Looking behind a contract
Labour & European Law Review Weekly Issue 307 21 February 2013
Following a Supreme Court ruling about the need for tribunals to look “behind” a written contract to see if it was a sham, the Employment Appeal Tribunal said in Qantas Cabin Crew (UK) Ltd v Lopez and Hooper that there was a big difference between employees not being clear about the terms of their contract and the whole contract being a sham.
Mr Lopez and Ms Hooper, both employees of Qantas Cabin Crew Australia (a subsidiary of Qantas), applied successfully in February 2010 to transfer from Australia to a base in London.
In October 2010 Ms Hooper signed and returned an offer letter; Mr Lopez did not sign it but agreed its terms which included a relocation allowance of £4000 and Living Away From Home Allowance (LAFHA), to be paid in addition to their salary. This became known as the October contract.
In November 2010, they were both asked to sign contracts which differed from the October document in two significant ways. One was to the relocation payment (which was to their benefit) and the other to the LAFHA which stated that it would be included in their salary.
Before signing the November contracts, they were given a tax briefing and directed to a set of questions and answers which stated that it was more tax efficient to include the allowance in their salaries.
Both claimants lodged grievances and subsequently submitted tribunal claims for unlawful deduction of wages under the Employment Rights Act (ERA) 1996 when they were not paid the higher relocation allowance and the LAFHA was included in their salary.
Relying heavily on the Supreme Court decision in Autoclenz v Belcher (which said that courts should look at all the circumstances of a case and “go behind” the written contract if it was a sham), the tribunal said that the October contract applied.
This was (at least in part) because the claimants knew that the references to the higher relocation payment in the November contract was a mistake caused by cutting and pasting part of another contract.
The EAT overturned the tribunal’s decision. It said there was a significant difference between employees not being clear about the terms of their contract and “the contractual nature of the whole relationship between the parties” being a sham.
The tribunal had therefore wrongly applied Autoclenz as there was no suggestion by the claimants, who “had their eyes open when they signed these agreements”, that they were a sham, adding that “neither the October nor the November agreement is asserted by the Claimants as an unenforceable agreement on the particular terms which favour them”.
Given the facts of the case, the November contract prevailed and the payment of allowances for food and accommodation was therefore included within their salary, for reasons of tax efficiency. As it was in respect of expenses it was excluded from the definition of “wages”, and the claimants could not bring a claim under Part 11 of the ERA.
Although their claim for location payments was not a payment related to expenses, their argument that they should be paid the higher amount failed “as a matter of construction” of the contract.