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When can a mistake not be corrected? Court of Appeal rules collective agreements are not capable of rectification

03 November 2022

A recent Court of Appeal decision has confirmed that employers cannot seek rectification of mistakes in collective agreements. Where agreements with unions about terms and conditions have been wrongly recorded, employers will be limited to seeking to rectify relevant employees’ individual employment contracts in as far as they incorporate the mistaken terms.

Rectification is a remedy involving a court correcting a mistake in a written instrument. It is available in the case of common mistake, where the document does not reflect both parties’ shared intention. It is also available in cases of unilateral mistake, where the document does not reflect one parties’ intention and this is known or ought to be known by the other party, making it unconscionable for it to insist on the mistake being honoured.

Collective agreements between employers and unions are a key pillar of the industrial relations landscape, setting out the framework for recognition and collective bargaining. Under section 179(1) of the Trade Union and Labour Relations (Consolidation) Act 1992, there is a presumption that a collective agreement is not legally enforceable, unless it is in writing and expressly contains a provision to the contrary. Provisions of this kind are rare, and collective agreements are therefore typically “binding in honour only”.

What happened in this case?

Nexus, which is the operator of the Tyne and Wear Metro network, recognises two trades unions for collective bargaining purposes – the RMT and Unite. The proceedings relate to annual pay negotiations in 2012, in which Nexus sent a letter offering to consolidate a “productivity bonus” into employees’ basic pay (the Letter Agreement). This offer was accepted by the unions and the relevant employees’ terms and conditions were accordingly amended by the Letter Agreement.

In 2015, 70 employees brought an unlawful deduction of wages claim against Nexus, arguing that Nexus should have taken the incorporated bonus into account when calculating the value of their shift allowance. The Employment Tribunal (ET) upheld their claim, finding that on the correct construction of the Letter Agreement the shift allowance was to be paid on the basis of their enhanced basic pay. That decision was subsequently upheld by both the Employment Appeal Tribunal and the Court of Appeal (CA).

Nexus then issued rectification proceedings against the RMT and Unite, rather than the individual employees, arguing there was a common or unilateral mistake as to the effect of the Letter Agreement. Nexus argued that the wording of the Letter Agreement in relation to the payment of the shift allowance did not correspond to the common intention of the parties or, alternatively, that it did not reflect Nexus’ intention and the unions knew or ought to have known that to be the case. The unions denied these points and argued that, because Nexus had not made these arguments in the initial unlawful deductions litigation, it should not be able to do so now. The unions also sought to strike out the claim on the grounds that the High Court has no power to rectify collective agreements.

The High Court rejected the unions’ arguments and allowed the claim to proceed. In particular, it concluded that the courts’ power to order rectification was not limited to legally binding contracts and could also apply to collective agreements. This was notable as the first reported decision in which an English court held that a collective agreement could be capable of rectification.

The unions successfully appealed this decision to the CA. The CA confirmed that rectification can only apply to legally binding agreements and so cannot be sought in respect of collective agreements which are binding in honour only.

The CA observed that Nexus could have sought rectification in respect of the relevant employees’ individual employment contracts, in so far as they incorporated the terms of the Letter Agreement. Nexus had not done so, and had erred in bringing proceedings against the unions rather than the individual employees. The members of the panel disagreed about how this could have been achieved in practice. Underhill LJ thought that Nexus could have raised it as a defence at its liability hearing in the ET, notwithstanding his view that the ET does not have the power to order rectification. In contrast, Males LJ said that the Tribunal would have the power to order rectification, if it was necessary to determine a claim for unlawful deductions. Males LJ’s comments are not binding as they were not part of the decision itself, but they may arouse the curiosity of employment lawyers, given it has long been understood that ETs have no power to order rectification.

Implications for employers

This judgment provides an important clarification for unionised employers about the limited availability of rectification in relation to collective agreements. The CA has overturned the novel approach taken by the High Court in this case and confirmed that rectification cannot be granted in respect of collective agreements which are binding in honour only. Where collective agreements contain mistakes, employers’ primary recourse will be to seek rectification in respect of the individual employment contracts of the employees in the relevant bargaining unit, in so far as they incorporate the mistaken terms.

Of course, careful drafting, checking and double-checking of draft collective agreements remains an employer’s best approach to avoid mistakes. This is clearly illustrated by this being the second time that the drafting of one pay deal alone has led to Nexus appealing to the CA. It is also shown by the recent case involving Tesco on the lasting consequences of its loosely-worded collective agreements that is now before the Supreme Court (and which we wrote about here).

Tyne and Wear Passenger Transport Executive (t/a Nexus) v (1) National Union of Rail, Maritime and Transport Workers and (2) Unite the Union – judgement available here.

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