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Cite as: [1994] UKEAT 36_94_1912

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    BAILII case number: [1994] UKEAT 36_94_1912

    Appeal No. PA/36/94, EAT/212/94



    At the Tribunal

    On 19th December 1994

    Judgment delivered 9 June 1995





    MR O ALI          APPELLANT







    Transcript of Proceedings







    For the Appellant MR A GLENNIE

    (of Counsel)

    Messrs Nicholsons


    23 Alexandra Road


    Suffolk NR32 1PP

    For the Respondents PROF. P WALLINGTON

    (of Counsel)

    Messrs Edward Lewis


    Verulam Gardens

    70 Gray's Inn Road



    For the Appellants MR J E HIGH &


    (In person)




    For the Respondents PROF P WALLINGTON

    Messrs Edward Lewis


    Verulam Gardens

    Gray's Inn Road

    London WC1


    MR JUSTICE MUMMERY (PRESIDENT) These cases, formulated as claims under the Wages Act 1986 ("the 1986 Act"), concern the construction of an agreement governing the change to "annualised hours" negotiated between the Trade Unions, to which the Applicants belong, and the Respondent employers, Christian Salvesen Plc. The claims were made in Originating Applications presented in similar form by five employees on 21st December 1992 - Mr Osmond Ali, Mr High, Mr Green, Mr Matthews and Mr Bessey.

    The Industrial Tribunal held at Norwich heard the claims on 23rd September and 24th November 1993. The Applicants were represented by Mrs Bond of the Citizens Advice Bureau. Christian Salvesen were represented by counsel, Mr Peter Wallington.

    For summary reasons notified to the parties on 7th December 1993, the Tribunal unanimously decided that the claims failed as no unauthorised deductions were made from the employees' wages by their employers. Ensuing events generated a number of procedural problems resolved at the start of the hearing of the appeal.

    Procedural problems

    There are two separate appeals. Mr Ali appealed by Notice of Appeal dated 13th January 1994. His appeal was set down for a full hearing by the Tribunal. The remaining Applicants appealed by Notice of Appeal dated 14th January 1994. Their appeal was set down for a Preliminary Hearing. An order was later made for the two to be heard together. There was no objection to the later appeal being dealt with as on a full hearing. Leave was granted to Christian Salvesen to treat their skeleton argument as a Respondent's Answer. Leave was also given to correct the title of the Respondent Company from Christian Salvesen Plc to CS Food Services Ltd.

    Summary reasons

    No full reasons for the Tribunal decision exist, because no request was made for them within the time prescribed by the Industrial Tribunal Rules. When the notices of appeal were lodged with the Appeal Tribunal it was pointed out that, in order for the appeal to proceed, a copy of the full written reasons should be filed in accordance with Rule 3(1) of the Employment Appeal Tribunal Rules. On 26th January 1994 Mrs Bond made a request, on behalf of the Applicants, for full reasons. By letter dated 17th January 1994 the request was refused. Full reasons are required to be lodged with the notice of appeal, but the Appeal Tribunal has a discretion under Rule 39(2) to allow an appeal to proceed on summary reasons.

    Mr Glennie, who now appears for the Applicants, accepted that, if the appeal proceeded on that basis, he could only argue the case on legal points based on the facts as stated in the decision and not rely oral evidence before the Tribunal on which the Tribunal made no findings of fact in the summary reasons.

    We have decided to hear the appeal on summary reasons only as, in one significant respect, this is an exceptional case. Although the reasons are described as "summary", they are fuller than would normally be the case, because the Industrial Tribunal (and Mrs Bond of the CAB) were presented by Mr Wallington on the morning of the Tribunal hearing with what was described as a "formidable skeleton argument". The Tribunal, after hearing Mrs Bond do "her best to blunt the thrust of the Respondents' submissions", decided that Mr Wallington's skeleton arguments were correct in law and based on facts which are not seriously in dispute: "we accept his argument in toto".

    That argument, which runs to 13 pages, is, therefore, to be regarded for all practical purposes as incorporated into the decision and may be looked at to amplify the details of the three-page Tribunal decision.

    We exercise our discretion to dispense with full reasons on the ground, first, that it is possible to adjudicate on this appeal on the basis of summary reasons only, since they are full enough, and secondly, it is in the interests of justice that we should do so, because the point of law raised is one of practical importance to the parties and is of wider legal significance in the context of collective agreements governing annualised hours and payments for overtime.

    Incomplete documentation

    It was pointed out by Mr Wallington that the relevant collective agreement with the AEEU concerning Mr Matthews and Mr Bessey has not been included in the papers. The absence of this document presented no problems, however, because the only material differences from the TGWU Agreement in the papers are that the AEEU Agreement provided for a higher basic pay and was made and came into effect a year earlier.

    The relevant facts

    There was no serious dispute on the facts which may be summarised as follows:-

    (1) All the Applicants were employed by Christian Salvesen from various dates until they were made redundant in October or November 1992.

    (2) They had been paid on a traditional arrangement as hourly paid workers. If they worked overtime in any one particular week they were paid at a higher rate.

    (3) An entirely new system of payment was worked out in negotiations with the recognised Trade Unions and included in collective agreements which were, in turn, incorporated, where appropriate, into individual contracts of employment. The essence of the new arrangements was that in future the employees would be paid a standard wage each week throughout the year for a notional 40 hours in each week. It was also agreed that, unless and until a worker had worked more than 1,824 hours per year, he or she would not be paid overtime. The year ran from 1st June to 31st May of the next year.

    (4) Unfortunately for the Applicant employees the redundancy situation, which led to the loss of their jobs, arose during the course of the pay year. They had worked, pro rata, far more than the 40 hours per week on which their standard pay was based.

    (5) The resolution of their claim depended on the interpretation of the provisions in the collective agreement.

    The decision of the Industrial Tribunal

    The Tribunal dismissed the Applicants' claims for the following reasons:-

    (1) They rejected the Applicants' argument that the Company had made an unauthorised deduction from their wages within the meaning of the 1986 Act because it had not paid them for the hours which they should have been paid. They argued that they should have been paid for the hours they had worked over and above 40 hours each week prior to their being made redundant.

    (2) The Tribunal accepted the Company's argument that they had not made any deduction at all from the wages. The collective agreements clearly stated that workers were not to be paid anything extra until they had worked the 1,824 hours. The contracts did not contain any express provision about payment of overtime in the case of the compulsory termination of employment in the course of the year.

    (3) Further, it was not possible to imply a term for the payment of overtime in the event of compulsory termination of employment in the course of the year. The Tribunal recognised that there may be situations in which a term might be implied in the form suggested by Mrs Bond on behalf of the Applicants.

    "A reasonable person would say that, if it was a situation forced on the employee by the employer (that is redundancy) the employee is entitled to be paid for the extra hours he has worked up until that time, over and above the 40 hours per week."

    The Tribunal was, however, satisfied on the authority of the House of Lords decision in Liverpool City Council v. Irwin [1977] AC 239 that the Tribunal was not entitled in law to imply a term into a contract simply because it thought it reasonable to do so. An implication could only be made if it was necessary to imply a term in order to make the contract work.

    Terms and conditions of employment: the collective agreement

    The collective agreement provided for a change to annualised hours which was confirmed in the Statement of Main Terms and Conditions of Employment sent out to the Applicants and other employees. Paragraphs 2 and 3 provide as follows:-

    2 Remuneration

    With effect from 1st June 1992 your standard weekly wage will be as a grade worker. This equates to per hour. Your rate of pay will be in accordance with the agreement between the Company and the Transport and General Workers Union. You will be paid weekly in arrears by direct transfer into your bank account.

    3 Hours of work

    In accordance with the agreement between the Company and the Transport and General Workers Union, your annual hours of work will be 1824 hours per year. It is a condition of your employment that you work these hours as required in accordance with the shift rota determined by the company. All hours not scheduled on rota's will be worked by arrangement with the Company up to the contracted 1824 hours per annum. The Company reserves the right to alter and amend shift rota in the light of commercial activity and, given due notice, to re-schedule working hours later in any working year. The working day will be of 12 hours or 8 hours or 4 hours duration in accordance with the shift patterns as determined by the Company."

    The collective agreement with the Transport and General Workers Union contains five sections and eight Appendices. The relevant provisions are as follows.

    Section 4 - Conditions of Employment

    "4.2 - Shift Rota

    Each employee will be required to work an average of ... hours per annum in accordance with the shift rota as shown in the Appendices to this Agreement.

    All hours not scheduled on rostas will be worked by arrangement with the Company up to the contracted 1824 hours per annum.

    The Company reserves the right to alter and amend shift rotas in the light of commercial activity and by giving as much notice as is reasonably possible, to re-schedule working hours later in any working year. Such amendments will be fully accounted for in the calculation in the contracted 1824 hours.

    The working day will be of 12 hours or 8 hours or 4 hours duration, in accordance with the shift rota outlined in the Appendices."

    Provision is made in 4.6(ii) for rest day and extra hours working to be paid for in accordance with rates shown in the Appendices.

    Section 4.8 provides for holidays as follows:

    "All employees with one full year's service or more will be entitled to the equivalent of 24 days annual holiday plus 8 statutory days of holiday per year as follows:-


    Holidays are to be taken on a current year basis from 1st June to 31st May the following year. Employees joining the Company will receive an entitlement to holidays on a pro rata basis in accordance with the shift patterns to be worked. Employees leaving the Company will not be entitled to any outstanding holiday credits.

    Payment for annual holidays will be as per the standard wage and no additional payment will be made for working a statutory holiday which is rostered to be worked."

    Appendix VI deals with pay scales. It specifies the rates of pay which apply for the period 1st June 1992 to the first Monday in March 1994. The weekly rates of pay are specified in relation to five different grades of employee. It is provided in section C under the heading `Additional hours worked'

    "Any hours worked in excess of 1824 per annum will be paid at the rate of time and one half calculated on the above standard weekly wage for 40 hours."

    Submissions of the Appellant

    It was argued by Mr Glennie, on behalf of Mr Ali, that the Tribunal erred in law in not implying a term into the terms and conditions of employment which entitled his client to be paid at the standard rate for additional hours worked by him. Mr High and Mr Matthew, who appeared in person, supported those arguments.

    Mr Glennie developed a cogent argument along the following lines:-

    (1) The annualised hours scheme was structured to provide

    (a) for a working year of 1824 hours;

    (b) a standard weekly wage equating to an hourly rate and a notional 40 hour week;

    (c) for payment at an overtime rate to employees, who had worked more than 1824 hours in a year, in respect of additional hours shown at the end of the year.

    (2) The scheme did not expressly provide for any payment for additional hours to those employees who worked less than 1824 hours in a working year, because they were dismissed before the end of the year, but had been required to work and had in fact worked for more than 40 hours a week before they were dismissed.

    (3) A term should be implied into the terms and conditions of employment to provide for the situation in (2) above to the effect that, in the event of termination of the contract by the employer before the expiration of any year (ie before 31st May in any year) an employee would be paid for the hours actually worked by him in excess of the notional weekly hours up to the date of termination at the standard hourly rate specified in the contract.

    (4) Such a term should be implied either on the basis of obvious inference from the terms of the agreement and its known circumstances or on the basis that the agreement was incomplete.

    (a) Obvious inference

    Such a term must necessarily been intended by the parties, since otherwise the agreement would give rise to manifest injustice. The injustice would be that an employee might work a substantial number of hours for which he would not be paid at all, purely by reason of the date of termination of his employment by his employer. For example, Mr Ali, during the period June to October 1992 worked more than 40 hours per week. On the construction submitted by Christian Salvesen, he is not entitled to be paid for the hours in excess of 40 hours per week, but a colleague who had worked precisely the same number of hours in that period and whose employment was not terminated before the end of the year, would be entitled to be paid at the end of the year for those additional hours. The parties could not have intended to produce such a result.

    Further, without such an implied term there would also be an injustice in the case of a new employee who joined the company half way through the pay year and then worked an 80 hour week until the end of year and was then dismissed. He would then be paid the same as an employee who had worked for the whole year doing no more than 40 hours in any week throughout. It is possible to calculate payment which would be due by reference to the hourly rate specified in clause 2 of the main terms and conditions of employment, which was also used to calculate the time and a half payable to those who worked additional hours in excess of 1824 hours per year.

    (b) Incomplete contract

    The alternative argument was that the term suggested should be implied as a legal incident of a contract of employment for an hourly paid employee. This was in fact a contract for hourly paid employment (see clause 2). It is a legal incident of such a contract that an employee should be paid for the hours he has actually worked, regardless of whether his employment has been terminated.

    Submissions of Christian Salvesen

    On behalf of Christian Salvesen, Mr Wallington submitted that the Tribunal's decision was legally correct and the appeal should therefore be dismissed.

    (1) The employees' claim was made under the Wages Act 1986. There could only be an unlawful deduction from wages within the meaning of S.1(1) and S.8(2) if a sum over and above the basic weekly wage "is properly payable" to the employee under the contract on the termination of employment. It was not suggested that any such sum was payable at any other time. It was conceded by the employees that there was no express term providing for payment of such a sum. There was no unlawful deduction from the sum due to the employees under the agreement. The employees had been paid all that they were entitled to be paid.

    (2) The Tribunal was correct in holding that no relevant term could properly be implied entitling the employees on termination to payment for excess hours ie hours worked in excess of 40 hours per week. The Tribunal had refused to imply such a term on the basis of the facts set out in the skeleton argument of Christian Salvesen which were accepted by them. A written contract, such as this, embodied the intention of the parties. Nothing in the written agreement showed an intention that hours in excess of the pro rata proportion of 1824 would be paid if the employment was terminated in the course of the year. There was no provision for overtime in the agreement, save for the hours worked in the course of a completed year that exceeded 1824. There was no evidence of an intention to pay an employee for excess hours worked before the completion of a year.

    The Skeleton Argument accepted by Industrial Tribunal

    Those two basic points had been elaborated in considerably more detail by Mr Wallington in the skeleton argument presented to the Tribunal on the morning of the hearing and accepted by them in toto as reasons for dismissing the employees' claims. It is unnecessary to set out in this decision the detail of all the arguments contained in that document which concentrated on the merits of the argument, the statutory requirement of an unauthorised deduction for the purposes of the Wages Act 1986 and the contractual basis for implying contractual terms. We should, however, highlight the following points in Christian Salvesen's argument.

    (1) Merits

    The merits of the case were addressed since it was an important part of the employees' case that they had been unjustly treated by under-payment for hours worked. Christian Salvesen's response to that complaint is that annualised hours had been introduced by agreement with recognised trade unions. Substantial increases in pay, relative to the annual hours worked, were given. The point raised on these applications under the Wages Act had not been raised by either party in the two sets of negotiations which led up to the agreement. The unions had not disputed Christian Salvesen's interpretation of the agreement, either generally or in relation to particular cases. The agreement had advantages for both sides: for Christian Salvesen flexibility and the efficient use of staff in a seasonal industry; for the employees, planned working patterns, less overtime needed for a given level of pay, or a higher pay for those who did not previously work excessive overtime and steady guaranteed income. The circumstances of these particular employees were only one of a range of situations in which individuals or Christian Salvesen might argue that there was an imbalance between hours worked and pay received. The busy season was July to September. Employees joining in October were likely to be paid full pay for working less than the pro rata percentage of annual hours. There was no mechanism for "balancing the books" at the end of the year, still less for the recovery of overpayment. It was commented that it is inherent in contracts of employment involving a salary of fixed wage that there may be anomalies in the consequences of premature termination (by either party) in terms of the calculation of value for the work done by the employee in hours. It was submitted that it was for the parties to decide whether to let such losses lie where they fall or to devise a contractual mechanism for the rectification for the work/wage account. The latter option had not been chosen by the parties in this agreement. The claims made by the employees in this case were disputed on the figures. That fact ought to demonstrate that the employees were asking the Tribunal to fulfil a different function than its proper function ie to prescribe in detail the treatment of elements in the calculation of pay and in substance rewriting the agreement on those points.

    (2) Need for unauthorised deduction

    Mr Wallington emphasised that the jurisdiction of the Industrial Tribunal under the Wages Act depended on the employers having made an unauthorised deduction from wages. There had been no unauthorised deductions in these cases, because the amounts paid had been those expressly provided for in the contracts. The contracts provided for payment each week of a weekly wage. That sum was paid, less statutory deductions. The contracts also expressly provided for payment for unrostered hours in excess of 1824 a year. It was not alleged that any such hours had been worked in these cases. Accordingly, it could not be shown that there was any occasion on which the employees were paid less than was properly payable under the express terms of the contract.

    (3) Implied term

    Mr Wallington submitted that, in arguing for an implied term, it was for the Applicants to show that a term was to be implied into each individual contract, what that term was, in what circumstances it would apply and the method of calculation required to be applied. He argued that it was well established by the highest authority that a term should not be implied simply on the basis that it was reasonable to do so: see Liverpool City Council v. Irwin [1977] AC 239. The proper test was business necessity ie is it necessary, in order for the contract to work, that a term should be implied? See Mears v. Safecars Securities Ltd [1982] ICR 626. There was no business necessity to imply any term into the contracts in this case. They were workable without the implication of further terms. The amount payable to each employee was a fixed weekly wage, plus payments for unrostered hours, less deductions, in some cases, for sickness absence. The wage was payable for the duration of the contract and ceased on termination. There was no need to provide for the calculation of additional payments, since there was no need to make them. In particular, it is more difficult to establish that business necessity requires the implication of a term which is applicable only on or after the termination of the contract: Morley v. Heritage Plc [1993] IRLR 400, paragraphs 28 to 33 and 38 to 45.

    As to other possible grounds for implying a term Mr Wallington submitted that there was no evidence from which it could be inferred that the common intention of the parties was that there should be a right to payment for "excess hours" or repayment for any shortfall. The position was that the collective parties did discuss the question of what would happen at the end of the year. Christian Salvesen made it clear that there would be no additional payments unless the employee worked more than 1824 hours and no recovery from the employee worked fewer hours because shifts were cancelled or because of lack of work. The question of termination during the year and its effect on payments appears not to have been directly considered. None of the Applicants raised the question prior to accepting the new terms of employment. The matter was raised only twice by employees during extensive question and answer sessions. The answers given were consistent with there being no further terms. The answers were not followed up. Insofar as is relevant to determining the common intention of the parties at the time the contracts were made, Christian Salvesen relied on the fact that its practice had been to treat the contracts as not providing for any adjustment on termination. This has not been disputed by the unions. On a point of detail the specific provision as to holidays contained in clause 4.3 of the statement of terms and payments during sickness were inconsistent with an intention to make adjustments on termination.

    There was no basis for implying a term from custom and practice and there was no authority to support the implication of a term governing the computation of pay at the termination of the contract. It would be extremely difficult to formulate a term with sufficient precision to apply it in fact. Vagueness of a proposed term to be implied is in itself a reason for not implying it.

    In short, the case was one of the construction of the contract. On its true construction the contract provided for the payment of a wage to be paid weekly. The contract provides a figure as to what the weekly wage equates to in terms of pay per hour. That equation is necessary for computing payments for unrostered hours. There is no hourly rate of pay or weekly instalments of pay due. It is simply weekly pay. Those are the express terms and they cannot be varied by implying a term to avoid a result which is regarded as unfavourable to one party to the contract.


    We have reached the conclusion, in a case well argued on each side, that this appeal should be allowed. The Tribunal erred in law in refusing to imply a term which would entitle an employee, whose employment is terminated by his employer before the end of the pay year, to be paid the standard hourly rate, as stipulated in the terms and conditions of employment, for the hours actually worked by him in excess of 40 hours a week. We shall remit the case to the Industrial Tribunal to calculate how many excess hours were worked by each of the Appellants. In reaching these conclusions we start from the basis on which terms may be implied, as conveniently summarised in Chitty on Contracts (27th Edition) paragraph 13-006 and 13-007.

    "13-006 A term which has not been expressed may also be implied if it was so obviously a stipulation in the agreement that the parties must have intended it to form part of their contract. "Prima facie that which in any contract is left to be implied and need not be expressed is something so obvious that it goes without saying; so that, if while the parties were making their bargain, an officious bystander were to suggest some express provision for it in the agreement, they would testily suppress him with a common, "oh, of course"." A term will not, however, thus be implied unless the court is satisfied that both parties would, as reasonable men, have agreed to it had it been suggested to them. ... Further, since "the general presumption is that the parties have expressed every material term which they intended should govern their contract whether oral or in writing," the court will only imply a term if it is one which must necessarily have been intended by them, and in particular will be reluctant to make any implication "where the parties have entered into a carefully drafted written contract containing detailed terms agreed between them."

    It is also explained in the following paragraph 13-007 that a term may be implied, more as a matter of law than of the intentions of the parties, as a "legal incident" of a definable category of contract. It will not, however, be sufficient for the implication of a term that, in all the circumstances, it would be reasonable to do so or would improve the contract or make its carrying out more convenient: see 13-008.

    With these principles in mind we have reached the following conclusions:-

    (1) There are gaps in the agreement in its failure to provide for the cases of those who leave (for example, on redundancy) in the course of a year and those new employees who join in the course of a year and have worked more than 40 hours a week before the end of the pay year.

    (2) Those omissions are productive of injustice or unfairness, because the result is that the employee is not paid for all the hours that he has worked ie those in excess of 40 hours in a week.

    (3) This situation is, in our view, more likely to be the result of an oversight of the obvious by both parties than of a deliberate decision on either side to produce that result. The probabilities are that, if this had been pointed out to the parties at the time of the negotiations, they would have reached an agreement on the basis of the proposed implied term.

    (4) The background was that the annualised hours arrangements replaced an arrangement under which an employee was paid for hours actually worked, with a higher rate for overtime. The new arrangement provides for guaranteed minimum throughout the year. The employee may be requested to work in excess of the notional 40 hour week, but will not be paid for the excess until the end of the year and then at the higher rate. The structure assumes service for a full year of pay. It is silent on the question of premature termination (ie before 31st May). It is silent on the question of the employee who may be requested to work and does work 1824 hours in six months. Under the express term of the agreement, he is only entitled to be paid at the hourly rate of 40 hour week and is not entitled to be paid anything for the hours worked in excess of that.

    (5) In our view, it cannot have been the intention of the parties to the agreement that an employee should be expected to perform hours of work (for which there are hourly rates) but not be entitled to be paid for them.

    (6) We are not persuaded by Mr Wallington's criticism of the proposed implied term. Mr Wallington's argument was that the employee was only entitled to be paid for contracted hours - a 40 hour week at an agreed rate with time and a half for hours worked in excess of the contracted yearly total of 1824. There was no pro rata arrangement expressed in the contract or raised in negotiations. In our view, however, his arguments do not exclude the implication of a term on the basis of the principles summarised above. The implication of the term is not just reasonable. It fills an obvious gap in the incidental detail of the express terms affecting those whose contract is terminated before the end of the relevant year. It is necessary to imply a term to fill that gap and complete the contract.

    For all those reasons this appeal is allowed. The case is remitted to the Industrial Tribunal for calculations in each of the cases.

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