Introduction

The case of Secretary of State for the Department for Environment, Food and Rural Affairs v Public and Commercial Services Union ([2024] UKSC 41) marks a significant development in the interpretation and application of the Contracts (Rights of Third Parties) Act 1999 ("the 1999 Act"). This Supreme Court judgment addresses the enforceability of "check-off" terms within employment contracts, specifically focusing on whether trade unions can enforce such terms as third parties under the 1999 Act.

The appellant, the Secretary of State, sought to challenge the ability of the Public and Commercial Services Union (PCS Union) to enforce a check-off term embedded within individual employment contracts. The core issue revolved around the application of the second test outlined in the 1999 Act, which assesses whether a contract term 'purports to confer a benefit' on a third party—in this case, the trade union.

Summary of the Judgment

The United Kingdom Supreme Court, through the concurring judgment of Lord Burrows, upheld the appeal, thereby affirming the PCS Union's right to enforce the check-off term under the 1999 Act. The Court held that despite the check-off term arising from a collective agreement—a framework typically perceived as unenforceable—the specific circumstances and the incorporation of the term into individual contracts allowed the trade union to have enforceable rights.

The judgment emphasized that the collective bargaining context does not inherently negate the third-party rights under the 1999 Act. Instead, the Court applied the normal rules of contractual construction, considering the collective bargaining as part of the factual matrix. Consequently, the presumption that the term confers a benefit on the union was not rebutted, allowing the union to enforce the check-off mechanism.

Analysis

Precedents Cited

The judgment references several key precedents that underpin the Court's reasoning:

• Yaxley v Gotts [2000]: Highlighted the permissibility of referring to the Law Commission's Report for interpreting the 1999 Act.
• Tesco Stores Ltd v USDAW [2024] UKSC 28: Reinforced the relevance of collective bargaining contexts in interpreting contractual terms.
• Chudley v Clydesdale Bank Plc [2019] EWCA Civ 344: Discussed the express identification requirement under section 1(3) of the 1999 Act.

These cases collectively support the notion that third-party rights under the 1999 Act must be grounded in clear contractual terms and that the context of collective bargaining can influence the interpretation of such terms.

Legal Reasoning

The Court's legal reasoning hinged on the two-test framework established by section 1 of the 1999 Act:

• First Test: Determines if the third party is expressly identified in the contract.
• Second Test: Assesses whether the contract term purports to confer a benefit on the third party, establishing a rebuttable presumption of enforceability.

Lord Burrows elaborated that the check-off term satisfied both requirements: the trade union was expressly identified by class, and the term confers clear benefits to both the union and the employee. Importantly, the collective bargaining background was considered part of the factual matrix but did not override the express terms incorporated into individual contracts.

The Court concluded that the appellant failed to demonstrate that the objective intention of the parties was to prevent the union from enforcing the check-off term. Consequently, the presumption under section 1(1)(b) was not rebutted.

Impact

This judgment has substantial implications for labor law and the enforceability of collective agreement-derived terms. By affirming that trade unions can enforce check-off terms under the 1999 Act, even when such terms originate from collective agreements, the Court has expanded the scope of third-party rights. Future contracts that incorporate terms from collective bargaining agreements will need to carefully consider third-party enforceability to ensure clarity and prevent unintended legal consequences.

Additionally, the decision clarifies the interplay between collective agreements and individual contracts, reinforcing that the former's general unenforceability does not automatically negate third-party rights established via the latter under the 1999 Act.

Complex Concepts Simplified

Contracts (Rights of Third Parties) Act 1999

This Act allows third parties, who are not original signatories to a contract, to enforce contractual terms if certain conditions are met. The two primary conditions involve explicit identification and the provision of benefits to the third party.

Check-Off Term

A check-off term is a provision in an employment contract where the employer deducts union subscription fees directly from the employee's wages and forwards them to the union. This mechanism ensures regular and timely payment of union dues.

Rebuttable Presumption of Intention

Under section 1(1)(b) of the 1999 Act, if a contract term appears to confer a benefit on a third party, there is a presumption that the parties intended to grant enforceable rights to that third party. However, this presumption can be challenged and overturned if evidence suggests that the parties did not intend such enforceability.

Collective Agreement

A collective agreement is a negotiated contract between employers and a group of employees (often represented by a union) regarding terms and conditions of employment. Typically, these agreements are binding only on the negotiating parties unless explicitly stated otherwise.

Conclusion

The Supreme Court's decision in Secretary of State for the Department for Environment, Food and Rural Affairs v Public and Commercial Services Union reinforces the enforceability of check-off terms by trade unions under the Contracts (Rights of Third Parties) Act 1999, even within the context of collective agreements. This judgment underscores the importance of clear contractual terms and the role of third-party rights in modern employment relationships.

By confirming that collective bargaining backgrounds do not inherently negate third-party enforceability, the Court has provided a nuanced interpretation that balances collective labor relations with individual contractual rights. This ensures that trade unions retain effective mechanisms to support their members, thereby contributing to fair and efficient labor market practices.