Civil servants’ contracts entitled them to have union subscriptions deducted from salary and paid to their union under check-off arrangements. When three Government departments withdrew those arrangements, the Supreme Court held that the Public and Commercial Services Union could enforce the check-off term in its own right under the Contracts (Rights of Third Parties) Act 1999. The fact that the term had originated in a collective agreement, which was not itself legally enforceable, did not show that the parties to the employment contracts intended to exclude enforcement by the Union.
The check-off arrangements and the claims
The Public and Commercial Services Union is recognised for collective bargaining by the Home Office, the Department for Environment, Food and Rural Affairs and HM Revenue and Customs. Members employed by those departments had authorised deduction of their subscriptions at source, with the employer paying the sums to the Union. The arrangements originated in collective agreements from the 1960s and had been incorporated into the individual contracts of employment.
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The departments withdrew check-off in December 2014, January 2015 and April 2015. The Government accepts that this unilateral withdrawal breached the employees’ contracts. Individual employees obtained declarations of breach, but their own loss was uncertain because they received more net pay. The Union, which was not a party to the contracts, suffered a substantial fall in subscription income. At common law, privity of contract prevented the Union from suing for that loss.
Third-party rights under the 1999 Act
The Union claimed under section 1 of the Contracts (Rights of Third Parties) Act 1999. It was common ground that the contracts did not expressly provide for enforcement by the Union, but that the check-off term purported to confer a benefit on the Union and that the Union was expressly identified. Section 1(1)(b) and section 1(3) were therefore satisfied. The only live issue was section 1(2): whether, on a proper construction of the contracts, the parties did not intend the term to be enforceable by the Union.
Choudhury J and Freedman J held that the statutory presumption of enforceability was not rebutted. The Court of Appeal dismissed the departments’ appeals concerning the individual employees. By a majority, however, Lewis and Underhill LJJ allowed the appeals against the Union. They treated the non-enforceability of collective agreements under section 179 of the Trade Union and Labour Relations (Consolidation) Act 1992 as showing that the parties to the employment contracts did not intend the Union to enforce the incorporated term. Stuart-Smith LJ dissented.
Why the presumption was not rebutted
Lord Sales and Lady Rose, with whom Lord Reed and Lady Simler agreed, held that the majority had misread section 1(2). Once the statutory conditions are met, a strong presumption arises that the third party may enforce the term. That presumption does not require proof of a positive intention to create third-party rights. It is rebutted only if proper construction shows a positive common intention that the third party should not be able to enforce the term. Where the contract is silent, rebuttal requires an implied term, and the test for implying a term in fact is demanding.
Section 179 concerns the collective agreement as between the employer and the Union. It does not determine the effect of a different contract between the employer and the employee. Incorporation of a collectively agreed term does not mean that the term, once included in an otherwise enforceable employment contract, was intended to be unenforceable by the Union. The contracts contained nothing showing a joint intention to exclude the Union, and an objective bystander would not have regarded such an exclusion as obvious.
Employees benefit from the convenience of check-off and from the Union’s ability to protect the arrangement. Findings that the employees had not waived the breach, because they were relying on the Union to object, supported that conclusion. Check-off facilities for other organisations, such as savings schemes or charities, did not answer the question for the Union: each third party’s position depends on its own circumstances, and a union’s representative role is distinct. The benefit to the Union was not merely incidental.
Lord Burrows agreed that the appeal should be allowed. The collective-bargaining background is relevant when construing an incorporated term, but it did not rebut the presumption. There was neither an express term nor an implied term excluding enforcement by the Union. Enforcement by the Union is also the most efficient means of protecting the term, because an individual employee will not normally have suffered a financial loss.
Verdict: The Supreme Court unanimously allowed the Union’s appeals. It could enforce the check-off terms under the Contracts (Rights of Third Parties) Act 1999. The Court invited submissions on the order needed for the damages claims to proceed; it did not assess damages.
