Courts have to give a “fair meaning” to the words in collective agreements when trying to decide if they are enforceable or not. In Anderson and ors v London Fire & Emergency Planning Authority, the Court of Appeal held that any interpretation by the court must also make industrial sense.
In July 2007, the London Fire & Emergency Planning Authority concluded a collective agreement with the GMB and Unison covering the period 2007 to 2009. As part of the process, the employer’s negotiators drew up a report which the fire authority then approved.
The pay increase for 2009 was agreed at 2.5 per cent or “by the NJC for Local Government Services settlement plus any uplift required to ensure general pay increases for the period 2007-09 are 1% above the NJC settlements for the same period."
Because of the financial crisis facing the employers in April 2009, the fire service took the view that it did not have to implement the increase for 2009 and offered 1.825 per cent instead. When that was rejected, it implemented an increase of 1.575 per cent - the amount required to ensure that pay increases for 2007 to 2009 were 1 per cent above the NJC settlements.
The claimants brought complaints of unauthorised deductions from wages.
Tribunal and EAT decisions
The tribunal held that because the wording for 2009 did not make clear which of the two alternatives took primacy, the three year deal was just an agreement to agree or an agreement to negotiate further for that year. Accordingly, the workforce had no legal entitlement to an increase of 2.5 per cent.
The EAT, however, said that the agreement was sufficiently clear. There were two alternatives and it was for the “paying party” to choose between them. The fact there was a choice did not render the agreement “unenforceable as a contract”. The fire authority therefore fulfilled its contractual obligation when it paid up in accordance with one of them.
Decision of Court of Appeal
Holding that the modern approach to contracts involved “giving a fair meaning to the words used in the factual context ... which gave rise to the agreement”, the Court of Appeal found in favour of the unions.
It held that there was nothing in the report drawn up by the employers’ negotiators to suggest that they perceived the 2.5 per cent increase simply as an indicative estimate or as a cap. “If one possible interpretation gives rise to a result which makes a lot of sense and another possible interpretation (even if at first sight the more linguistically precise interpretation) gives rise to a result which makes – put into context – little sense then the former, all other things being equal, should prevail”.
Looking at this case, only one meaning made industrial sense - that the parties to the collective agreement had as their central purpose a three-year pay deal. Whereas the provisions for 2007 and 2008 were simple, the provision for 2009 was more complicated but its meaning was clear. The employees were entitled to an increase of 2.5 per cent or NJC plus 1 per cent, whichever was the greater in 2009.
“No other meaning would have represented a three-year deal which the Unions would have contemplated and, objectively, that must have been obvious to the Employer. A provision which begins with the words "will be increased by 2.5% or …" cannot be given a meaning whereby the award might fail to reach 2.5%”.
The Court was also highly critical of the EAT, saying that its conclusion was “wholly improbable. The idea that the Unions would agree to a three-year deal in which the third year was covered by two alternatives, and that the Employer should have the unfettered right to choose between them strikes me as fanciful”.
Notwithstanding the employer’s attempts to suggest otherwise the unions have always argued that the intentions of the parties, at the time the agreement was entered into, was clear and that no other interpretation would make sense. The Court of Appeal agreed with the unions’ position.