Secretary of State for the Home Department & others v Cox & others  EWCA Civ 551
Judgment has been handed down in the case of Secretary of State for the Home Department & others v Cox & others.
Historically, as a result of a collective agreement made between the government and unions in the distant past, many government departments agreed that their employees were able to pay their union subscriptions by way of an arrangement known as check-off (involving the employer deducting the subscription from their monthly salary and paying it directly to the union).
Following a notice from the Cabinet Office in 2013, several government departments took the step of unilaterally removing the check-off mechanism between 2014 and 2016. Following this removal, various employees in each of the relevant government departments have brought claims of breach of contract. They have been supported by their union, PCS. PCS has also brought its own claim against each government department seeking damages for the loss of membership subscriptions it sustained because of the employers’ breach of contract, pursuant to the Contract (Rights of Third Parties) Act 1999 (‘the 1999 Act’).
At first instance in claims against the Home Office, DEFRA and HMRC, the individual employees were successful in establishing a contractual right to check-off and in resisting an argument by the government departments that they had impliedly agreed to the removal of check-off or otherwise waived the breach. PCS was also successful in its claim under the 1999 Act, with the judges at first instance (Choudhury J in the cases of Cox v Secretary of State for Home Department  EWHC 1136 (QB) and Crane v Secretary of State for DEFRA  EWHC 690 (QB), and Freedman J in the case of Smith v Commissioners for HMRC  EWHC 3188 (KB)) considering that the government departments had not rebutted the presumption under s.1(2) of the 1999 Act so as to show that the parties did not intend the check-off term to be enforceable by a third party.
The government departments appealed to the Court of Appeal in each case contending that:
The Court of Appeal unanimously rejected the first ground of appeal. By a majority of 2:1 (with Underhill LJ and Lewis LJ in the majority and Stuart-Smith LJ in the minority), the Court of Appeal allowed the second ground of appeal. They also allowed the third ground of appeal to the extent of holding that further facts needed to be established.
This note considers the first and second grounds of appeal in more detail.
Although the factual context differed slightly in each of the cases before the Court of Appeal, the key facts were as follows in each case:
The government departments argued on appeal that the fact that individual employees continued to work for their employers, with no protest by them or the union, for a period of years after the removal of check-off resulted in implied acceptance/waiver of the removal of check-off. Further, they relied on the fact that the employment relationship was a continuing relationship subject to good faith such that it would be appropriate to infer that a failure to complain about a proposed variation of the contract for the future amounted to agreement to the variation. They further relied on the lack of action by the employees after the judgment in Cavanagh or the agreement on damages in 2018.
The Court of Appeal unanimously rejected these arguments, holding that:
Thus, in practice, if employees (individually or collectively) object to a contractual change prior to or at the time of the change, the mere passage of time for years thereafter will not, without more, turn an unequivocal rejection of the change into an unequivocal acceptance. Clearly, however, much will depend on the facts of an individual case, including how the change is presented to employees, and the nature of the contractual change being imposed.
Whether the parties intended the check-off term to be enforceable by PCS
Section 1 of the 1999 Act provides (relevantly) that:
(1) Subject to the provisions of this Act, a person who is not a party to a contract (a “third party”) may in his own right enforce a term of the contract if— …
(b) subject to subsection (2), the term purports to confer a benefit on him.
(2) Subsection (1)(b) does not apply if on a proper construction of the contract it appears that the parties did not intend the term to be enforceable by the third party.
It was common ground that the check-off term in the contracts of employment did purport to confer a benefit on PCS.
The government departments argued, however, that there was no intention for PCS to be able to enforce the right to check-off under section 1(2) of the 1999 Act, given that the right to check-off derived from a collective agreement unenforceable by the union. The union, by contrast, argued that since the intentions that matter are those of the parties to the employment contracts (employer and employee), no intention could be construed from the contract of employment that they did not intend the union to be able to enforce the check-off term.
Underhill LJ and Lewis LJ agreed with the government departments, holding that:
(1) While there is a rebuttable presumption established by s.1(2) of the 1999 Act, it is unlikely that this will materially affect the outcome in a particular case as courts will be in a position to determine whether, on a true construction of the contract, the term was or was not intended to be enforceable by the third party (paras 75, 117 of the judgment).
(2) The question is what was the common intention of the parties, objectively ascertained, on a proper construction of the contract (paras 76, 118 of the judgment).
(3) The collective agreement was a relevant factor. Underhill LJ and Lewis LJ relied on the fact that rather than being a situation where the parties to the contract were seeking to confer a benefit on a third party, the situation was the reverse as the third party and the employer had agreed that benefits should be conferred on the employee and the contract of employment incorporated the relevant provisions of the collective agreement (para 82 of the judgment). Underhill LJ went further and considered that decisive point was that there was no intention for PCS to be able to enforce the collective agreement, and this was not altered by the fact that the collective agreement was incorporated into the contract of employment. He also considered that the intention of the union negotiators in making the collective agreement should be attributed to the individual employees (para 120 of the judgment).
(4) The wording of the contractual term, which also provided for the deduction of money for payment to other specified bodies, was important. It was the offering of a facility to employees rather than the provision of a sum of money to a named beneficiary (para 83 of the judgment).
(5) The provision could not have been intended to be enforceable by all of those to whom deductions from salary were to be paid (such as lotteries or social clubs) (para 86-88 of the judgment).
By contrast, Stuart-Smith LJ in the minority considered that:
(1) The consequence of the fact that the contractual term to check-off purported to confer a benefit on PCS means that there is a rebuttable presumption that PCS was entitled the enforce the term (para 105 of the judgment).
(2) There was no basis for implying a term to the effect that the rebuttable presumption was excluded on the facts of these cases (para 106 of the judgment).
(3) The fact that the check-off obligation was not enforceable by PCS while it remained in the sphere of being merely the product of a non-enforceable collective agreement says nothing about whether the employers and employees intended that it should not be enforceable by PCS once the parties had chosen to include it as a contractual obligation which purported to confer a benefit on PCS (para 108 of the judgment).
(4) There was nothing in the terms of the contract that indicated a joint intention by the parties that the obligation should not be enforced by PCS (para 109-115 of the judgment).
As the only appellate authority with full reasoning on the correct interpretation of s.1(2) of the 1999 Act, and one of very few authorities on the appropriate interpretation of the 1999 Act generally, this judgment may be of wider interest for some time.
PCS will be seeking permission to appeal the s. 1(2) finding to the Supreme Court; and the government departments may seek to cross-appeal the finding on variation/waiver.
William Meade (Senior Clerk)