Secretary of State for the Department for Environment, Food and Rural Affairs v Public and Commercial Services Union [2024] UKSC 41

Government departments unilaterally withdrew check-off arrangements allowing trade union subscriptions to be deducted from employees' salaries. The Union claimed third party rights under the Contracts (Rights of Third Parties) Act 1999 to enforce this contractual term. The Supreme Court held the Union could enforce the check-off term as the statutory presumption of third party enforceability had not been rebutted.

Facts

The respondent employers (three Government departments) withdrew check-off arrangements in 2014-2015, which had allowed employees to have their trade union subscriptions deducted from salary and paid to the Public and Commercial Services Union (the Union). Individual employees and the Union brought claims for breach of contract. The employers conceded the check-off arrangements were contractual terms, but disputed whether the Union could enforce them under the Contracts (Rights of Third Parties) Act 1999.

Background to Check-Off

The check-off arrangements originated from collective agreements in the 1960s and were incorporated into individual employment contracts. The withdrawal caused significant loss of subscription income for the Union, with some departments losing over 40% of subscription revenue initially.

Issues

The central issue was whether, under section 1(2) of the 1999 Act, on proper construction of the employment contracts, it appeared that the parties did not intend the check-off term to be enforceable by the Union as a third party. The employers argued the collective agreement background meant no such intention existed.

Judgment

The Supreme Court unanimously allowed the Union’s appeal. Lord Sales and Lady Rose (with Lord Reed and Lady Simler agreeing) held that the majority of the Court of Appeal had erred in their interpretation of section 1(2).

The Statutory Presumption

The Court confirmed that where section 1(1)(b) and 1(3) are satisfied, a strong presumption arises that the term is enforceable by the third party. Lord Sales and Lady Rose stated:

Where the statutory presumption of enforceability by the third party arises pursuant to section 1(1)(b), that is the starting point for analysis pursuant to section 1(2). In order for the presumption to come into play, it does not have to be shown that the parties positively intended that the relevant contract term should be enforceable by the third party.

Rebutting the Presumption

The Court held that to rebut the presumption requires showing a positive common intention that the obligation should not be enforceable by the third party. Since there was no express term excluding third party rights, an implied term would be needed, and the test for implying terms is demanding:

The statutory presumption is only rebutted under section 1(2) if on a proper construction of the contract it appears that the parties did not intend the term to be enforceable by the third party. This means that it has to be shown that, on the usual objective approach to interpretation of contracts, the parties had a positive common intention that the obligation should not be enforceable by the third party.

Collective Agreement Context

The Court rejected the argument that because collective agreements are unenforceable under section 179 of TULRCA, this intention carried over to employment contracts. Stuart-Smith LJ’s dissenting analysis was approved:

the fact that the check-off obligation was not enforceable by [the Union] while it remained in the sphere of being merely the product of a non-enforceable collective agreement tells us nothing about whether the employers and employees intended that it should not be enforceable by [the Union] once the parties had chosen to include it as a contractual obligation which purported to confer a benefit upon [the Union].

Lord Burrows’ Concurrence

Lord Burrows, who was the Law Commissioner responsible for the 1999 Act, agreed, emphasising that section 1(2) requires application of normal rules of contractual construction and that the presumption had not been rebutted on the facts.

Implications

This judgment clarifies the operation of the 1999 Act, confirming that the presumption of third party enforceability is strong and can only be rebutted by showing positive intention through proper contractual construction, including implied terms meeting the demanding test. The decision confirms that terms derived from collective agreements, once incorporated into employment contracts, may confer enforceable third party rights on unions, notwithstanding that collective agreements themselves are unenforceable. This has significant implications for industrial relations and the enforcement of collectively bargained terms.

Verdict: Appeal allowed. The Union was entitled to enforce the check-off term in the individual contracts of employment under the Contracts (Rights of Third Parties) Act 1999. The statutory presumption of third party enforceability had not been rebutted.

Source: Secretary of State for the Department for Environment, Food and Rural Affairs v Public and Commercial Services Union [2024] UKSC 41