissed.