Appeal No.	 EAT/1164/96

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
	On 13 February 1997

Before
THE HONOURABLE MR JUSTICE MORISON (P)
MR D J JENKINS MBE
MR R N STRAKER

MISS E BURKE	APPELLANT

ROYAL LIVERPOOL UNIVERSITY HOSPITAL
NHS TRUST	RESPONDENTS

Transcript of Proceedings

JUDGMENT

Revised

	APPEARANCES

For the Appellant	MR D BERKLEY
(of Counsel)
Thompsons
Richmond House
Rumford Place
Liverpool
L3 9SW	
For the Respondents	MR J BOWERS
(of Counsel)
Hill Dickinson
Davis Campbell
Pearl Assurance House
Derby Square
Liverpool
L2 9XL	

	MR JUSTICE MORISON (PRESIDENT):     This is an appeal from a Reserved Decision of an Industrial Tribunal held at Liverpool and the decision is contained in writing in a document which was sent to the parties on 9 September 1996.  It was for the parties an important matter as the complainant was one of 102 Applicants who are, and I quote from the Tribunal decision, “making common cause against their former or present employer, Royal Liverpool University Hospital NHS Trust”.

	The complaint was made under Section 1 of the Wages Act 1986.  It was the allegation of this complainant and all the others, that the Trust had made unlawful deductions from their wages.  Section 1 of the 1986 Act is reproduced in Section 13 of the consolidating statute, the Employment Rights Act 1996.

	For the background to this judgment, we are content to cite passages from the Industrial Tribunal’s decision with the Extended Reasons.  Miss Burke was one of 102 Applicants.  She was employed by the Trust as a domestic worker, within the Trust’s Domestic Services Department.  That department was an identifiable part of the Trust’s undertaking.  The terms of her employment were regulated by reference to a collective agreement, the “Whitley Council” agreement.  In respect of the Domestic Services function, there were 2 recognised trade unions, namely the GMB and what was then called NUPE.

	In April 1993, Miss Burke was working under a contract which contained less good terms and conditions than had applied previously, as a result of her signing terms and conditions which had been presented to her in January of that year.  It was her case that it was not lawful for the employers to be paying her less remuneration than previously she had been receiving and therefore made a complaint in May 1993 that unlawful deductions were being made from her wages.  

	The position over her terms and conditions of employment is that she was working subject to Whitley Council terms and conditions; that is a national forum for the negotiation of terms and conditions of employment.  But secondly, the recognised unions had negotiated an agreement called the “Liverpool Agreement” under which hospitals in that area, in respect of which the agreement was made, agreed not to seek outside tenders in consideration of various local arrangements relating to the employees’ terms of employment.  

	The third layer of the terms and conditions of employment structure was that, in addition to the national bargaining and the Liverpool Agreement, there were, from time to time, local negotiations carried on between the individual employers and, in this case, the GMB and NUPE, as bargaining agents on behalf of those in the bargaining unit, whether or not those within the unit were members of the unions.

	The Liverpool Agreement, which effectively tied the hands of the employers from seeking contracting-out arrangements, was due to come to an end on 1 April 1993.  This case is concerned with discussions and arrangements leading up to a change in that position and in particular, the question whether a collective agreement made between the two unions and the employer resulted in the incorporation into the individual’s contracts of employment new terms and conditions, which were less favourable than those which they had previously enjoyed.  

	The facts were largely not in dispute, as one would have imagined in a case such as this, and the Tribunal were provided with documentation of which we have seen part.  It would appear that on 13 July 1992, the employers informed their staff that there would be invitations issued to external contractors to tender for certain ancillary services with effect from 1 April 1993.  That letter contained this paragraph, and I quote:

“In view of this decision, management will be inviting your representatives to actively participate in the preparation of an in-house bid, which if successful will allow for the continuation of the internal provision of services.  Management are cautiously optimistic that with the full co-operation of staff and their representatives it will be possible for very competitive internal bids to be submitted.”

	On 24 September 1992, the hospital wrote to Mr Henry of the GMB, a full-time official, saying:

“Further to our many discussions over the last few weeks, I am now writing to you formally to confirm my view that we have reached a broad understanding in principle about the pay and conditions of service package that will allow us to submit competitive in-house bids for those services subject to competitive tendering.  In making this statement I acknowledge that at this juncture you have made no commitment on behalf of your members to accept the proposed package.  ...”

	With that letter the proposed pay and conditions of service were enclosed.  The last paragraph of the letter reads:

“In conclusion, I should be grateful if you would let me know whether in the circumstances you are prepared to accept that the pay and conditions proposed are the best achievable and most practical, having regard to the need to ensure that in-house bids, supported by both management and staff side, are to have some chance of success.  ...”

	It would appear, as the Tribunal noted, that there was no written response to that letter.

	In November 1992, a mass meeting of those in the relevant bargaining unit took place and it appeared to be the evidence before the Industrial Tribunal that the proposal that they should accept a reduction in terms and conditions of service so as to enable a competitive bid to be put in, was met with substantial approval from those who were present at that meeting.

	On 14 December 1992, a Joint Information Forum Meeting took place, which was attended by representatives of a number of organisations, including Mr Henry, on behalf of GMB and Mrs McGowan on behalf of NUPE.  Something was said during the course of that meeting to lead management to believe that there was a risk that the understanding that they thought they had arrived at with the unions (namely their agreement to the staff accepting a reduction in their terms and conditions were their bid to be successful) was being watered down or amended in one way or another.  Accordingly, following that meeting, on 15 December 1992 the hospital wrote to Mr Henry, the Branch Secretary as follows:

“Further to our discussion following the Joint Information Forum Meeting yesterday, I write to confirm management’s position with regard to the present competitive tendering exercise.  Despite the confusion regarding the application of the Transfer of Undertaking Regulations, there is no question of management postponing the competitive tendering programme.  In the circumstances I must now ask you to confirm in writing by no later than 21st December 1992, that it is your intention to honour the in-house bids in the event of them succeeding.  You will appreciate that if any of the in-house bids succeed the consequent changes to the pay and conditions of staff will constitute a voluntary change.  This being the case the uncertainty regarding the application of the Regulations will not be an issue.  Unless I receive your written confirmation by the 21st December I will have no alternative but to assume that you are withdrawing support for the in-house bids.
As I explained to you, I believe my request for written reassurance about your continuing support for the in-house bids is reasonable in the circumstances.  Nevertheless, I acknowledge your right to seek further legal clarification relating to this matter and if it transpires that the Trust’s conditions inadvertently transgress current legislation then they will be legally null and void.”

	The response the next day, dated 16 December from Mr Flanagan, the Regional Organiser for the GMB, was as follows:

“I am taking this opportunity to respond to the letter you wrote on 15 December 1992 to Mr Henry.  I accept your comments regarding our need to confirm our intentions to honour the understandings which you reached regarding the in-house bids.  GMB will, if the in-house bid is successful, conform to those agreements and working arrangements from the cessation of the Liverpool Agreement.
I would, however, inform you that it is GMB’s intention to seek clarification of our members’ position regarding the Transfer of Undertakings Regulations and their contractual entitlements under the Employment Protection Act/Contract of Employment Act.  If it is apparent that there is a claim which should have been considered because of previous legislation, then we will, in all instances, pursue the claims vigorously.
Finally, I do recognise that you understand our position and your final sentence acknowledges that there could be an error of interpretation within the existing conditions of your employees which would be put right if this is confirmed in the future.”

	Following that exchange of correspondence, in January 1993 the employers sent to each of the members of the bargaining unit a letter enclosing the new and varied terms and conditions of employment.  

	In the accompanying letter they said this:

“You will be aware that implementation of the successful in-house bid for the Domestic Service is dependent on all staff remaining in the Trust’s employment accepting new Terms & Conditions of Employment.  These new arrangements effective from 1st April 1993 were agreed with your representatives, and accepted by the vast majority of staff prior to the in-house bid being submitted.  The new Terms & Conditions therefore represent voluntary change as opposed to unilateral imposition.”

	It then continues:

“  ...Your new contract is therefore enclosed with this letter, and the new Terms & Conditions will be effective from 1st April 1993.”

	It is to be noted that there was no evidence before the Industrial Tribunal that the union took any exception to the letter which was sent, to which I have just referred, and nor of representations being made to staff or management that no new contract should be signed before 1 April 1993.

	At the Industrial Tribunal a number of people gave evidence.  Their statements of evidence had been helpfully provided in written form, prior to the hearing.  It was Mr Henry’s evidence, contained in his written statement, that he made it clear that if it was subsequently determined that a transfer to an outside contractor would have been a relevant transfer, then the domestic staff would revert back to their previous terms and conditions.  He pointed out that they had a mandate from the staff to agree to the changes, but because they were uncertain about the application of the Regulations they were in a very difficult position.  It was therefore agreed and I quote:  

“...that we would continue to support the inhouse bid, but this was on the basis agreed at the meeting on 14th December.  The final sentence of the letter from Mr Tyndall in my view confirms his understanding that if the Trust’s view of the situation was wrong then the terms and conditions which have prevailed before the inhouse bid would be restored.”

	He then said that he arranged for his members to complete application forms to the Industrial Tribunal.

	Mr Flanagan’s statement was to this effect:

“I discussed the situation with Mr Henry and agreed to write to the Trust on behalf of all of the unions.  At the meeting on 14th December 1992 an agreement had been reached between the Trust and Mr Henry.  This was that in the event that it was subsequently determined that the contracting out of the domestic service to a private contractor would have been a relevant transfer, then the workforce would not be bound by the variations in terms and conditions of employment.  ...”

	In addition to that evidence the Tribunal also had evidence from two Applicants and from a representative from the employer.  In relation to Mrs Smith herself, she said this:

“I commenced work at the Royal Hospital in 1979 as a domestic employee.  I worked continuously until 1992 when I recall discussions taking place about possible tendering of the domestic service to a private company.  I know that the trade union representatives were discussing a bid with management to try to keep the domestic service inhouse.  We wanted to stay as employees of the Trust, and our concerns related to terms and conditions of employment under Whitley Council, and in relation to the pension.  Towards the end of 1992 a final bid was advised to all workers at a mass meeting and acceptance of the bid was confirmed.
We know that by accepting the bid there would be a reduction in our terms and conditions, but we were being represented in the discussions by our union.  I was a member of NUPE at the time and the discussions were conducted by representatives of NUPE and GMB.”

	She comments about the new terms and conditions and continues:

“  ...Despite these things the workers felt that there was a risk in going to a private contractor.  This risk applied in relation to the terms and conditions which would be offered, and also there was no certainty that we would even be offered a job by a contractor.  In the early part of 1993 I remember being told that the new terms would be introduced as from the end of March 1993.”

	Mrs Hazelhurst, another Applicant, said:

“  ...  We wanted to stay as employees of the Trust, and our concerns related to terms and conditions of employment under Whitley Council, and in relation to the pension.  Towards the end of 1992 a final bid was advised to all workers at a mass meeting and acceptance of the bid was confirmed.”

	Then, she makes the same points as Mrs Smith had done.

	Accordingly, on the basis of that evidence, the Industrial Tribunal had to address their minds to a number of different questions and (if we may say so) in a clear and concise decision, they have set out the reasons for their conclusions and their reasoning process.  At paragraph 17 they comment on the meeting which took place on 14 December 1992; indicate that the union’s view was that whoever became responsible for the service in April there would be a relevant transfer within the Regulations, and the new employer, whether an outside contractor or the in-house management, would be obliged, by law, to offer terms no less favourable than those employed by the employees before transfer.  The Trust believed precisely the opposite.  In fact, neither was correct.  The Regulations would apply if an outside contractor won the contract, but not if the in-house bid succeeded.  The union sought to delay the process of tendering but were unsuccessful.

	Between paragraphs 29 and 46 they ask themselves the question as to whether the reduction in wages in April 1993, took effect by way of a consensual variation to the contract of each Applicant.  For the Applicant, it was contended that the reduction had been by way of a unilateral variation unaccepted by her.

	The Tribunal examined that issue, as I say, between paragraphs 29 and 46 and came to the conclusion that an agreement had been entered into, as evidenced by the two letters of 15 and 16 December, to which I have referred.

	In relation to the evidence which was given to them, as to what had been said and what was allegedly agreed on 14 December, the Industrial Tribunal said this at paragraphs 33 and 34:

“33.  The primary submission on behalf of the applicant was that an agreement did, indeed, come into effect at that time between the Trust and the unions, providing for reduced wages for the relevant employees if the bid were successful.  However, it was claimed that that agreement was subject to a condition or proviso, namely that if it should be determined that the proposal to engage external contractors would constitute a relevant transfer within the regulations, then the variation brought about by the agreement would be ineffective.
34.  That agreement had been reached, it was claimed, at the meeting(s) on 14 December, evidenced in the subsequent exchange of correspondence.  We do not believe that was the case.  There was no convincing evidence before us that the subject of such a condition was raised at all at those meetings, much less agreed to by the Trust.  Indeed, we do not believe what happened on that day can be construed as any sort of agreement at all.”

	It follows, therefore, that the Industrial Tribunal, as was their entitlement, expressly rejected that part of the evidence of Mr Henry and Mr Flanagan, which sought to say that there had been an express agreement containing the proviso for which they were contending at 14 December Joint Forum to which we have referred.  That is not a finding which this court can interfere with.  They were the judges of fact, not us; and they were entitled on the facts to arrive at that conclusion.  That being so they then had to consider whether there was any collective agreement, which had the effect of incorporating new terms and conditions into the employees’ contracts of employment.  As I have indicated, their decision was that the letters of 15 and 16 December had that effect.

	In his capable submissions presented to us, Mr Berkley, on behalf of the Union, has made a number of points.  In the first place, he says that there is evidence that the Tribunal misdirected themselves in law as to the burden of proof.  It is the contention made by Mr Berkley that the burden of proof remained throughout on the employer.  He says that if one looks at paragraphs 39 and 57 of the decision, there are grounds for thinking that the Industrial Tribunal may have wrongly assessed where the burden of proof lay and, in any event, they have not directed their attention to this issue in their decision.

	In relation to that submission, Mr Bowers contends that the burden of proof, on the facts of this case, essentially lay upon the employees.  Section 27(1) of the 1996 Act defines wages in such a way that, if one looks at Section 13(1) of the Act, what the court is concerned to do is to see whether the employer has made a deduction from the sums payable to the worker in connection with his employment.  Mr Bowers says that it was plain that the sums payable to the worker, in connection with his employment, were the sums which were payable under the new contract which the employees had expressly signed.  If it was their case that the new contract itself did not properly reflect the true agreement between the parties, the evidential burden fell upon them to make good that contention.  And he says, in those circumstances, that the burden of proof on the facts of this particular case, lay upon the employee and not the employer.

	We find the question as to where the burden of proof lies in a case such as this, not entirely easy, and we are not in the slightest bit surprised that the Industrial Tribunal did not direct their attention to that issue.  It seems to us that they were not required to do so.  They were required to adjudicate upon the issue between the parties and only where they were having difficulty in deciding where the truth or the decision lay, should they have had recourse to the question of the burden of proof.  

	In this case, as we read their decision, they were quite clear as to what the conclusion was and therefore, it does not seem to us to matter on whom the burden of proof lay in this particular case.  The result was the same whichever way round the burden lay.  If it was regarded as relevant for any future case, I can add that we would all have thought in this case, having regard to the fact that each employee signed the new contract, that Mr Bowers was probably right in his submission that the evidential burden lay on the employees to say why it was that that agreement should no longer govern their terms and conditions.  If that is right, they were paid in accordance with what was prima facie payable unless the employees are able to establish a wrongful reduction or deduction.

	The second submission was that, in effect, the Tribunal erred in their conclusion that the letters of 15 and 16 December were capable of constituting a collective agreement between the unions and employers.  A number of points were taken.  First of all, it was said that the language was exhortatory rather than dictatory; that it was not the language of offer and acceptance; that there was no consensus and the parties were not ad idem and that if one looks at the letters and construes the language of them, it is plain that the union, at any rate, read more into the proviso than the employers had conceded.

	It seems to us (with great respect) that the court should not be looking for contractual language of the sort which lawyers demand in commercial agreements.  They should not be looking at collective agreements in the eyes of a lawyer.  Collective agreements are not legally binding as between employer and union.  Custom and practice plays a considerable part in the way that these arrangements are made, and this court has had the benefit of advice from my two lay colleagues on this matter.  They are both clearly of the view that these letters evidence, and clearly evidence, a concluded agreement of the sort that one would expect in the industrial context of a collective agreement between a willing union and a willing employer.  It seems to me, as a lawyer, that simply looking at the letters themselves there is ample scope for construing them as creating and confirming a specific agreement.  The letter of 15 December asked confirmation, in writing, “that it is your intention to honour the inhouse bids in the event of them succeeding”.  That confirmation was specifically given in the letter of 16 December.  It seems to me that all the elements necessary to create an agreement of this sort were there.

	The fact that the language was exhortatory is not in the least bit surprising.  I am advised by my two colleagues that the language used here is quite typical of collective agreements of this sort and is certainly not inconsistent with it.

	As to whether there was any contractual intention, we would respectfully suggest that this submission needs to be looked at with caution.  Contractual intention, or an intention to create legal relations, is not a concept which fits happily with collective agreements, which are not legally binding and never were intended to be legally binding.  Be that as it may, it seems to us, that the highest this point can be put is that there must be a mutual intention on the part of the employers and employees’ bargaining agents, to enter into a collective bargain, the effect of which will be to modify the contracts of employment between employer and employee.  In that sense we have no difficulty in concluding that it was the intention of the union and the employers to make a binding agreement in the sense that, once made, the agreement would be incorporated into the employees’ contracts of employment.  Accordingly, we reject the suggestion that there was no contractual intention.

	Then, it was said that there was a lack of consideration for this agreement.  Again, that needs to be looked at in the context of a collective agreement which itself, is not legally binding.  It seems to us that, having read the passages from the employees’ own evidence, which was presented to the Industrial Tribunal, it is plain that there was consideration for a reduction in their wages.  There was a real fear as to what would have happened to them had their bid not succeeded.

	The last point that was taken was on incorporation.  The Tribunal dealt with the question of whether, if there had been an agreement, there was incorporation in paragraphs 47 to 50 of their decision.  Counsel criticises the brevity with which the Industrial Tribunal deals with the question of incorporation in paragraph 50 where they say:

“50.  The written contract of employment makes no express reference to the collective agreement.  The covering letter with it however, does.  In any event, agreement had been reached with the trade unions recognised for purposes of negotiation in respect of the domestic services function.  The Trust were entitled to believe that incorporation would automatically take effect without any more express reference and we believe it did.”

	It seems to us that the brevity with which they expressed their decision was simply a reflection of their certainty about the outcome on that point.  Having regard to the fact that, within the bargaining structure to which we referred at the outset, there was scope for local agreement to be made between employers and recognised bargaining agents, namely the two unions concerned, it would be difficult to imagine a position in which either the employer or the trade unions would wish to say that any such collective agreement was not incorporated into the employees’ terms and conditions of employment.

	That being so, as it seems to us, the Tribunal were entirely right to conclude as they did and to dismiss the Applicants’ claim, but before leaving the case we would wish to indicate that we, ourselves, have considerable sympathy with the trade unions’ position.  In this particular case, they were of the view, rightly as it turned out, that had the contracting-out process taken place, the Transfer of Undertakings Regulations probably would have applied, in which case the employees’ terms and conditions of employment would, by virtue of the Regulations, have had to have carried across to the transferee.  

	On the other hand, at the time when all these negotiations were taking place, that position was by no means as clear as it might seem to be now.  There was a real possibility, in the minds of everybody at the time, that the Regulations would not apply to a transfer in the circumstances with which we are concerned, in which case the employees would not have had that protection.  Furthermore, even if the Regulations had applied, it was clear from the requirements of the in-house bid that it was most unlikely that any outside contractor would have been able to fulfil the obligations of the contract with the Trust, by employing all the staff who transferred across to it at the rates of pay and on the terms and conditions which they enjoyed, but for the change which was effective as from 1 April 1993.  

	In those circumstances, what has happened is that the employees have exchanged, in some sense, the pay which they otherwise would have received, for a greater sense of security in their employment with the Trust.

	Furthermore, there is a curiosity, as it seems to us, about the application of the Transfer of Undertakings Regulations.  An in-house bid would appear not to be covered by the Regulations because technically the identity of the employer does not change.  Therefore, the Transfer Regulations could not apply to it.  If that is right, then the transfer to an in-house bidder, or the existence of an in-house bidder, enables one party, and one partly only, to seek to negotiate changes to the employees’ terms and conditions of employment, whereas all the outside bidders would be prevented from doing so by virtue of the application of the Regulations.  This is a curious result, as it seems to us, but we are not prepared to make any judgment about it in terms of the application of the law.

	In these circumstances we shall dismiss the appeal and just express our thanks to Counsel for their assistance.