Smithkline Beecham Plc v Johnston & Ors [1997] UKEAT 559_96_0702

EAT
Smithkline Beecham Plc v Johnston & Ors
[1997] UKEAT 559_96_0702 · 1997-02-07

JUDGE PETER CLARK :

This is an appeal by the employer against a decision of a Chairman of Industrial Tribunals, Mr C G Tooner, sitting alone at Bristol on 15 March 1996, upholding complaints by nine of their employees, applicants before the Industrial Tribunal and Respondents before us, that the Appellant had made unlawful deductions from their wages contrary to the then Wages Act 1986. He ordered payment by the Appellant of the sum of £184.65 in each case. The extended reasons for that decision were given on 12 April 1996.No point arises on the quantum of the awards. It is common ground that the success or failure of these complaints depended upon the true construction of the terms and conditions on which the Respondents were employed at the material time. The question of construction of the contracts of employment raised in this case is a matter of law. The Appellant says that the Chairman's construction was wrong; it asks us to right that wrong.

Background

In 1995 the Respondents were each employed by the Appellant at their site at Coleford in the Forest of Dean. They were engineers in the Ready to Drink Department ("RTD").They had joined the Appellant on various dates between 1979 and 1991. Some were in the RTD before the 4 May 1989, some transferred to or joined that department later. For our purposes it will be sufficient to take the cases of Mr Bamford and Mr Francis.

Contractual history

Mr Bamford commenced employment with the Appellant in the RTD on 16 November 1987. His starting terms and conditions of employment were contained in a letter dated 11 November 1987. He put his signature to that document on 12 November 1987 to signify his acceptance of the terms there set out. Accordingly, that document is a contract of employment in writing. ( Gascol Conversions Ltd v Mercer [1974] ICR 420 . We shall call this "the original contract".The material terms are these:
"3. Your basic weekly wage will be £171 per 40-hour week. The Company reviews weekly salaries each April and employees are notified by letter of increases awarded. Your salary will be paid directly to your Bank Account, please complete the enclosed pro forma with your bank details. Shift payments and overtime will be paid a week in arrears.
4. Your normal hours of work will be 40 and a three shift system will operate within the department after training. The shift pattern will normally be 6-2, 2-10 and 10-6. Appropriate shift payments will be paid for each shift [he sets them out]. As discussed at your interview the present shift may change, in due course and could involve a 'continental' shift working pattern.5. You will be expected to be flexible across all shifts and to change shifts to cover periods of holiday, sickness, etc. Should production requirements change you will be expected to work any pattern needed to meet those requirements."There is later provision for overtime payments and annual holidays.The continental shift system foreshadowed in the original contract was brought into effect in Spring 1989. The terms of the original contract were consensually varied. New terms were contained in a letter dated 4 May 1989 - "the 1989 variation". That letter reads, so far as is material:
"Dear Mr Bamford,
Further to our recent discussions, I am pleased to confirm the following changes in your Contract of Employment on your transfer to 12 hour continental shift working:-Effective date: Continental shifts will be introduced from week commencing 30th April 1989.Hours of work: Your hours will be based on 12 hour shifts (0600-1800 hours/1800-0600 hours) on a rota covering continuous 7 days operation. Your individual rota of 4 days on/4 days off will be supplied by your department.Within a 12 hour shift you will be entitled to a break of 60 minutes to be taken as agreed with the department.A willingness to work overtime to provide cover is required (i.e. a maximum of 1 rest day in a block) and, until further notice, you are expected to commence your shift at 5.45am/pm. Such overtime will be paid at the appropriate premia rates.Rate of pay: Your basic rate of pay for 42 hours (43 paid hours) will be £219.95.Payments at the premia rates of time and a half or double time will be paid where appropriate.

Other wage-related benefits

For the purposes of calculating other wage-related benefits, e.g., bonus and pension, a notional basic pay for the 42 hours average contract will be used which is £219.95.Holidays Your annual holiday entitlement has been calculated on an annual hour's basis and equals 192 hours, which is 16 days based on 12-hour shifts.

Finally, all other terms and conditions of your employment remain unchanged."

In the case of Mr Francis he joined the Appellant in January 1986 in a department other than the RTD. In September 1989 he transferred to the RTD. On transfer he signed and accepted the terms and conditions contained in the Appellant's letter to him dated 14 September 1989. The material terms of that agreement are:
"3. Your basic weekly wage will be £215 for an average basic of 42 hours per week, i.e., 43 paid. The Company reviews weekly salaries each April and employees are notified by letter of increases awarded. Your salary will be paid directly to your bank account so please complete the enclosed pro forma, giving your bank details.
4. Payments of the premia rates of time-and-a-half or double time will be paid where appropriate.5. Your hours will be based on 12-hour shifts, 0600-1800 hours, 1800-0600 hours, on a rota covering continuous seven days operation. Your individual rota of four days on, four days off, will be supplied by the department."There is also a provision that a willingness to work overtime to provide cover is required and then this:
"Please note that should production requirements change you will be expected to work any pattern, continental, three shifts or days, needed to meet those requirements.
6. Your annual holiday entitlement has been calculated on an annual hours basis and equals 192 hours, which is 16 days based on twelve hour shift s.8. For the purposes of calculating wage-related benefits such as bonus and pension, the notional basic pay for the 42 hours average contract will be used."In the summer of 1995 the Appellant's Telford operation came under financial pressure. Redundancies were declared and a re-organization of working practices took place. Management decided that the continental shift pattern should cease. New proposals were put to the workforce, including the nine Respondents, in a letter dated 29 August 1995 from the Production Manager, Mr Paul Chapman. Again, we shall set out the material parts of that letter:
"1. Shift pattern - the new shift pattern is detailed below [and it is there set out involving four shifts]. A willingness to work overtime to provide cover as required as is a reasonable approach to be flexible in changing shifts to meet the exigencies of the production operation.
2. Hours of work - Your basic working week will be 40 hours.3. Rate of pay and salary - The hourly rate of pay remains the same at 7.3394 ph. The annual salary will be comprised of the following elements:Basic annual salary £15,266 and then provision for shift pay and overtime, giving a total of £19,867.5. Effective date - The effective date for the introduction of the changes will be week commencing 3 September 1995. The difference between the annual payments for your new shift patter and current shift pattern will be maintained for a period of four weeks from this effective date, subject to your agreement of the changes to your terms and conditions of employment."The Respondents declined to give their agreement to the changes of their terms and conditions of employment, as Mr Chapman put it and on 1 September 1995 he wrote again to the affected employees. His letter begins:
"I can now confirm to you the consequent changes to your terms and conditions of employment as follows:"
He then repeated the terms set out in his earlier letter of 29 August, which were to be introduced during the week commencing 1 October 1995.The Respondents continued in the employment, working under protest. They presented their Wages Act complaints to the Tribunal on 21 November 1995.

The Tribunal decision

The Chairman made the following findings in summary:(1) Following the 1989 variation the Respondents were entitled to a contractual rate of pay based on 43 paid hours a week. (Reasons, paragraph 6.)(2) The reasonableness of the Appellant's decision to alter the shift system in 1995, with a reduction in the basic paid working week, was immaterial. The question was, to what wages were the Respondents contractually entitled. (Paragraph 10).(3) He recorded a concession on behalf of the Appellant that there was no express provision in the contract to vary the number of hours contracted for (paragraph 11).(4) He rejected the Appellant's argument that such a term could necessarily be implied from the flexibility provision contained in clause 5 of the original contract of Mr Bamford, on the basis:(a) that the 1989 variation replaced the terms of the original contract, including the flexibility clause (paragraph 12), alternatively,(b) if the flexibility clause remained, it related to the organization of shift patterns, not to the basic hours term. To hold otherwise would mean that the Appellant could reduce the paid basic hours of work drastically, and that was never intended by the parties (paragraph 13).For these reasons he held that the 40-week from 1 October 1995 had been unilaterally imposed by the Appellant without the agreement of the Respondents and without power under the contract so to do. The Appellant was in breach of contract by paying 40 hours instead of 43 hours per week basic. The complaint of unlawful deductions was well-founded.

The Appeal

Miss Slade's primary submission is that in each case the flexibility clause, clause 5 of Mr Bamford's original contract and Mr Francis' letter of 14 September 1989, was in force in 1995. Thus the contract expressly allowed the Appellant to vary not only the configuration of the shifts, i.e., continental shift pattern/ three shifts or days, but also the number of hours worked in those shifts. Pay depended on the number of hours worked. Thus, the normal weekly working hours could be changed contractually without the consent of the Respondents. If this resulted in a reduction in pay, that did not give rise to a breach of contract (see White v Reflecting Roadstuds Ltd [1977] ICR 733 .Alternatively, she submitted, if there was no express term to that effect, it was necessary to imply such a term ( Liverpool City Council v Irwin [1977] Appeal Cases 239, 254 F , per Lord Wilberforce.We accept that the flexibility clause remained following the variation to Mr Bamford's contract and as expressly provided for in Mr Francis' contract. There is no difference between any of the nine cases in this respect. To this extent we reject the Chairman's approach in paragraph 12 of his reasons.Where we differ from the construction advanced by Miss Slade is in relation to the true meaning and effect of the flexibility clause. In our judgment Mr Carr is correct in submitting that it was an express term of the contract that the employee was entitled to a basic weekly wage based on a fixed number of hours at a set hourly rate. Not just the basic pay, but overtime, holiday entitlement, bonus and pension rights depended on that express term. Thus, in the case of Mr Bamford, under the original contract, clause 3, he was entitled to a weekly wage of £171 for a 40-hour week. Work over and above the basic 40 hours in a week was to be paid at the appropriate overtime rate. Following the 1989 variation he was entitled to a basic rate of pay for 42 hours worked (paid as 43 hours) that is, £219.95 pw. In later years an annual review of pay was carried out, so that, for example, on 1 June 1995 his basic annual salary was increased from £15,921 to £16,411. Thus, when on 29 August 1995 Mr Chapman wrote to Mr Bamford stating that his basic working week will be 40 hours, and his basic annual salary would be £15,266, that represented a reduction in basic pay which required the Respondent's consent, as Mr Chapman correctly appreciated in his letter. There was no agreement and the course then open to the Appellant was to terminate the existing contract on notice and offer a new contract on the new terms. That was not done and consequently the Appellant was in breach by imposing the basic 40-week from 1 October 1995.The 'flexibility clause' operated independently of the express term as to the basic working week. The Appellant was contractually entitled to organize the hours of work as it saw fit; however, that did not entitle it to vary the express term as to the basic working week, and consequent basic pay without the consent of the employee. It follows that since we have based our decision on the express term as to the basic working week, it is unnecessary to look for any implied term. The position is covered by an express term. We prefer the construction advanced by Mr Carr to that contended for by Miss Slade.Accordingly, the appeal must be dismissed.