Employer Not Entitled to Award Lower of Two Pay Increases

An employer which agreed two options for a pay increase with a union was not entitled to award the lower of the two.

In Anderson v London Fire & Emergency Planning Authority, a collective agreement reached between the union and employer stated that employees’ pay would be increased by 2.5% or by the NJC for Local Government Service settlement.  When the employer awarded the NJC increase (which was below 2.5%), the employees brought an unlawful deductions claim arguing that the intention of the clause had been to guarantee them a minimum 2.5% increase. 

The EAT held that the contractual provision was clear and it was for the employer to choose between the two options. It was not prepared to add the words “whichever is the greater” into the contractual provision. These words were included in other provisions in the agreement, which suggested that the parties had not intended these words to be included here.  

The Court of Appeal disagreed, holding that the EAT’s construction of the provision was “wholly improbable” and overly literal.  Construing the clause objectively, it was clear that the unions would not have agreed to a deal which gave the employer an unfettered discretion to choose between two different rates of pay.  The real meaning of the clause was that they would receive whichever amount was the greater.  Objectively no other meaning made industrial sense and no other meaning would have represented a three year deal that the unions would have contemplated entering into.  That must have been obvious to the employer and the clause had to be construed in context.

The case highlights the need for careful drafting of contracts and ensuring that provisions are not ambiguous.  It is likely that the intention of the parties in this case was that the employees should be entitled to the higher increase.  Either way, the employer and union could have saved themselves a lot of time and legal costs if they had recognised the potential problem with this provision at the time of drafting and addressed it head on in the agreement.