In this case, the Supreme Court held that a trade union was entitled under the Contracts (Rights of Third Parties) Act 1999 (the 1999 Act) to enforce a contractual term offering the facility for "check-off arrangements", whereby employees' trade union subscriptions were deducted directly from their salaries through the payroll system and then paid to the union.
Background
The general rule in contract law is that a person can only enforce a contract if they are a party to it. The 1999 Act provides an exception to this general rule, whereby a third party can enforce a term of a contract, provided that they are expressly identified in the contract, and the term purports to confer a benefit on them. However, this exception will not apply if it appears on a proper construction of the contract that the parties did not intend the term to be enforceable by the third party.
Under the Trade Union and Labour Relations (Consolidation) Act 1992, collective agreements made between an employer and a trade union are presumed not to be legally enforceable by either party. However, where terms contained in a collective agreement are incorporated into individual employees' employment contracts, those terms are legally enforceable as between the employee and the employer.
Facts
The claimant employees were employed by either the Department of Environment, Food and Rural Affairs, the Home Department, or His Majesty's Revenue and Customs (the employers). They were members of the Public and Commercial Services Union (the PCSU), which was recognised by the employers for collective bargaining purposes.
The collective agreements between the employers and the PCSU, originating in the 1960s, included provision for check-off arrangements which provided for employees to have their union subscriptions deducted from their salary via their employer's payroll system and paid directly to the PCSU. The check-off provision was incorporated into the claimant employees' contracts of employment.
In 2014 and 2015, the employers unilaterally withdrew the check-off arrangements. The claimant employees and the PCSU brought claims for breach of contract. The High Court found that withdrawal of the check-off arrangements amounted to a breach of contract, and held that the PCSU was entitled to bring a claim in respect of that breach under the 1999 Act.
The Court of Appeal agreed with the High Court that withdrawal of the check-off arrangements amounted to a breach of the claimant employees' employment contracts. However, by a majority, it upheld the employers' appeal against the finding that the PCSU could enforce the term, concluding that on a proper construction of the contract, the parties did not intend the term to be enforceable by the PCSU.
The PCSU successfully appealed to the Supreme Court.
Analysing the 1999 Act, the Supreme Court held that where a contractual term purports to confer a benefit on a third party, and that third party is appropriately identified within the contract, the 1999 Act creates a strong presumption that the relevant term should be enforceable by the third party. This presumption will only be displaced where it is apparent, on the usual objective approach to contractual interpretation, that the parties had a positive common intention that the obligation should not be enforceable by the third party.
In the absence of an express term confirming that the term in question should not be enforceable by the third party, the only way to demonstrate that common intention would be to find an implied term to that effect. The test to imply a term where the contract is silent is a demanding one. In the present case, there was no basis for implying a term into the individual contracts to rebut the presumption that the PCSU should be entitled to enforce the check-off term.
The fact that the check-off term derived from a collective agreement that was itself not legally enforceable as between the employers and the PCSU did not provide any determinative guidance in this context. The Supreme Court did not consider there to be any inconsistency between recognising that a collective agreement is unenforceable as between the employer and the trade union, and allowing the trade union to enforce against the employer a term that had been incorporated from the collective agreement into individual employment contracts.
What does this mean for employers?
This case serves as a strong note of caution to employers who thought they had the right to withdraw check-off arrangements. It makes clear, not just that such arrangements can be incorporated into individual contracts of employment, but also that trade unions are able to bring claims to enforce the arrangements or seek damages for their withdrawal. That is especially important given that where check off is operated, it is common for the great majority of employees to pay their union subscriptions this way, meaning withdrawal of check-off creates a risk to the union's funding.
The Supreme Court's finding that the 1999 Act establishes a strong presumption of enforceability potentially limits employers' abilities to withdraw check-off arrangements, and provides unions with an effective remedy when they do – even where those check-off arrangements derive from a collective agreement that is itself unenforceable.
That said, whether or not there is an express or implied right of check-off incorporated into individual employment contracts will depend on the facts of each case. Only if there is such a contractual right will employers be vulnerable to a successful union or employee claim for stopping check-off arrangements.
Employers in the public sector should be aware that, under regulations that took effect in May 2024, they are only permitted to operate check-off arrangements if the union pays them a reasonable amount for this service (so that the costs of administering the arrangements are not borne by the taxpayer), and workers have the option to pay their union subscriptions by other means. The guidance on the operation of these regulations indicates that employers will need to terminate check-off arrangements if they are unable to reach agreement with their recognised union(s) on the payment of a reasonable amount. The decision in this case increases the risk of such action, and employers in this situation will need to seek legal advice on how best to ensure their compliance with the regulations while minimising the risk of claims from the union(s) and employees in relation to the withdrawal of check-off arrangements.
Commissioners for His Majesty's Revenue and Customs v Public and Commercial Services Union
Secretary of State for the Home Department v Public and Commercial Services Union
