The Strain Between Managerial Prerogative and Contractual Principles in English Labour Law.
By Andy Ellis LLB
Reader of Law: University of Bristol, UK.
Within the contract of employment, one can easily determine the basic terms and conditions such as the salary level and extent of the working week however at the core, it is submitted that English law has accepted that for such a relationship to work, certain core elements need to be maintained. These core elements are compartmentalised into the catch all term of 'managerial prerogative'.
My intentions for this article are to consider the context in which managerial prerogative has historically gained its importance in both labour law and industrial relations through the contract of employment. I will also consider how the common law has recognised the extent and nature of this power and the ways in which it has sought to place limits onto it.
The collective agreement is a significant form of regulation and so I shall continue by considering the extent to which it is favoured or otherwise by English law as an appropriate form of regulation and the extent to which the vehicle of collective bargaining has caused difficulties for labour law due to its inability to fit into traditional contractual models.
Before coming to my conclusion I shall consider the effects of statutory regulation and how effective this has been in improving the lot of the worker and the extent to which it can be considered remote from the worker.
Managerial Prerogative and the Contract of Employment.
The contract of employment is noted to encompass a number of both rights and duties on the employer and employee alike. Its terms and conditions include both substantive and procedural rights and obligations.
The definition of the employment contact is contained in s230(2) Employment Rights Act 1996 (ERA) as:
"…a contract of service or apprenticeship, whether express or implied, and (if it is express) whether oral or in writing".
This lack of formality contrasts with that for the sale of land requiring the contract should be made in writing and signed by, or on behalf of each contract party .
It is argued that it is this lack of formality that has permitted the uncertainty in employment contracts and that this in turn led to the introduction of the statutory statement of terms and conditions.
Writing into a contract, elements such as the quality and pace of work can be highly problematic . New working methods may change the mode of performance over the years and it would be as problematic to expect either party to foresee an event potentially some 40 years into the future. This difficulty is addressed by giving the employer a unilateral power of direction over the employee known as the managerial prerogative.
Marsh has argued that this notion:
"carries with it the implication that there are actions or areas for action so essential to management that these must remain unilaterally the property of management if management is itself to continue to exist "
Indeed the very agenda of the trade union which seeks participation in the decision making process might be argued to constrain this prerogative power and hence one can see how battle lines can easily be drawn between the two parties.
It is in engineering that the battle to retain the right to manage has been most bitterly fought in Britain. Following the national lock out in the industry between 1897-98, the terms of the final settlement insisted that employers would "admit no interference with the management of their business ". Similarly, in the Managerial Functions Agreement of 1922, the parties agreed that the employers "have the right to manage their establishment and the trade unions have the right to exercise their functions.
The reasons for engineering employers consistently asserting these rights are reflective of the 19th century circumstances. The first justification for the right to manage was that the owner of the industrial capitol or their agent were asserting a property right over the business and should be able to do as they wished with their own property. An additional and more fundamental explanation might however be found in the nature of the 19th century craft trade unionism itself. As Farnham and Pimlott note:
…early craft unions in the engineering trades did not wish to negotiate with the employers on the terms and conditions but wanted to impose their own common rules of the trade upon the employers unilaterally. They wanted in other words to determine union pay rates for the job; to prevent 'deskilling'; to lay down their own manning levels; to control overtime and to regulate the supply of apprentices into their trade.
Hence engineering employers felt that the only way to maintain control over their business was to rigidly assert their own exclusive right to manage and it can be seen that this remains a strong tradition in the engineering and related industries even today.
Common Law regulation of Managerial prerogative.
Many argue that the regulatory effect of the contract term is the most effective protection for both parties whilst others argue that this thesis is undermined by the inequality of bargaining power between the parties. Indeed the defence of volenti has long been removed from the law of tort on the ground that the employee is unable to exercise valid consent in the employment relationship.
Napier argues that:
"The very idea of obligation is opposed to the notion that one party has complete licence to behave as he likes, and any assertion to the contrary is open to the charge of empty conceptualism"
Whilst the managerial prerogative has maintained unilateral powers for one party we can observe that courts are beginning to impose obligations on the employer to exercise these unilateral rights consistently with the principle of good faith and to avoid arbitrary and capricious results .
Johnstone v Bloomsbury Health Authority provides an excellent illustration of the courts seeking to protect employees from arbitrary exercise of their prerogative.
Johnstone, a junior doctor, was contracted to work a 40 hour week with an additional term that he may be required to work a further 48 hours overtime. Johnstone alleged that he was occasionally required to work in excess of 100 hours with little opportunity for sleep with consequential damage to his health. The employers sought an interlocutory order to have the claim struck out under RSC Ord. 18.
By a majority decision with Legatt LJ dissenting on the traditional contractual view that an express term should trump an implied term, the Court of Appeal allowed Johnstones case to proceed. The two majority judges differed however in their reasoning. Stuart Smith LJ ruled that an express contractual term could not over ride the employers duty in either contract or tort to take reasonable care to ensure the employees health and safety. Brown-Wilkinson VC steered the middle course expressing similar sentiments to those he expressed in Imperial Group Pension Trust v Imperial Tobacco that express and implied terms should be capable of co-existence without conflict. The effect of the express term was to restrict the implied obligation of care owed by the employer to the employee. The contractual power to call on the employee for a further 44 overtime should be exercised reasonably with regard to the consequences it might have on the employees health.
As Deakin and Morris note , Johnstone can be explained on a number of grounds but perhaps most relevant is that the contractual obligation of the employee to co-operate rests upon the irreducible obligation of the employer not to destroy mutual trust and confidence.
Joint regulation of the employment relationship.
The most popular regulation of the employment relationship is that of joint regulation as agreed between the employer and the workforce in the collective sense through the vehicle of collective bargaining which is estimated to determine the terms and conditions of over 50% of the British workforce.
The notion that collective bargaining is a source of regulation gains support from Alan Flanders who sought to distinguish unilateral regulation by the state or employer from that of joint regulation dealing with substantive and procedural terms identified in the contract in the three different ways outlined below.
- Market function - where the market rate determines wage levels. Collective bargaining is said to influence the market rate by improving wage levels in certain companies thus making recruitment and retention harder for those refusing to pay the higher wage rate.
- Regulatory function - that terms and conditions are regulated voluntarily and by agreement between the employer and workforce through a collective agreement.
- Participatory function - dealing with the extent of participation within the decision making process. Examples might include consultation over the level of redundancies and criteria of selection or perhaps employee representatives on the board of directors itself though this is a less popular concept..
'Collective bargaining' and 'collective agreements' are defined in s178 Trade Union and Labour Relations Act 992 (TULRCA) thus:
(1) …'collective agreement' means any agreement or arrangement made by or on behalf of one or more trade unions and one or more employers…and relating to one or more of the matters specified below ; and 'collective bargaining' means negotiations relating to or connected with one or more of those matters"
Collective bargaining is argued to help address inequality of bargaining power by providing the individual employee with increased industrial muscle associated with the slogan that 'unity is strength' but also to release employees from the somewhat arduous task of negotiating their own terms and conditions in favour of one set of negotiations covering all and with the use of an experienced negotiator.
However collective bargaining is not alone as a potential candidate method of negotiation. The 'individual contract' has throughout the 1990's become increasingly popular as increasing numbers of employers sought to derecognise organisations that they saw as competing with them for the heart and soul of their constituent employees.
Proponents of the individual contract argue that it is better able to reflect the individual bargaining agenda of each individual and that expressly stated terms and conditions reflect the actual intentions of the parties thus hopefully removing the necessity for courts to interpret terms which were never intended.
Individual contracts were however often used as a vehicle to persuade individual trade union members to abandon their membership by offering them a financial incentive through an individual increase in pay which trade union members would not receive.
This issue was addressed by the House of Lords in Associated Newspapers v Wilson in which it was claimed that such a contract inflicted a detriment on trade union members under s23(1)(a) Employment Protection (Consolidation) Act . On the technical basis that an omission could not constitute an 'act' however their Lordships allowed the employers appeal.
It is however more doubtful whether an employer would be as successful defending such a contract under the Equal Pay Act 1970 (EqPA) which inserts an equality clause into a womans contract where she is paid less for like work , work rated as equivalent or work of an equal value.
In all wage bargaining rounds one should remember that there is a balance to be struck between ensuring the best possible deal for the beneficiaries of the bargaining round whilst at the same time not compromising the financial stability of the employer to fund the new agreement with the consequential loss of job stability. In order to achieve this dual aim therefore, there will be a need to research the financial position and performance of the employer in order to know the extent to which it can safely be pushed without the risk to employment.
The recognised trade union are able to lean on s181 TULRCA 1992 which places a statutory duty on the employer to disclose for collective bargaining purposes any information without which the union would be materially impeded in carrying out such bargaining.
This provision does not extend to parties who are not recognised trade unions and therefore represents a clear advantage for the collectively bargained terms and conditions over those of the individual contract between employer and individual employee. It is clear therefore that collectively bargained contracts will be balanced for all concerned and will be within the employers proven capacity to pay without damage to job security.
As the matter of acceptance of the wage deal is given to the collective workforce into which the individual employee dissolves, one can argue such a method of regulation can not be claimed to be remote from the worker.
Difficulties in evidencing terms and conditions.
Many have labelled the collective agreement as a collectively agreed contract however English law has refused to recognise the term. This can to some extent be explained by the lack of intention to create legal relations between the employer and trade union even though there is clearly that intention between the employer and employee.
Kahn-Freund argued that the collective agreement was an agreement binding in honour only and his words were highly influential in the final judgement to that effect in Ford v AUEFW. This assertion is now enshrined in s179 TULRCA 1992 which provides a conclusive presumption that the agreement should not be legally enforceable unless it is made in writing and contains a provision to the contrary.
It is necessary therefore that an employee wishing to rely on the benefits of a collective agreement shows evidence of a bridging term in their statement of terms and conditions identifying the collective agreement as an external source of rights.
The section one statement acts only as evidence of terms and conditions however and for many years employers were able to exploit a lacuna in the law by refusing to accept that certain terms had been agreed as the law did not require that collective agreements should be specified in the statement. This can be illustrated by Eagland v British Telecommunications which held that the statement containing no reference to certain benefits was an accurate record of the employees contractual entitlements.
This lacuna has to some extent been closed by the enactment of section 1(4)(j) obliging employers to make reference to collective agreements within the s1 statement and hence it will border on impossible for an employer to argue that he had not intended to agree such terms where he has expressly stated to the contrary in the s1 statement. Indeed, an early decision in the case of Gascol Conversions v Mercer indicates it likely any terms expressed in the s1 statement will be given normative effect as terms and conditions are thus incapable of unilateral alteration.
The s179 presumption that the agreement will not be legally binding therefore is more accurately expressed as it being binding only between the employer and individual employee and not between the employer and trade union.
There have been a number of incursions into the regulation of contract over the years. I have already mentioned the s1 statement introduced to reduce disputes as to the extent of terms and conditions and that of the Equal Pay Act 1970 which sought to close the unacceptable gap between the wage levels of women as opposed to men. I would submit that both incursions have to some extent at least achieved their social objectives though there is certainly some way to go in the case of equal pay.
Further social regulation can be seen in the National Minimum Wage Act 1998 (NMWA) which was based on similar principles to earlier reforms in the same guise such as the end of 'sweated labour' seen in the nineteenth century as parasitic on the rest of society who were forced to subsidise low wages. In 1945 the Wages Councils Act was introduced seeking amongst other purposes to relieve poverty. These councils were later abandoned however with the support of most trade unions who believed that their effect was to stifle collective bargaining and to legitimise low pay by setting an 'acceptable' minimum.
It is noteworthy that the one union opposing the abolition of the wages councils were also the only union to increase, in real terms, the wage levels of their membership following the abolition of the councils in 1993. Many reasons might be advanced in respect of this factor however it does go to evidence the assertion that the removal of the floor in wages does not have the great effect on the level of wages as many might argue.
Enforcement of rights under the Equal Pay Act lie with the employee . The NMWA on the other hand uses a variety of enforcement methods such as providing officers with powers to require conformity . The rights of the worker not to suffer a detriment for insisting on their rights under this Act however are enforced by the worker themselves . This indicates that the Act is not as removed from the worker as the many seem to assert however the confidence of the employee to assert such rights may not be as likely as many imagine. Confrontation through litigation often breaks down the working relationship between the parties and the employee often suffers an extended term on the unemployment register due to the stigma that is attached in the eyes of other employers.
In conclusion I would submit that the most effective regulatory tool is that of the contract of employment. This is particularly the case in respect of the terms and conditions that are negotiated through the vehicle of collective bargaining due to the rights to information and the levelling in the inequality of bargaining power.
Whilst some legislation has improved the position of the individual employee, the most effective legislative reforms have sought to do so through the contract itself.
I would accept that the regulatory effect of legislative reforms are remote from the employee however I would also argue that the unlikelihood of the employee feeling confident to enforce the rights creates its own difficulties.
- Understanding Industrial Relations. Farnham and Pimlott.
- Labour Law. Deakin and Morris.
- Kahn-Freund's Labour and the law: Davies and Freedland.