The Supreme Court has provided valuable clarity on the rectification of collective agreements. While collective agreements are generally unenforceable as contracts under UK law, this case confirms that rectification can apply when their terms affect legal rights through incorporation into individual employment contracts.

Rectification

Rectification is an equitable remedy that corrects drafting errors to align a document with the true agreement of the parties. The correction is not to the transaction itself, rather to the way in which it has been expressed in writing. It is available where there has been:

• a common mistake, where the parties had reached agreement, but its terms were incorrectly recorded in the final document; or
• a unilateral mistake, where one party is mistaken as to the terms of the written document and the other is seeking to take advantage of this.

Background

Nexus, the operator of the Tyne and Wear Metro, sought rectification of a 2012 collective agreement (the Letter Agreement) after a dispute arose over its impact on employee pay. The disagreement centred on whether the inclusion of a productivity bonus in basic pay should affect shift allowances. Nexus argued it should not, while the recognised trade unions contended it should result in enhanced shift allowances.

The dispute culminated in employees bringing claims for unlawful wage deductions. The Employment Tribunal upheld the employees' claims, interpreting the Letter Agreement in favour of enhanced allowances. This decision was upheld by the Employment Appeal Tribunal and the Court of Appeal.

High Court proceedings

Following these rulings, Nexus sought rectification of the Letter Agreement in the High Court. The company argued that a mistake had been made in the drafting of the Letter Agreement – either a common mistake shared with the unions, or a unilateral mistake of which the unions were aware. Nexus sought rectification to align the document with its understanding of the agreed terms.

The High Court allowed Nexus's claim to proceed, rejecting the unions' arguments that rectification was inappropriate for a legally unenforceable agreement and that Nexus was estopped from seeking it. However, the unions successfully appealed to the Court of Appeal.

Court of Appeal decision

The Court of Appeal dismissed Nexus's claim for rectification, ruling that the Letter Agreement itself could not be rectified as it was legally unenforceable. Instead, it held that the correct target for rectification would be the individual employment contracts incorporating the agreement's terms. Furthermore, the court found that Nexus should have brought its claim against the employees directly, as they were the parties affected by any rectification.

Supreme Court decision

The Supreme Court overturned the Court of Appeal's reasoning on rectification. It held that the Letter Agreement, though unenforceable as a contract, could still be rectified because its terms had legal consequences once incorporated into individual employment contracts. Rectifying the Letter Agreement would indirectly affect the contractual rights of employees, making it a valid target for rectification. In the employment tribunal context, tribunals do not have jurisdiction to make an order for rectification. However, the Supreme Court held that either party could argue before a tribunal that it should treat a document as if it had been rectified to record the parties' intention accurately, without the need for a formal order of rectification.

The problem for Nexus was that the proper defendants in a rectification claim are the employees, whose rights would be affected by the changes. The unions, acting as negotiating principals rather than agents of the employees, were not appropriate defendants. As a result, the Supreme Court dismissed Nexus's claim.

Comment

It is helpful to know that, whilst a tribunal cannot make an order for rectification, they can determine if there has been a mistake and, if so, treat a document as if it had been rectified to record the parties' intention accurately. However, this decision underscores the importance of thinking through, and agreeing, the impact of a change in pay for allowances and other elements of pay. It also highlights the importance of precise and thorough documentation in collective bargaining. While rectification is available for collective agreements affecting individual contracts, it is crucial to raise a rectification issue at the earliest opportunity to avoid losing the chance to make a rectification argument (and to make sure you have selected the correct parties!).