‘Check-off’ is a practice under which workers pay their union membership subscriptions through their employer deducting these from their pay at source. The deductions are then passed to the union.

The Contracts (Rights of Third Parties) Act 1999 gives powers to third parties in certain circumstances to enforce terms of a contract that confer a benefit upon them.

Background to the check-off withdrawal

During a period of Civil Service workforce reform under the 2010-15 Coalition Government, attempts were made to withdraw check-off arrangements in a number of government departments, including the Home Office, HMRC and DEFRA. Each of these departments had operated check-off arrangements for several decades with the PCS, a civil service trade union, and these arrangements formed part of employees’ contracts of employment.

In 2014, the departments each wrote to PCS, giving it three months’ notice that the check-off arrangements would be withdrawn, following short consultation processes. The check-off facilities were subsequently withdrawn, requiring PCS to run a campaign to sign up its members to pay their subscriptions by direct debit.

Shortly afterwards, PCS brought proceedings against the Department of Work and Pensions, claiming on behalf of two members that the provision of check-off arrangements was a term of their employment contracts and that PCS could enforce that term on their behalf. In 2016, the claimants and PCS won in the High Court in Cavanagh v Secretary of State for Work and Pensions, which PCS regarded as a test case confirming employees’ contractual right to check-off across the civil service.

In 2020-21, PCS and a number of individual employees in the Home Office, HMRC and DEFRA brought further proceedings, alleging that the withdrawal of check-off in those departments was a breach of their employment contracts and that PCS was entitled to enforce their right to check-off as a third party.

The High Court ruled that the check-off facility was a term of the individual claimants’ contracts of employment and there was no implied term that it could be unilaterally withdrawn on reasonable notice, so its withdrawal was a breach of their employment contracts. It further concluded that the employees had not accepted the withdrawal of check-off by continuing to work. The High Court also decided that PCS was entitled to enforce the check-off term under the Contracts (Rights of Third Parties) Act 1999.

The government departments appealed the High Court’s decision, primarily arguing that (i) the employees had accepted the variation in their contracts by continuing to work after the withdrawal of check-off and had waived any breach; and (ii) the parties to the individual contracts of employment did not intend the terms relating to check-off to be enforceable by PCS.

The Court of Appeal decision

The Court of Appeal upheld the High Court’s finding that the individual employees had not accepted the variation of their contracts. That would have required the court to have been able to infer an unequivocal acceptance of the variation, having regard to all the facts of the case. However, in all three departments, there had been protest at a collective level by PCS prior to the withdrawal being implemented; these protests were not expressly withdrawn and PCS also subsequently initiated the Cavanagh litigation in another Whitehall department. The Court of Appeal also found that the High Court was entitled to give weight to the departments’ failures to take steps to confirm whether the variation was accepted by the individual employees.

However, the Government was successful in its second ground of appeal, relating to the application of the Contracts (Rights of Third Parties) Act 1999. A majority of the Court of Appeal agreed that the check-off wording in the individual contracts of employment was not intended to be enforceable by PCS as a third party. That Act provides that the third party rights do not apply 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. The majority thought that the check-off wording was intended to offer a facility to the individual employee, rather than a benefit to the union. It had its origins in a collective agreement, which was not intended to be enforceable by PCS. The check-off facility could also be used for other recipients, such as savings schemes, which could not have been intended to be able to enforce the term.

In a dissenting opinion, Stuart-Smith LJ concluded that, by conferring a benefit on PCS, the term created a rebuttable presumption that PCS was entitled to enforce it, and there was nothing in the terms of the contract that indicated a joint intention of the parties to the contrary.

Implications

The issues at stake in this case are a throwback to an era when the then Coalition Government was focused on curbing the role of civil service trade unions. Since then, the Conservative Government has introduced further check-off reforms in the Trade Union Act 2016. These gave it powers to introduce regulations prohibiting public sector employers from operating check-off unless their employees have an alternative means of paying and unions reimburse the cost of operating the scheme although, to date, these powers remain unused and Labour has promised to repeal the Trade Union Act 2016 if it wins the next general election.

More generally, the case serves as a reminder of the pitfalls when seeking to change employees’ terms and conditions without their consent. The Court of Appeal’s decision emphasises the high bar which employers must satisfy in order to show that employees have unequivocally accepted any variation in their contracts of employment (and waived any past breach) by continuing to work. In this case, the employees did not individually register any objections to the changes and continued to work for more than 5 years before bringing their claims. This is an important area for employers which continues to see significant legal change, with the Government recently consulting on its draft Code of Practice on Dismissal and Re-engagement.

As a rare authority on the application of the Contracts (Rights of Third Parties) Act 1999, this judgment may also attract wider interest beyond specialist practitioners of industrial relations. PCS has already indicated that it intends to appeal to the Supreme Court, so this may be an issue which receives further judicial consideration.

Secretary of State for the Home Department v Cox & Ors – judgment available here.