Contractual Terms Notes

Construction, incorporation and variation of terms

Subject to what has been said about the very slight normative effect of sections 1 – 4 ERA 1996, the terms of the contract will be determined by techniques of construction derived from the common law.

The approach taken to construing commercial agreements may be of little help or even positively misleading. There may be a formal offer of employment contained in a written document to which the employee is invited to assent, but even then it would be unusual for the document to constitute an exhaustive account of the contract terms. It would be usual for some terms to be implied or incorporated by reference to a number of external sources such as a collective agreement or company handbook.

The manner in which the contract is performed is also an important guide to its contents. In principle, the substance of a contract, once made, cannot be modified merely by the parties’ subsequent behaviour; contractual obligations can only be varied by mutual agreement. But this is to assume that the substance of the original agreement is completely clear- this will rarely be the case with contracts of employment. Two forms of practice will be important in construing the agreement: the custom and practice of the plant/establishment, which the parties may (nor must) be assumed to have had in mind when they contracted; and their own conduct, subsequent to the agreement which may be taken to be a guide to what they initially intended.

Incorporation of terms from collective agreements

Labour law in Britain has played a negligible role in regulating and enforcing collective agreements between trade unions and employers.

There is a statutory presumption that a collective agreement is “not to have been intended by the parties to be a legally enforceable contract”. This presumption is displaced if the agreement is in writing and contains a provision stating that the parties do intend it to have legal effect, whereupon it is conclusively presumed to be a legally binding contract.

Agreements made binding in this way are very rare. However, the non-enforceability as terms of the vast majority of agreements at the collective level does not affect their enforceability as terms of the individual contract of employment (Marley). This normative or term-setting function of the collective agreement, as distinct from its contractual function of regulating the relationship of the collective parties, finds expression through the incorporation of terms into individual contracts.

At no point has general legislation in the UK provided for automatic and compulsory effect to be granted to the normative terms of sector-level collective agreements.

In the absence of statutory regulation the issue of incorporation is dealt with by the common law, which knows no principle of automatic and compulsory effect (Dudfield). The legal basis for the normative effect of collective agreement must rest at the level of the individual contract of employment, because the collective agreement lacks the “regulatory effect” or force of law accorded to it in other systems. A number of contractual explanations for incorporation have been offered...

Agency

One possibility is that the trade union, through one or more of its officials, negotiates with the employer as agent for each individual union member as principal, with the resulting terms forming part of the contract of employment without the need for further agreement (Holland).

It is unconvincing:

(i) it is unable to account for the incorporation of terms into the contracts of employment of non- members

(ii) nor does it deal either the position of employees who either join the employment, or conceivably the union after the collective agreement has been concluded.

(iii) it would also suggest that an individual member can unilaterally revoke his authority to the union to negotiate on his behalf and in this way avoid the normative effect of the collective agreement completely. This is unlikely to reflect the intention of either the trade union or the employer. From the union’s point of view, it would be undesirable to allow the effect of the collective agreement to be fragmented by enabling non-unionists to opt out. For the employer, collective bargaining is a way of avoiding the high transaction costs involved in treating union members and non-members different and being required to negotiate individually with those who are outside the union. In practice, terms and conditions of employment are normally applied uniformly to members and non-members alike. To differentiate between these two groups may, depending on the employer’s purpose, give rise to a breach of the anti-discrimination provisions of TULRCA 1992.

There is no reason in principle why an agency agreement should not be made between a trade union and an individual member, nor is there any obstacle to an employer negotiating with a trade union on the basis that the final terms will take effect in individual contracts of employment via such agency. However, there would have to be clear evidence that these were the intentions of the parties concerned. The mere existence of the contract of membership between union and member does not authorise the former to act as agent for the latter (Boxfoldia – a union has no implied authority to terminate the employment contracts of its members by giving strike notice to their employer); something more specific is needed (Burton Group).

The bridge term

Most generally accepted basis for incorporation is that it takes place through a bridging term in the contract of employment (Hepple). The principal function of the bridge is to identify the external source from which the terms of contract are to be drawn, but it may also perform other functions: it may determine which terms are appropriate for incorporation and resolve conflicts between difference sources. Once it is present, incorporation may take effect automatically in the sense that no further...

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