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Contract: Incorporation of Collective Agreement

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Was a term in a collective agreement reducing overtime pay apt for incorporation into an individual employment contract?

Not on the facts, held the EAT in Lozaique v Tesco Stores Ltd.

Mr Lozaique was employed by Tesco in security. His contract of employment required him to do 20 hours of overtime per week, for which he was entitled to be paid at time and a half. This was confirmed by a letter to him in October 2005.

Tesco argued that a subsequent collective agreement was incorporated into his contract of employment, and that, as a result, the rate for 12 hours of that overtime had been reduced from time and a half to single time. Mr Lozaique brought a claim to recover the shortfall in pay via an unlawful deduction from wages claim in the employment tribunal.

The tribunal rejected the claim and decided the collective agreement was incorporated into the contract, including the section on pay. The tribunal held that the agreement was therefore effective to reduce Mr Lozaique’s overtime entitlement.

The EAT allowed Mr Lozaique’s appeal. While the collective agreement was expressly incorporated in the contract of employment, the revised term about overtime premiums was not apt for incorporation. The terms in the collective agreement which referred to premiums did not, as a matter of construction, apply to the 20 hours of overtime which were provided for in the 2005 letter. Mr Lozaique had an obligation to do this overtime, and the overtime was not therefore voluntary. The terms about premiums could not therefore displace the provisions of the 2005 letter promising 20 hours of guaranteed overtime.

The tribunal had erred in law in not asking whether each of the relevant terms of the collective agreement was apt for incorporation into the employment contract. The tribunal assumed that, having decided that the collective agreement was incorporated into Mr Lozaique’s contract, it followed that every term of the collective agreement was also incorporated. That, said the EAT, “was a non sequitur”.

Nor had the contractual position changed by custom and practice. It is settled law that a term implied by custom and practice cannot contradict an express term of the contract (here, the 2005 letter).

Thanks to Dr John McMullen of Stone King LLP for preparing this case summary.