Toach & Anor v British United Shoe Machinery Ltd

Factual and Procedural Background

This appeal arises from a decision of the Industrial Tribunal in Leicester which dismissed breach of contract claims brought by two appellants against their employer. Both appellants were long-serving employees made redundant in August 1996 as part of a large-scale redundancy programme. The dispute concerned whether an agreement originally made between a predecessor union and the employer, which entitled employees to ex gratia redundancy payments in addition to statutory entitlements, was incorporated into the appellants' contracts of employment. The employer, facing financial difficulties, limited redundancy payments to statutory and contractual obligations, excluding ex gratia payments after a cut-off date. The tribunal found that although the ex gratia payments were contractually binding, the 1996 redundancies constituted a "major redundancy situation" under the agreement, which excluded the application of the ex gratia payment scheme. The employer appealed against the tribunal's characterization of the payments but abandoned that ground, focusing instead on the interpretation of the clause relating to "major redundancy situations."

Legal Issues Presented

1. Whether paragraph A.5 of the 1977 redundancy agreement, which excludes the agreement's application in a "major redundancy situation," requires the employer to give notice and consult with the union before invoking this clause.
2. Whether the employer has the unilateral right to determine the existence of a major redundancy situation, thereby excluding the enhanced redundancy payments.
3. Whether the tribunal was correct in concluding that the 1996 redundancies constituted a major redundancy situation within the meaning of the agreement.

Arguments of the Parties

Appellants' Arguments

• The clause excluding the agreement in major redundancy situations must be construed as requiring the employer to give notice and engage in consultation and negotiation with the union before invoking it.
• The agreement operates within a framework of consultation and negotiation, and does not grant the employer unilateral power to abandon the enhanced redundancy payment scheme.
• There must be a determination at the time of what constitutes a major redundancy situation, not a retrospective tribunal decision months later.
• The agreement should be interpreted to incorporate a requirement of consultation and negotiation before the employer can rely on the escape clause.
• Relied on Davis v Hotpoint Ltd [1994] IRLR 538, where a collective agreement required union approval before the employer could reduce guaranteed wages, emphasizing the consensual nature of such agreements.

Respondent's Arguments

• The tribunal made a justified factual finding that the 1996 redundancies constituted a major redundancy situation as contemplated by the agreement.
• There is no basis for importing a requirement that consultation must precede the employer's determination of a major redundancy situation.
• Clause A.5 clearly contemplates that the employer may determine there is a major redundancy situation, thereby suspending the agreement, with subsequent discussions on redundancy arrangements.
• Relied on Alexander and others v Standard Telephones & Cables Ltd [1990] IRLR 55, emphasizing that not all parts of a collective agreement are apt to become enforceable contractual terms, particularly machinery for consultation and negotiation.
• The clause provides for negotiation after the employer's decision, not as a precondition to it, and the tribunal's role includes defining what constitutes a major redundancy situation.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by recognizing the contractual nature of the claim, distinguishing it from unfair dismissal claims that involve a reasonableness standard. The tribunal's factual finding that the 1996 redundancies constituted a "major redundancy situation" under paragraph A.5 was accepted as crucial and justified by evidence of numerous redundancies and the employer's financial difficulties.

The court analyzed the appellants' argument for a requirement of consultation before invoking the clause, noting the appellants relied on the Hotpoint case. However, the court found no conflict between Hotpoint and the present case, emphasizing that the latter involved the tribunal's role in defining a major redundancy situation and that the agreement's enforceability depends on such a determination.

The court further accepted the respondent's submission, supported by Alexander, that the consultation and negotiation machinery described in the agreement is not necessarily a contractual term enforceable before the employer's decision. Rather, the clause contemplates the employer's right to decide that a major redundancy situation exists, after which discussions on redundancy arrangements would occur.

The court reasoned that if the appellants' interpretation were correct, the agreement would be unenforceable due to vagueness. The tribunal's approach, allowing it to determine the existence of a major redundancy situation, preserves the agreement's substance and enforceability.

Accordingly, the court found the tribunal's construction of the contract to be correct and dismissed the appeal.

Holding and Implications

The appeal is dismissed.

The court upheld the tribunal's finding that the 1996 redundancies constituted a major redundancy situation, thereby excluding the application of the enhanced redundancy payment scheme. The decision confirms that under the contractual agreement at issue, the employer has the right to determine the occurrence of a major redundancy situation without prior consultation or negotiation, with consultation occurring thereafter. No new precedent was established beyond affirming the tribunal's fact-finding role and the contractual interpretation consistent with existing case law.