Appeal No. EAT/751/93

	EMPLOYMENT APPEAL TRIBUNAL
	58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

		At the Tribunal
		On 9th June 1994
	Judgment delivered on 21 July 1994

	Before

	THE HONOURABLE MR JUSTICE MUMMERY (PRESIDENT)

	MR A C BLYGHTON

	MR K M HACK JP

MR T L DAVIES, MR C M HEWITT, MR J P ROBERTS	APPELLANTS

HOTPOINT LTD	RESPONDENTS

	Transcript of Proceedings

	JUDGMENT

Revised

	APPEARANCES

For the Appellants	MR B LANGSTAFF QC
Messrs Rowley Ashworth
Solicitors
247 The Broadway
Wimbledon
LONDON SW19 1SE

For the Respondents	MR J PARKIN
(of Counsel)
Messrs Cobbett Leak Almond
Solicitors
Ship Canal House
King Street
MANCHESTER M2 4WB

MR JUSTICE MUMMERY (PRESIDENT)           This appeal turns on the construction of guaranteed pay and short time working provisions contained in a collective agreement made in January 1984 between Hotpoint Ltd and representatives of three Trade Unions - the Amalgamated Union of Engineering Workers (Engineering Section), the Transport and General Workers Union and the Electrical, Electronic Telecommunications and Plumbing Unions.  The relevant provisions repeat similar terms in a national agreement made in 1964 between the Engineering Employers' Federation, of which Hotpoint was then a federated member, and the Confederation of Shipbuilding and Engineering Unions.

	The result of this appeal will, we are told, affect many workers in the electrical industry in addition to the Applicants in this case and other employees at Hotpoint.

	The crucial point of construction arises in the context of proceedings under the Wages Act 1986 ("the 1986 Act") brought by a number of employees of Hotpoint at the Llandudno Junction factory in North Wales.  The terms of the collective agreement had been incorporated in the individual contracts of employment.

	The Industrial Tribunal held at Prestatyn on 15th June 1993 decided, for Full Reasons notified to the parties on 10th August 1993, that Hotpoint was entitled, under the terms of the 1984 Agreement, to introduce short-time working and to pay wages less than the guaranteed minimum prescribed in the 1984 agreement without obtaining the approval of the relevant Trades Unions on behalf of the employees.  The consequence of the Tribunal's construction of the agreement was that there had been no unauthorised deductions by Hotpoint contrary to S.1 of the 1986 Act.  The employees had not been paid less than the total amount of the wages properly payable by Hotpoint to them.  There was, therefore, no deficiency which could be treated, for the purposes of the 1986 Act, as a deduction made by Hotpoint from the workers' wages: S.8(3) of the 1986 Act.

	The Tribunal dismissed the applications.  The Applicant employees appeal by Notice of Appeal dated 16th September 1993 on the ground that the Tribunal erred in law in the construction of the 1984 agreement.

The Terms of the 1984 Agreement

	The 1984 agreement contained the following relevant provisions:
		"2.2a  All hourly rated manual workers employed by the Company for not less than four weeks shall be guaranteed employment for five days in each normal pay week.  In the event of work not being available for the whole or part of the five days, employees covered by the guarantee will be assured earnings equivalent to their time rate for 39 hours as defined in the National Agreement currently in force.

		 2.2b  This guarantee is subject to the following conditions:

		...

		(ii)  Where approved short time is worked as an alternative to redundancy, or in the case of a holiday recognised by mutual agreement, custom or practice, the guarantee shall be reduced proportionately."

	It was established by these terms, explained in "Agreed Notes" in 2.2c, that there was a guarantee that hourly paid workers would receive not less than 39 hours' pay in respect of any week, irrespective of the hours actually worked.  This was subject to the condition, inter alia, that the guarantee would be reduced proportionately where "approved" short time was worked as an alternative to redundancy, eg where there was a reduction in demand.

	The issue of construction is this: whether Hotpoint needed the approval of Unions on behalf of the employee Applicants to the proportionate reduction of the guarantee in the event of short time working.

	On the one hand, Hotpoint argues that it has the contractual right to introduce short term working without the approval of the Trades Unions on behalf of the employees and therefore has the right to pay them less than the guaranteed wages.  Hotpoint can suspend the guarantee in the event of bringing short time working to avoid redundancy.

	On the other hand, the Applicant employees argue that Hotpoint is not entitled to suspend the guarantee or reduce the amount of it without the approval of the Trades Unions on their behalf.

	The Tribunal accepted the argument of Hotpoint.  They stated that they had "not found the case easy.  On balance, we prefer the arguments of the Respondents."  The question on this appeal is whether, as a matter of law, the Tribunal were right in doing so.

The Facts

	The facts which gave rise to the dispute were few.  Hotpoint had a history of short time working over many years in order to respond to cyclic market trends and avoid over stocking and redundancies.  In 1992 there were a number of occasions when Hotpoint decided that there was a need for short time working.  There was also a proposal for compulsory redundancies.  The Company had high stock levels.  It needed to reduce them, as it was in a critical and dangerous economic position.  Hotpoint did this by a combination of redundancies, both voluntary and compulsory, and short time working.  Evidence before the Tribunal illustrated the dramatic effect of short time working on stock levels.

	In July 1992 Hotpoint proposed short time working and redundancies of 120 semi skilled staff.  The Tribunal commented  (paragraph 7) -
		"This became too much for the union and the workforce to bear and it was clear that they were not happy with that situation and were not prepared to consent to the short time working.  Indeed, earlier on in May 1992, they had objected to the short time working then. ..."
The Tribunal referred to an exchange of correspondence dealing with the proposed redundancies and setting out the arguments on construction relied on by each side.

General Principles of Construction

	On behalf of the Applicant employees Mr Brian Langstaff QC asserted and Mr Parkin, on behalf of Hotpoint, accepted that the following general principles of construction of contracts are applicable
	(1)	The contract should be construed in accordance with the intention of the parties, as expressed in the contract itself, read as a whole and objectively in the context of its factual matrix, genesis and aim: Prenn v. Simmonds [1971] 1 WLR 1381, 1385; and Reardon-Smith v. Hansen Tangen [1976] 1 WLR 989.

	(2)	The acts and declarations of the parties, occurring before or after the contract was entered into, are inadmissible to construe the contract: Hooper v. BRB [1988] IRLR 517.

	(3)	The Tribunal should adopt a construction which gives effect to all the words of the contract and, if possible, avoid a construction which makes contractual words otiose or produces absurd consequences.

	There was also common ground between Mr Langstaff and Mr Parkin on the relevant principles of employment law which form the background to the negotiation of the collective agreement:-
	(1)  It is for an employer to decide whether or not there should be short time working. That is a management decision which cannot be dictated by the employees.

	(2)  An employer will, however, act in breach of contract if he decides to begin short time working, without maintaining normal pay, unless he does so with the prior agreement or acquiescence of the employees affected by that decision: Devonald v. Romer [1906] 2 KB 728; Johnson v. Cross [1977] ICR 872 at 875 and Neads v. CAV Ltd [1983] IRLR 360 at 366.

	(3)  An employee will act in breach of contract if he absents himself from work, unless he is either sick or does so with the prior agreement or acquiescence of his employer: Rigby v. Ferodo [1988] ICR 29.

Submissions of Hotpoint

	Mr Parkin relied on the Tribunal's decision as accurately summarising Hotpoint's arguments.  He supported the Tribunal's conclusion by emphasising the following particular points.
	(1)	The construction favoured by the Tribunal gave a workable effect to the individual contracts of employment.  The result was not absurd.

	(2)	The drafting of the collective agreement drew a clear distinction between, on the one hand, the use of the word "approved" and, on the other hand, the use of the word "agreed" as illustrated extensively in other parts of the agreement.  The word "agreed" was not used in 2.2b(ii).

	(3)	A Procedure for the Avoidance of Disputes contained in clause 1.2 and 1.3 of the collective agreement could, in the absence of any express mechanism for determining whether short time working should be introduced as an alternative to redundancy, allow the raising of a grievance as to the genuineness of the implementation of short time working "as an alternative to redundancy".  The grievance procedure would provide a safeguard against an employer who tried to side-step the guarantee and render it ineffective in circumstances where short time working could not properly be regarded as an alternative to redundancy.

	We do not find these arguments as convincing as those advanced by Mr Langstaff QC in support of his submission that the Tribunal preferred a construction which was not the true one and accordingly erred in law.

Submissions of the Appellants

	The essence of Mr Langstaff's  submission for the Appellants was thinly concealed in his formulation of the issue which he submits is determinative of this appeal: does the expression "approved short time" in clause 2.2a refer to 
	(a)  approval by the employer? or
	(b)  approval on behalf of the employees?
He emphasised the issue is not whether short time working can be imposed by Hotpoint management.  There is no issue on that.  It is common ground that it can be.  The issue in the applications under the Wages Act is whether, in consequence of its imposition of short time working, Hotpoint is entitled to pay to the Applicants less than their full guaranteed pay.

	In our judgment, the following submissions made on behalf of the Appellants demonstrate that the 1984 agreement, correctly construed, requires approval on behalf of the employees before Hotpoint is entitled to pay them less than the guaranteed wage.

	(1)  The context of the collective agreement is a guaranteed minimum  wage negotiated between management and the Unions on behalf of the workforce.  If the guarantee is to have any substance, it cannot have been the intention of the parties that it should depend solely on the unilateral decision of the employer to abandon the guarantee by deciding on short time working.

	(2)  The common law background to the conclusion of the collective agreement is that employees must consent to, or acquiesce in, short time working if it is to result in a reduction of pay guaranteed for the working week.  On the argument advanced by Hotpoint the Unions have surrendered the right of their members to withhold consent to pay reductions as and when proposed, without any corresponding advantage for them.  The contract itself does not contain any express provision for such consent or acquiescence by conferring on Hotpoint a unilateral right to pay less than a working week's pay.

	(3)  The collective agreement does not provide any express machinery for determining whether the employers' proposal for short time working is genuinely an alternative to redundancy.  On Hotpoint's construction it would be all too easy for an employer to make the proposal and difficult for the employees to challenge it, thereby enabling an employer to side-step and nullify the guarantee.

	(4)  The use of the word "approved" indicates, as a matter of ordinary English, a requirement of the consent or agreement of someone other than the person making the decision to be approved.  "Approved" means "agreed to", "agreed by", "consented to", "confirmed or sanctioned" usually in the context of approval by one person in relation to the action, words, products and so on of another person.  A self-approving action or decision is theoretically possible, but is hardly likely in this context.  The word "approved" is redundant if it means "approved by the employer".

	(5)  Other provisions in the agreement demonstrate overall a consensual approach to the resolution of mutual problems rather than an intention to put one side in a position to dictate to the other.  Approval of the Trades Unions to the short time working, rather than approval by the employer of his own decision, is more consistent with that approach.

Conclusion

	For all those reasons we have reached the conclusion that the construction advanced on behalf of the Applicants is correct.  The Tribunal erred in law in rejecting it.  In those circumstances it is agreed that Hotpoint, by paying the Applicants less than was properly due to them under the collective agreement incorporated in their contracts of employment, has made deductions in contravention of the 1986 Act.  The appeal is allowed.