Law Report: No term to be implied into yearly pay deal

LAW REPORT: 1 November 1996; Ali v Christian Salvesen Food Services Ltd

Ali v Christian Salvesen Food Services Ltd; Court of Appeal (Lord Justice Waite, Lord Justice Saville and Lord Justice Otton) 18 October 1996

In the case of an "annualisation agreement", freely negotiated on an employee's behalf by his union, under which he was paid a standard weekly wage throughout the year but the hours worked each week varied according to seasonal fluctuations in demand, but which made no provision for adjustment where the employment contract was terminated before the end of the year, it was not possible to imply a term that the employee should in such circumstances be paid pro rata for the actual hours worked if these exceeded the weekly average.

The Court of Appeal allowed an appeal by the employer, Christian Salvesen Food Services Ltd, against the decision of the Employment Appeal Tribunal ([1996] ICR 1) and restored the decision of an industrial tribunal on 7 December 1993, dismissing the complaint of the employee, Osmond Ali.

Peter Wallington (Edward Lewis, for Sarah Booth, Edinburgh) for the employer; Andrew Glennie (Nicholsons, Lowestoft) for the employee.

Lord Justice Waite said the employers were engaged in the processing and storage of vegetables. They had a workforce of about 150 at their cold store and factory in Lowestoft, Suffolk. They negotiated with two unions, the AEU and TGWU, collective annualisation agreements to run from 1 June 1992. These provided that the workforce, which had previously been paid on a traditional arrangement as hourly paid workers entitled to overtime if and when worked in any particular week, should thenceforth be paid a standard wage (varying according to the grade of employee) on the basis of a roster providing for a total of 1824 hours over the year. The hours and wages were calculated broadly on the basis of an average working week of 40 hours of the year, adjusted to take account of holiday entitlement.

No specific provision was made in either the collective agreement or the individual employment contracts incorporating it, for the eventuality that an employee might cease work for any reason before the 12 month period was completed and the 1824 hours worked. Mr Ali was made redundant at a time when he had worked only 22 of the 52 weeks on his roster. He claimed the hours he had worked over that period exceeded the norm of working hours by reference to which his standard wage had been calculated, and he was entitled to be paid pro rata for that alleged excess.

The appeal tribunal held there ought to be implied into his contract a term entitling an employee whose employment was terminated by the employers before the end of the pay year, to be paid the standard hourly rate for the hours actually worked by him in excess of 40 hours per week.

In his Lordship's judgment, the importation of an implied term depended, in the final analysis, on "the intention of the parties as collected from the words of the agreement and the surrounding circumstances" (Chitty on Contracts, 27th edn, vol 1, para 13-003.)

The agreement itself was wholly silent as to consequences of premature termination. This was not therefore a case where the contractual documents created by their wording an internal context in favour of or against the implication of the proposed term.

As to the surrounding circumstances, it was crucial that this was a collective agreement negotiated across a broad front for a substantial labour force. It represented a carefully negotiated compromise between the employees' desire for an assured weekly wage spread over a long period regardless of hours worked, and the employers' desire to avoid the high cost of overtime rates for work done at periods of peak demand.

Such an agreement must be concise and clear, so as to be readily understood by all concerned. One would expect the parties to set their face against attempts to legislate for every possible contingency.

Should any topic be left uncovered, the natural inference was not that there had been an omission so obvious as to require judicial correction; rather, that the topic was omitted advisedly from the terms of the agreement, as being too controversial or complicated to justify any variation of the main terms to take account of it.

This was a very plain case against the implication of the proposed term.

Paul Magrath, Barrister