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Decision on striking workers' pay could make action less attractive, says expert, as Queen's speech confirms new ballot rules

Employers may be entitled to deduct a day's pay for strike action at the rate of 1/260th of the striking worker's salary depending on contractual terms, the Court of Appeal has confirmed.

Three teachers at King Edward's School in Birmingham had argued that the 1870 Apportionment Act limited deductions from their pay in respect of strike action in November 2011 to 1/365th of their annual salaries. The school deducted 1/260th as "the value of the service which the teachers had failed to provide on that day", based on the premise that their working days were Monday to Friday.

Employment law expert Christopher Mordue of Pinsent Masons, the law firm behind Out-Law.com, said that although not every employer would be entitled to make deductions from salary at the higher rate, the decision was a "helpful response" to claims by trade unions that only deductions at 1/365th of salary were legally permitted.

"In the case in question, the provisions in the contract about direct teaching hours and 'undirected time', and rates of pay for additional days worked by part-time teachers, supported the employer's deduction of pay at 1/260ths," he said.

"While it is not common for employment contracts in the education sector to specify a rate of deduction for industrial action, clauses which for example set holiday pay at 1/260ths of salary could form a sound basis for arguing that that is the contractual rate for a day's pay. Employers may want to have a look at their contracts to check the strength of the argument for deductions at 1/260ths," he said.

Employers may claim the right to withhold a day's pay from striking workers through one of two distinct legal routes: either as damages for the employee's breach of contract in refusing to work; or by relying on the principle that an employee is not entitled to be paid if not ready and willing to perform the work that he was employed to do. Strictly speaking, neither of these are 'deductions' from pay as that pay was never earned in the first place, according to Court of Appeal judge Lord Justice Elias.

The 1870 Apportionment Act provides that periodic payments, rents, annuities or dividends accrue on a daily basis. The section related to "annuities", which includes "salaries and pensions", states payments that can be apportioned should be deemed to have accrued "by equal daily increment". However, parties can contract out of the rule in certain circumstances by "express stipulation".

Lord Justice Elias referred to previous cases in which the courts had held that by "express stipulation", it was "enough that there is a clear term which is in fact inconsistent with apportioning the payment in issue".

"It seems to me that provided it is plain from the terms of the contract that the principle of equal daily accrual is not intended to apply, that should be sufficient to exclude the principle even though there may be difficulty in resolving precisely how the pay is related to the work performed," he said. "That is the gateway condition which, when satisfied, allows the court to engage in the usual process of construing and giving an appropriate interpretation to contractual provisions in circumstances where, at first glance, it may be difficult to work out precisely what the parties mean."

"No doubt absent any indication to the contrary, the principle of equal daily accrual will be the obvious principle to adopt. But ultimately it is a matter of what the appropriate rate of accrual is to be taken to be ... In order to determine how much of the salary is referable to a particular day, the starting point must be the terms of the contract with the modification required by the Act that the pay must be deemed to be accruing daily," he said.

In this case, there was some confusion over the extent of the teachers' workload that was made up of "directed" hours in the classroom and "undirected" preparation and marking in their own time. The judge said that relating their work to the total number of annual working days, including paid holidays, as the school had done was "a sensible and acceptable principle which possibly errs in the employee's favour". Rates of pay for additional days worked by part-time teachers also supported the school's policy, he said.

The judge said that although the amounts at issue in this case were comparatively small, the cost implications of a judgment in the teachers' favour would be about £300,000 per strike day across the whole education sector.

The UK government intends to bring forward changes to the laws governing industrial action later this year, following the inclusion of its planned Trade Unions Bill in this year's Queen's speech. This bill would introduce a 50% voting threshold for union strike ballot turnouts, and an additional requirement that 40% of those entitled to vote must back action in "essential public services" such as health, education and transport. Following a successful ballot for industrial action, any strike would have to take place within a given time period.

Christopher Mordue said that claims by trade unions that these reforms would outlaw most strikes were "a little wide of the mark".

"While the tougher ballot requirements will make it harder to get a mandate for lawful industrial action, it is not an impossible bar to clear - for example, the national rail strike threatened earlier this week was called after a ballot in which RMT members voted 80% in favour of strike action on a 60% turnout, and so would not have been prevented by the proposed new rules," he said.

"Unions are also making increasing use of leverage tactics – using demonstrations, protests and social media campaigns to open up new lines of attack on the employer and its senior management, with the aim of getting shareholders, customers, suppliers and the public to put pressure on the employer to back the union demands. These campaigns – which can be very disruptive and difficult to counter – can be run without any industrial action ballot and so would not be affected or restricted at all by the proposals in the Queen's Speech, making them an even more attractive option for the unions," he said.

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