TYNE AND WEAR PASSENGER TRANSPORT EXECUTIVE v T/A NEXUS MR S ANDERSON & OTHERS [2018] UKEAT 0151_16_1501

"The pay structure for Metro Staff follows the arrangements set out below. Individual rates of pay within Sections, whilst based on these arrangements may vary depending upon the additional productivity and efficiency measures negotiated within each Section and ratified by the Joint Negotiating Committee for Metro Staff."

"a) To consolidate £200 of the Red Book bonus into basic salary for employees at Nexus Rail and of the Seasonal Payment for employees at the Ferry. In making the consolidation amount fixed we aim to benefit those on lower pay with a higher percentage increase in basic pay. The bonus will be reduced accordingly in future. b) To consolidate the productivity bonus (25.5%) into basic salary. This will benefit employees by having an official higher basic salary."

"Partial consolidation of the Red Book Bonus/Seasonal Payment (Ferry) into Basic Salary to the sum of £200.00 which will reflect a 1% increase as in line with the Treasury's November 2011 announcement. Consolidation of the Productivity Bonus into basic salary (cost neutral, fully pensionable and provides a greater basic salary)."

"… Prima facie, therefore, the shift allowance is to be calculated by applying the appropriate percentage multiplier to the sum of the previous basic pay, £200 of the red book bonus and the productivity bonus unless either (1) there was an agreement, express or implied, between the respondent and the RMT that the respondent should exclude the former productivity bonus from the calculation of the shift allowance or (2) the tribunal should amend the Terms and Conditions of Contract by inserting a clause to that effect."

"[The] officious bystander … would have concluded that the offer was deliberately lacking in particularity because there was an attempt to provide workers with a reward at a time of national austerity and to give the appearance that the offer was cost neutral when the respondent and the RMT knew that it was not … [and] … would have recognised that the effect of the consolidation on the calculation of the shift allowance was an unintended consequence of the consolidation, but … could not have concluded that there had been an agreement to vary the Terms of the Contract to redefine the definition of basic pay so as to exclude the element formerly represented by productivity bonus for the purposes of the calculation of the shift allowance."

"… But the authorities make it clear that the tribunal's function is to declare what the parties agreed, not what they ought to have agreed. I cannot say that it is necessary to include an implied term into the 2012 pay settlement and the Terms and Conditions to give them business efficacy: they are not incoherent. There is clear evidence that whatever bonuses and allowances have been consolidated with basic pay in the past, the shift allowance has been calculated on the consolidated sum. That applies to red book workers on grade 4 and above."

"As Mr Linden QC reminds me, the protection for workers under Part II ERA owes its origins to the Truck Acts 1831 to 1940, initially passed to ensure that Victorian artificers were paid in coin of the realm. That absolute requirement was softened by the Payment of Wages Act 1960 and the present provisions replaced the Wages Act 1986."

"It was a case of the parties not being of the same mind as to the application of the words 'basic' and 'supplementary'. In effect the … tribunal was exercising the power of the civil courts to declare what a contract meant or to rectify an error manifest in an otherwise binding contract. We are unanimously of the opinion that the words of the statute do not mean and were not intended to mean that an industrial tribunal could rewrite or amend a binding contract which had one small area of misunderstanding between the parties."

"27. Although the present case does not concern the invention of the term, I have included these passages because it seems to me that they stem from the same doctrinal strand as Stephenson LJ's earlier passage (which has not been criticised) on the lack of a power to interpret particulars which have been given. 28. Since the hearing of this appeal, I have had the opportunity to consider the treatment of this issue in Harvey on Industrial Relations and Employment Law , Division AII, paras [119]-135]. The exposition and analysis is unequivocally supportive of the doctrinal strand to which I have just referred. For example, at para [120]: "

"… That gauntlet was not picked up until 1994 when the Employment Tribunals Extension of Jurisdiction (England and Wales) Order 1994 (SI 1994/1623) enabled the tribunals to hear specified breach of contract cases. The provision is now enshrined in section 3 of the Employment Tribunals Act 1996, which also contains an up-to-date rule-making power which facilitates further extensions. However the current position is that the breach of contract jurisdiction is confined to claims arising or outstanding on the termination of employment. It is not available during the subsistence of the contract."

"As I see it, the answer to the first question raised by this appeal depends on the proper construction of section 8(3). As to that, whatever might be the position in the absence of section 8(3), I think that the observations in the above extract from the decision in the Alsop case cannot, in their entirety, survive the presence of section 8(3). Section 8(3) must have been intended to widen the ambit of the Act, because it is a deeming provision … The Act is, indeed, concerned with unauthorised deductions. But section 8(3) makes plain that, leaving aside errors of computation, any shortfall in payment of the amount of wages properly payable is to be treated as a deduction. That being so, a dispute, on whatever ground, as to the amount of wages properly payable cannot have the effect of taking the case outside section 8(3). It is for the industrial tribunal to determine that dispute, as a necessary preliminary to discovering whether there has been an unauthorised deduction. Having determined any dispute about the amount of wages properly payable, then the industrial tribunal will then move on to consider and determine whether, and to what extent, the shortfall in payment of that amount was authorised by the statute or was otherwise outside the ambit of the statutory prohibition: for example, by reason of section 1(5). To the extent that the shortfall is found to be a contravention, the industrial tribunal will make an appropriate declaration and orders, in accordance with section 5(4) to (6)."

"Fourth, I am unable to discern any underlying policy reason why Parliament should have intended to draw such a distinction [1] . Indeed, the distinction would give rise to undesirable practical consequences, rather than the reverse. According to this distinction, the underpaid employee may have resort to an industrial tribunal if the employer is asserting a claim against the employee, but he must go to the county court in cases where the employer is simply refusing to pay. This hardly seems sensible. Moreover, the application of the distinction to the facts of particular cases would give rise to difficulty and uncertainty and niceties which would be peculiarly undesirable in this field. Fifth, as already noted, one item in the calculation prescribed by section 8(3) is the "total amount of wages that are properly payable" by the employer to the employee. It is implicit in this that in the event of dispute, this amount will be determined by the industrial tribunal when a complaint has been made under the Act. This must be so in a case where the employer claims that no wages are properly payable as well as in a case where the employer admits that something is due. Sixth, it is pertinent to keep in mind that the wider construction of the Act does not have the consequences that employees are obliged to bring all claims for unpaid wages, as defined in the Act, by way of complaint to an industrial tribunal. Under section 6(1), an industrial tribunal has exclusive jurisdiction to entertain complaints of alleged contraventions of the statute. But an employee is not compelled to assert a contravention of the statute and advance a claim for unfair paid wages on that footing. If he so wishes, he may disregard any question of contravention of the statute, and bring a simple claim in contract for unpaid wages in the county court or exceptionally, if the sum involved is above the county court limits, in the High Court."

"13. Mr Purdy suggests, but we disagree, that in that passage Nicholls LJ is to be taken to [be] laying down that it is merely a matter of construing the contract and the statute against the employer's professed reason for the deduction and does not contemplate an enquiry into the facts of the case. There is no justification for construing that passage, where Nicholls LJ plainly was not addressing a problem such as we are concerned with in this case, in that way. One has only to reflect on the extraordinary results that would follow - which it is unnecessary to elaborate - if Mr Purdy's suggestion were correct to realise that it cannot be. 14. As a matter of simple language it seems to us that s.1(1)(a) contemplates that the Industrial Tribunal must, where there is a dispute as to the justification of the deduction, embark upon the resolution of the dispute. They have done so here: they have concluded that, in the absence of any evidence that the sums deducted were due from the employee they were not satisfied that the contract entitled the employers to make either deduction. In the circumstances their conclusion is unimpeachable and there exists no good ground for allowing this appeal on the main argument that has been presented."

"As the ET rightly said, the correct starting point must be to consider what wages were properly payable to Mr Atchoe within Section 13(3), and this requires consideration of all the relevant terms of his contract of employment. However, that requires consideration also of any implied terms. …"

"It seems to him, prima facie, that the Claimant is seeking to disguise a breach of contract case, or a claim for declarations of the terms of a contract, as a wages claim, which he cannot do in a Tribunal. The projected amendments cause even more concern. … If this is really a breach of contract claim or a claim seeking a declaration of the true terms of the contract, it might an abuse of process to seek to disguise it as a wages claim. Wages claims are meant to be simple actions which can be dealt with by a Chairman alone in a matter of an hour or two."

"27. In our judgement, the Employment Tribunal, in each case, was entitled, having considered the evidence of each Claimant and the other witnesses, to conclude that the predecessors of the Appellant had, through their various managers, agreed to make those payments by way of express agreement, or, by their conduct in making payments against those claims, in some cases backdating them, similarly agreed expressly by virtue of that conduct. In those circumstances, it is in our judgement wrong to suggest that what the Tribunal was doing was in any way interpreting, or inventing, a contract; it was simply finding what the agreement was in circumstances where the Claimant provided the information to the employer and the employer, acting on that information, and applying (as was obviously the case) the standard hourly rate to that information, made the ETTA payment as a matter of express contractual agreement. 28. In our judgement, there is no this question of the Employment Tribunal mistakenly going beyond the limits of their jurisdiction as identified in Southern Cross , nor acting perversely in concluding that there were express agreements. It is trite law that an express agreement need not be in writing; it can be oral, and it can also be made by virtue of the conduct of the parties. That can either be as an express agreement or it can be as an agreement implied in the way described by Elias J (as he then was) in Solectron Scotland Limited v Roper [2004] IRLR 4 at paragraphs 19 to 21, under the heading: "

"… The ET had no jurisdiction to embark on an enquiry into what he ought to have been paid if he was to be regarded as an employee in the context of a WA claim, any more than it would be appropriate under a s.11/12 reference: see Southern Cross Healthcare v Perkins [2011] ICR 285 ; Mears v Safecar [1982] ICR 626, both CA (assuming that he was an employee and therefore entitled to make such a reference). Any such claim lies in breach [of] contract."

"In my judgment, the underlying facts of Delaney v Staples are a paradigm of the circumstances in which Part II of the Employment Rights Act 1996 is designed to operate. The employee complains that there has been an unlawful deduction from his wages. He has not been paid an identified sum. He makes a claim under Part II. The employer may have a number of defences. These defences may raise issues of fact. Those issues will be for the tribunal to determine. But the underlying premise on which the case is brought is that the employee is owed a specific sum of money by way of wages which he asserts has not been paid to him. That, it seems to me, is the proper context both of Delaney v Staples and Part II of the 1996 Act."

"50. In my judgment, therefore, the first question which falls to be addressed in this appeal can be articulated as follows: what (if anything) was the nature of the obligation incurred by Coors as a consequence of the inevitable cessation of the BEPSS scheme? On the assumption that there was an obligation to replace the BEPSS scheme, the second question then becomes: was the scheme identified in paras 17 and 18 of the Employment Appeal Tribunal's judgment a proper implementation of Coors's obligation to its workforce? 51. I agree with Chadwick LJ … that if the scheme put in place by Coors was not a proper implementation of its obligation to its workforce, the critical question in this appeal is that which I have identified in para 42 above, namely whether the claim for damages which arises from Coors's failure to perform its obligation can be said to be an identifiable sum, failure to pay which is to be treated as an unauthorised deduction from wages. 52. In answering these questions, and in particular the critical question identified in paras 42 and 51, I have to say that I prefer the submissions made by Mr Linden. In my judgment, the highest the case can be put for the claimants is that Coors was under an obligation to put in place a scheme which, properly and fairly operated, was capable of replicating the benefits of the BEPSS scheme. Whichever way one examines the case, however, the result is that any payment due to the workforce under the 2003 incentive scheme was incapable of quantification in the Delaney v Staples sense. To put the matter another way, none of the claimants could properly say that on any given date in 2004, let alone the March date operated under the previous scheme, Coors had made an unlawful deduction of a quantified amount from their wages. …"

"Part II of the Employment Rights Act 1996, as I read it, is essentially designed for straightforward claims where the employee can point to a quantified loss. It was designed to be a swift and summary procedure. Of course such claims would throw up issues of fact. The example canvassed in argument was of an employee being paid piece work, asserting that his employer deducted sums properly payable to him for work undertaken on the grounds that some of the items produced by the employee were defective. Delaney v Staples … provides another example. Such a dispute would not take the case outside Part II of the Act. I also accept that Part II is capable of expansion along Farrell Matthews & Weir v Hansen [2005] ICR 509 lines as envisaged by section 27(3) of the Act. However, in my judgment to extend it to the present case is a step too far."

"As I have said, I am content to assume for the purposes of this appeal that the claimants have claims against the employer company for breach of contract. But, on a true analysis, those claims are, as it seems to me, claims for damages by way of compensation for the loss of the chance that, if the employer company had put in place a substitute scheme which met the requirement imposed by the claimants' employment history, the effect of such a scheme, when applied to the company's actual financial performance for the year 2003, would have been that the claimants received some benefit which (absent such a scheme) they did not receive. I have no reason to doubt that, in the context of a claim for damages advanced on that basis, a court could measure the loss of chance by an appropriate award. But that task is outside the jurisdiction which (in the case of a claimant whose employment has not come to an end) the legislature has chosen to confer on an employment tribunal by the 1996 Act. I agree with Wall LJ that, if and for so long as the claimants remain in the company's employment, they must seek their remedy in the county court."

"Thus, it seems to me, where the real issue is whether a purported variation to the contract in writing authorizes the relevant deduction before it is made, that issue falls to be considered in the course of a Part II claim. Applying the dictum of Nicholls LJ in Delaney , it is for the employment tribunal to determine whether the relevant variation contended for by the Respondent was notified to the Claimant before the date of the alleged deduction (January 2007) as a necessary preliminary to deciding whether there had been an unauthorised deduction."

"Mr Linden QC took us through a history of the legislative provisions and reminded us that they have been described as a summary procedure and that they offer a remedy to an employee in circumstances where he might have no such remedy in contract. For example, a deduction agreed only orally by the employee or a deduction agreed retrospectively would not make the deduction authorised for the purposes of the Act. He submitted that claims of the kind in the present case were more suited to be heard in the County or High Court where the employer was more likely to be able to defeat the claim."

"31. All counsel rightly agreed that if a Claimant's entitlement to wages depended upon the construction of the contract of employment, the claim brought … by an employee continuing in employment would fall outside the jurisdiction of the Employment Tribunal. It would have to be brought as a contract claim in the Civil Courts and not as a deduction from wages claim under the ERA section 13 in the Employment Tribunal. The legislative provisions giving Employment Tribunals jurisdiction to determine a claim for unauthorised deductions from wages under ERA section 13 and claims for a sum due under a contract or damages for breach of contract are different. Under the Employment Tribunals Extension of Jurisdiction (England and Wales) Order 1994 Article 3, a claim for a sum or for damages under a contract of employment may only be brought in the Employment Tribunal if the claim arises or is outstanding on the termination of the employee's employment. A claim under the 1994 Order may only be heard in an Employment Tribunal if a Court would have jurisdiction to determine the claim. The right not to suffer unauthorised deduction from wages is conferred by ERA section 13 and such a claim may only be brought in the Employment Tribunal. 32. Counsel did not seek to suggest that Chambers was wrongly decided. They agreed that a Tribunal did not have jurisdiction to hear and determine a claim under ERA section 13 if it required a decision on the construction of the contract of employment. 33. With due respect to the EJ, in my judgment it is not the judgment in Chambers which is material to the issue of whether the Employment Tribunal had jurisdiction to determine the Claimant's section 13 claim but Southern Cross . In Chambers the Claimant's level of pay was set out in a letter to him from the Council. His claim was based on an argument that he would have been paid at a higher rate if he had been full time rather than working about one-third of a full timer's hours. The issue was not one of a construction of a contract. 34. In Southern Cross the Claimants claimed to be contractually entitled to five days' long service uplift on top of increased statutory holiday entitlement of 28 days. They brought their claims under ERA sections 11 and 12 contending that the Statement of Particulars of Employment given by their employer under ERA section 1(4)(d)(i) should have so provided. The Employment Tribunal and the EAT upheld the claims. Maurice Kay LJ in the Court of Appeal explained that the question before the Court was whether Employment Tribunals have jurisdiction to construe contractual terms and conditions contained or referred to in a written statement of particulars."

"In my judgment the decision of the Court of Appeal that the Employment Tribunal has no jurisdiction to construe a statement of written particulars in a claim under ERA section 11 applies equally to the construction of a contract in a claim not to suffer unauthorised deduction from wages under ERA section 13. The statement of particulars given under section 1 should record the agreement between employer and employee with regard to certain matters. Wages for the purposes of the section 13 claim are defined in section 27. These include the rate of remuneration. A claim under section 13 depends upon deciding the total amount of wages properly payable. This should be ascertainable from the statement of particulars given under section 1."

"… Deciding whether the contract of the Claimant with the First Respondent contains such obligations requires construing its terms including whether it included implied terms requiring her to take part in mediation with her clinical colleagues and to co-operate with the Second Respondent in enabling them to obtain their Occupational Health report. The need for decisions on the construction of the contract including whether it contained implied terms leads to the conclusion that the Employment Tribunal did not have jurisdiction to determine the Claimant's claim under ERA section 13. The venue for pursuing a claim for an alleged shortfall in her wages is in the Civil Courts. …"

"I do not think there is any basis within Part II of the 1996 Act for carving out questions of contractual interpretation and implication and holding that the ET has no jurisdiction to determine them. As Nicholls LJ held, the ET is required to determine a dispute "on whatever ground" as to the amount of wages properly payable as a necessary preliminary to discovering whether there has been an unauthorised deduction. This must include a dispute as to the interpretation of a contract or the existence of an implied term. It would be surprising if the ET could not construe a provision of the contract to see whether it authorised a deduction when this very question is central to the operation of section 13. Indeed in my experience it is not unusual for cases it ET level and EAT level to decide such questions in an application under Part II (see for a recent example Cabinet Office v Beavan UKEAT/0262/13)."

"14. Over the past 45 years, the House of Lords and Supreme Court have discussed the correct approach to be adopted to the interpretation, or construction, of contracts in a number of cases starting with Prenn v Simmonds [1971] 1 WLR 1381 and culminating in Rainy Sky SA v Kookmin Bank [2011] UKSC 50 ; [2011] 1 WLR 2900 ."

"15. When interpreting a written contract, the court is concerned to identify the intention of the parties by reference to "what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean", to quote Lord Hoffmann in Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38 , [2009] 1 AC 1101 , para 14. And it does so by focussing on the meaning of the relevant words … in their documentary, factual and commercial context. That meaning has to be assessed in the light of (i) the natural and ordinary meaning of the clause, (ii) any other relevant provisions of the lease, (iii) the overall purpose of the clause and the lease, (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party's intentions. …"

"10. The court's task is to ascertain the objective meaning of the language which the parties have chosen to express their agreement. It has long been accepted that this is not a literalist exercise focused solely on a parsing of the wording of the particular clause but that the court must consider the contract as a whole and, depending on the nature, formality and quality of the drafting of the contract, give more or less weight to elements of the wider context in reaching its view as to that objective meaning. In Prenn v Simmonds [1971] 1 WLR 1381, 1383H-1385D and in Reardon Smith Line Ltd v Yngvar Hansen Tangen [1976] 1 WLR 989, 997, Lord Wilberforce affirmed the potential relevance to the task of interpreting the parties' contract of the factual background known to the parties at or before the date of the contract, excluding evidence of the prior negotiations. When in his celebrated judgment in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 , 912-913 Lord Hoffmann reformulated the principles of contractual interpretation, some saw his second principle, which allowed consideration of the whole relevant factual background available to the parties at the time of the contract, as signalling a break with the past. But Lord Bingham of Cornhill in an extra-judicial writing, "

"… There were prolonged negotiations between solicitors, with exchanges of draft clauses, ultimately emerging in clause 2 of the agreement. The reason for not admitting evidence of these exchanges is not a technical one or even mainly one of convenience, (though the attempt to admit it did greatly prolong the case and add to its expense). It is simply that such evidence is unhelpful. By the nature of things, where negotiations are difficult, the parties' positions, with each passing letter, are changing and until the final agreement, though converging, still divergent. It is only the final document which records a consensus. If the previous documents use different expressions, how does construction of those expressions, itself a doubtful process, help on the construction of the contractual words? If the same expressions are used, nothing is gained by looking back: indeed, something may be lost since the relevant surrounding circumstances may be different. …"

"The rule excludes evidence of what was said or done during the course of negotiating the agreement for the purpose of drawing inferences about what the contract meant. It does not exclude the use of such evidence for other purposes: for example, to establish that a fact which may be relevant as background was known to the parties, or to support a claim for rectification or estoppel. These are not exceptions to the rule. They operate outside it."

"Trial judges frequently have to distinguish between material which forms part of the pre-contractual negotiations which is part of the factual matrix and therefore admissible as an aid to interpretation and material which forms part of the pre-contractual negotiations but which is not part of the factual matrix and is not therefore admissible. This is often a straightforward task but sometimes it is not. …"

"… The appeal tribunal's function is (and is only) to see that the employment tribunals' decisions are lawfully made. If therefore the appeal tribunal detects a legal error by the employment tribunal, it must send the case back unless (a) it concludes that the error cannot have affected the result, for in that case the error will have been immaterial and the result as lawful as if it had not been made; or (b) without the error the result would have been different, but the appeal tribunal is able to conclude what it must have been. In neither case is the appeal tribunal to make any factual assessment for itself, nor make any judgment of its own as to the merits of the case; the result must flow from findings made by the employment tribunal, supplemented (if at all) only by undisputed or indisputable facts. Otherwise, there must be a remittal."