Breakaway college lecturers are setting up a new trade union following the failure of the Colleges Legal Fund to bring a test case to court to establish the illegality of new further education contracts.

Lawyers settled the case before the start of a hearing scheduled for this week in Birmingham. The legal challenge was that college employers were unlawfully withholding a 2.9 per cent pay increase from lecturers who had refused to sign new contracts.

David Evans, chairman of the fund, said the case had cost it Pounds 20,000 to date.

Mr Evans puts the blame for the dispute on lecturers' union Natfhe, which signed a procedure and recognition agreement with college employers in 1993.

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"This swept away our rights," he said. "Signing this agreement meant that the old negotiating machinery, which would have ensured that all lecturers benefitted from any national agreement, has been abandoned."

Mr Evans is now preparing to set up the Lecturers Employment Advice and Action Fellowship, and expects it to attract at least 1,000 members on its launch.

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"LEAF will protect the interests of lecturers largely forgotten by Natfhe," he said.

Natfhe said it had always maintained that the fund's approach was ill-advised and it denied that signing the 1993 recognition agreement had given away any rights.

"The agreement was simply a recognition that local authorities no longer employed lecturers," said further education negotiator Sue Berryman.