When can an error not be corrected? Court of Appeal rules that collective agreements cannot be rectified – Commentary
Court of Appeal
A recent Court of Appeal decision confirmed that employers cannot seek rectification of errors in collective agreements.(1) Where agreements with unions on terms and conditions have been improperly recorded, employers will be limited to seeking to rectify the individual employment contracts of the affected employees to the extent that they incorporate the erroneous terms.
Rectification is a remedy involving a court correcting an error in a written document. It is available in cases of common error, when the document does not reflect the common intention of both parties. It is also available in cases of unilateral error, when the document does not reflect the intention of one party and this is known or should be known to the other party, which makes it inadmissible for them to insist that the error be honored.
Collective agreements between employers and unions are a key pillar of the industrial relations landscape, setting the framework for recognition and collective bargaining. Under section 179(1) of the Trade Unions and Industrial Relations (Consolidation) Act 1992 there is a presumption that a collective agreement is not legally enforceable unless it is in writing and does not expressly contain a provision to the contrary. Provisions of this type are rare and collective agreements are therefore generally “binding only in honour”.
Nexus, which is the operator of the Tyne and Wear Metro network, recognizes two unions for collective bargaining purposes – the RMT and Unite. The proceedings related to annual salary negotiations in 2012, in which Nexus sent a letter proposing to consolidate a “productivity bonus” into the base salary of employees (the letter of agreement). This offer was accepted by the unions and the relevant conditions of employment were modified accordingly by letter of agreement.
In 2015, 70 employees filed an unlawful wage deduction lawsuit against Nexus, arguing that Nexus should have taken the embedded bonus into account when calculating the value of their shift adjustment. The Labor Court (ET) upheld their claim, finding that the correct interpretation of the Letter of Settlement was that the post adjustment should be paid on the basis of their improved base salary. This decision was subsequently upheld by the Employment Appeal Tribunal and the Court of Appeal.
Nexus then initiated rectification proceedings against the RMT and Unite, rather than the individual employees, arguing that there was common or unilateral error as to the effect of the letter of agreement. Nexus submitted that the wording of the letter of understanding regarding the payment of the shift allowance did not reflect the common intention of the parties or, alternatively, that it did not reflect the intention of Nexus and that the unions knew or should have known that to be the case. The unions denied these points and argued that since Nexus had not made these arguments in the original litigation over the illegal deductions, it should not be able to do so now. The unions have also sought to have the suit struck out on the grounds that the High Court lacks the power to rectify collective agreements.
The High Court rejected the unions’ arguments and allowed the suit to proceed. In particular, she concluded that the power of courts to order rectification was not limited to legally binding contracts and could also apply to collective agreements. This is the first reported decision in which an English court has held that a collective agreement can be amended.
The unions successfully appealed this decision to the Court of Appeal.
The Court of Appeal confirmed that rectification can only apply to legally binding agreements and therefore cannot be sought with respect to collective agreements which are only binding in honor.
The Court noted that Nexus could have requested the rectification of the individual employment contracts of the employees concerned, insofar as they repeated the terms of the letter of agreement. Nexus failed to do so and erred in suing unions rather than individual employees. Panel members disagreed on how this might have been achieved in practice. Underhill LJ believed that Nexus could have raised it as a defense during its liability hearing before the ET, despite its view that the ET does not have the power to order rectification. In contrast, Males LJ said the ET would have the power to order rectification, if necessary to determine a claim for unlawful deductions. Males LJ’s comments are not binding as they were not part of the ruling itself, but they may arouse the curiosity of labor lawyers, given that it has long been understood that ETs do not have the power to order rectification.
This judgment provides important clarification for unionized employers about the limited availability of rectification in relation to collective agreements. The Court of Appeal overturned the new approach taken by the High Court in this case and confirmed that rectification cannot be granted in respect of collective agreements which are only binding in honor. When collective agreements contain errors, employers’ main recourse will be to seek the rectification of the individual employment contracts of employees in the bargaining unit concerned, insofar as they incorporate the erroneous clauses.
Of course, the careful drafting, checking and cross-checking of draft collective agreements remain the employer’s best approach to avoiding errors. This is clearly illustrated by the fact that this is the second time that the drafting of a single wage agreement has led Nexus to appeal to the Court of Appeal. This is also shown by the recent case involving Tesco over the lasting consequences of its vaguely worded collective agreements, currently before the Supreme Court (for more details, see “The Court of Appeal overturns the injunction restricting the exercise of “dismissal and rehiring” of the employer“).
For more information on this subject, please contact David Hopper Where William Brown to Lewis Silkin by telephone (+44 20 7074 8000) or by e-mail ([email protected] Where [email protected]). Lewis Silkin’s website can be accessed at www.lewissilkin.com.