England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE EATRF 98/0557/3

Royal Courts of Justice

Strand, London WC2

Friday, 26 March 1999

B e f o r e:

LORD JUSTICE BELDAM

LORD JUSTICE MORRITT

LORD JUSTICE SEDLEY

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NEW CENTURY CLEANING CO. LTD.

Appellant

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MR E. CHURCH

Respondent

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(Handed Down Transcript of

Smith Bernal Reporting Limited, 180 Fleet Street,

London EC4A 2HD

Tel: 0171 421 4040

Official Shorthand Writers to the Court)

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N UNDERHILL (Instructed by Messrs Nabarro Nathanson, London, W1X 6NX) appeared on behalf of the Appellant

MISS L GOLDMAN (Instructed by Messrs Alexander Johnson, London, E14 9RE) appeared on behalf of the Respondent

J U D G M E N T

(As approved by the Court )

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©Crown Copyright

LORD JUSTICE SEDLEY:

This is an appeal, by leave of Aldous and Ward LJJ., from a decision of the Employment Appeal Tribunal (H.H. Judge Peter Clark, Mr. R. Jackson and Mrs. J.M. Matthias) upholding the decision of an Industrial Tribunal, by its Chairman Mr. I.S. Lamb, that a reduction of 10% in part of the applicant's gross wages was an unauthorised deduction under s.13(1) of the Employment Rights Act 1996.

Law

Part II of the Employment Rights Act 1996, captioned "Protection of Wages", includes the following provisions:

"Right not to suffer unauthorised deductions

13(1) An employer shall not make a deduction from wages of a worker employed by him unless

(a) the deduction is required or authorised to be made by virtue of a statutory provision or a relevant provision of the worker's contract, or

(b) the worker has previously signified in writing his agreement or consent to the making of the deduction.

.........

(3) Where the total amount of wages paid on any occasion by an employer to a worker employed by him is less than the total amount of the wages properly payable by him to the worker on that occasion (after deductions), the amount of the deficiency shall be treated for the purposes of this Part as a deduction made by the employer from the worker's wages on that occasion.

27(1) In this Part "wages" in relation to a worker, means any sums payable to the worker in connection with his employment, including

(a) any fee, bonus, commission, holiday pay or other emolument referable to his employment, whether payable under his contract or otherwise,

........"

The Act is a consolidating statute which brings together previously diffuse legislative provisions governing the rights of employees.

"The consolidation itself is a model of clarity and logic. Sadly, however, the extent to which the notorious complexity of modern employment law can be alleviated by a mere consolidation of the existing provisions is strictly limited, no matter how clever the drafting, and the inherent difficulty of much of the law in this area remains largely unaffected." (G. Thomas and R. Upex, Introduction and General Note to the Current Law edition of the Act.)

The present appeal illustrates how right both propositions are.

The provisions with which we are concerned derive indirectly from the Truck Acts, which were repealed and replaced by the Wages Act 1986, one of the measures included in the present consolidation; but it has not been argued by counsel on either side that the material elements of the 1996 Act are such as to make it permissible (or useful) to turn to the antecedent legislation for guidance.

Facts

The appellant company, as its name suggests, has been in existence since the beginning of the present century. It offers a contract window-cleaning service, principally for large buildings. It has been accepted throughout that its window cleaners are employees and not independent contractors. Their employment, however, takes an unusual form. They are organised into teams of between two and seven members, and each team is paid collectively on a piecework system. The industrial tribunal described its operation in this way:

"Each team has a leading hand ... The teams are allocated to rounds. On each round the [employers] have a number of customers. The amount paid by each customer to the [employer] for its services is negotiated. Sometimes those agreements are standing contracts, stipulating work to be done and the frequency of it. Sometimes there are special, one off jobs.

On a normal working day .... the leading hand would attend the [employer's] premises in Vauxhall and collect the documents which tell him where he is to work and the specification of the job, as well as the method of working. That document is called a work bill or docket. It shows the round number, and a code which tells the employee the gross amount that will be paid by the [employer] to the team that carries out the work. That price for the job is pre-determined by the [employer]. The team, by its leading hand, has a choice whether to do the work or not, but the price is not negotiable.

Within the team, it is agreed between the leading hand and other members how much each will receive as a proportion of the amount payable by the [employer] for each job. ... The leading hand thereafter completes a daily wage summary showing the job number, the amount to be paid to the individual team member and the amount for the job done by the team. The leading hand also completes a weekly wage summary, showing how each week's total for all jobs will be split between the members of the team. On the basis of those documents the [employers] pay each member of the team the amount shown in the weekly wage summary, after deduction of tax and national insurance. Since April 1996 employees have been paid fortnightly instead of weekly. For Bank holidays they receive £17 per day, and the maximum holiday pay is £125 per week. If they are absent by reason of sickness, they receive statutory sick pay.

The hours worked vary according to the jobs to be done. A job may be done over the weekend as well as during the week. It is up to the team concerned. They are under no obligation to inform the respondents how long they have spent on a job or when they did it."

A note appended to the appellants' company accounts for the year ended 31st March 1995 described falling profits and concluded:

"It was agreed that increasing turnover and reducing operatives wages are the only ways to solve this problem. A reduction in the work bill costing must be applied as from 1.4.96."

Accordingly, on the 19th February 1996, the appellants' board minuted the following:

"It was agreed that increasing turnover and reducing operatives' wages are the only ways to solve this problem. A reduction in the workbill costing must be applied as from 1.4.96".

This was done. By letter of 8th March 1996 to employees the company described the adverse effect on its business of economic recession and competition and said:

"Consequently, the company has reviewed its pricing and workbill to reflect the reality of the business. As a result and with effect from the 1 April, all workbills will be reduced by around 10% and this is merely to reflect the lower prices we are having to charge. Wherever possible, we will be offering additional work so that your earning potential will be maintained."

Further work has in fact been found, so that earnings have in general been maintained, but at the price of longer working hours.

It has been explained to us, without objection, by Mr. Nicholas Underhill QC for the Appellant company that the 10% reduction was a diminution by 10% of the regular price offered to teams for regular jobs, which were the great majority. It was an across-the-board reduction, unrelated to whether the customer was now paying less. For one-off jobs there was of course no established rate and so no basis on which it could be said that workbill prices were or were not being reduced. The Respondent for his part, by his counsel, Mrs. Linda Goldman, accepts that no element of his claim can relate to the latter class of work.

For a reason to which I shall come, these facts may be incomplete.

Issues

It is the contention of each of the 43 employees that the reduction of 10% in the workbill prices offered to teams for regular jobs is, or amounts to, a prohibited deduction from his wages under the Act. If so, the amount improperly deducted will be recoverable by proceedings before an Industrial Tribunal pursuant to Sections 23 and 24 of the Act. The employees accept that for those jobs which had no established price their claim will not run, even though it is apparent that in broad terms they were to be offered 10% less than they would previously have been offered on these jobs too.

The appellants' case is, in essence, that within the peculiar pay structure operated for largely historical reasons by the appellant company there is no sum of money properly payable to any one employee until the employer is notified by the leading hand of the employee's agreed share of the amount coded on the workbills for the material fortnight. Even if this sum is lower than it used to be it is not because of any deduction but because of a change in the mode of calculation.

There is a further, logically prior, issue. Mr. Underhill submits that the Appellant company was denied a fair hearing before the Industrial Tribunal, so that with or without a decision of this court on the issues outlined above, the case should go back for a fresh first-instance hearing.

The Industrial Tribunal

The decision of the Industrial Tribunal was given by the Chairman sitting alone at London South on 11th February 1997. The single representative applicant, Mr. Church, one of the 43 whose originating applications had been lodged, was represented, as he has been throughout, by Mrs. Goldman. The company was represented by its personnel manager, Mr. J. Ford, who also represented it in due course before the Employment Appeal Tribunal.

What happened is not significantly in dispute. Mrs. Goldman initially submitted to the Chairman that there was no need to take oral evidence: the issue was one of law to be decided on the documents and on facts which were common ground. Although he initially agreed, the Chairman, having further considered it, decided to hear evidence. Mr. Church was called by Mrs. Goldman, gave evidence and was cross-examined by Mr. Ford. The Chairman then reverted to his initial view and directed that no further evidence was needed. The parties made their submissions on the basis of the documents and agreed facts.

The Chairman, concluding that unauthorised deductions had been made, put his grounds in two alternative ways:

(a) The rate of remuneration was a contractual entitlement which could not be varied without bilateral consent.

(b) Alternatively, the rate of remuneration was a key element in the calculation of wages, so that the "wages properly payable" were those being received before the unilateral reduction took effect.

The Employment Appeal Tribunal

The decision of the Employment Appeal Tribunal is not as full or as helpful as one might have wished. On the procedural issue the Appeal Tribunal simply said:

"We do not accept Mr. Ford's complaint that he was prevented from calling material evidence which would have altered the factual basis for the Chairman's decision."

For the rest, the EAT decided no more than that the case turned on its facts and that the Chairman

"was entitled to find that a unilateral, across the board, 10% reduction in workbill rates by the Company, without the consent of the employees, amounted to a reduction in the amount of wages properly payable by the Company to the employees ...".

The EAT continued:

"The proper construction of the expression "properly payable" in Section 13(3) will depend on the facts of each case and may be left to the good sense of industrial tribunals."

This last proposition cannot be right. Construction, which in the nature of things means ascertaining meaning in relation to particular facts, is a matter of law.

The Employment Appeal Tribunal did not vouchsafe which of the Chairman's grounds it considered correct or why. This is a particular pity because, unlike the industrial tribunal chairman, Judge Clark was sitting with two experienced lay members from each side of industry. Their collective evaluation of a complicated employment arrangement of this kind would be of value not only to the parties but, on appeal, to this court. As it is, all that can be deduced from the EAT's decision is that their joint appreciation of the pay arrangements was such as to bring them within Part II of the Act. It is fair to say, however, that the single Lord Justice who considered the application for leave to appeal on the papers considered it unarguable.

The exclusion of evidence

Mr. Underhill puts his initial complaint in two ways. First, and principally, he submits that the refusal to let Mr. Ford call his witnesses amounted to a denial of a hearing, which he is entitled ex debito justitiae to have remedied. Alternatively, he submits, it was a material error, albeit within jurisdiction, which equally calls for remission of the case to a fresh tribunal.

If the first submission is well founded, the court will not ordinarily investigate what difference, if any, proper procedure would have made. The flaw will be fundamental, the hearing defective and the decision a nullity. This is ordinarily the situation wherever a tribunal which is required to hear both sides fails to give an opportunity to be heard to a party which has neither waived nor forfeited its right to be heard. The present, in my judgment, was not such a case. The company was represented by Mr. Ford, who was heard out. The error, if error there was, lay not in a failure to accord his company a hearing -which would have meant that the tribunal was acting without jurisdiction - but in a ruling within its jurisdiction based upon an error of law as to the admissibility of evidence: and this is Mr. Underhill's alternative ground.

Ought the chairman then to have permitted Mr. Ford to call evidence? Neither before the Employment Appeal Tribunal nor before this court has any proof or summary of the excluded evidence formed part of the appeal documents. Invited by this court to state what was the effect of the evidence which Mr. Ford would have called had he been allowed to do so, Mr. Underhill put it under two heads. First, he wanted to dispute the evidence which prompted the chairman to find that the price offered by the employer on each workbill was not negotiable. In reality, he says, as with almost every other kind of offer, a price refused by one or more teams was capable of renegotiation. Secondly, and more generally, it was desired to give a description of the commercial and employment situation from the employer's as well as the employees' point of view. This, at any rate, is how it is now formulated; Mr. Underhill was unable to say whether this was how it was put to the chairman, or whether Mr. Ford simply asked to call evidence and was refused. In his full and well-reasoned notice of appeal to the Employment Appeal Tribunal, and in his skeleton argument before that Tribunal, Mr. Ford went no further than to recount what had happened and to say:

"In writing his Decision, the Chairman makes reference to several contentious points in Mr. Church's evidence, which the appellant challenged in cross-examination and on which, but for the Chairman's ruling, it would have led evidence in rebuttal. Furthermore, it is submitted that, without hearing evidence from the appellant, the Chairman had heard only one side and was therefore unable to fully understand the substance of the case."

It is necessary to have in mind here how industrial tribunal proceedings are generally conducted. While they must of course conform to the requirements of elementary fairness, including hearing both sides, the lawyer's distinction between evidence and argument is frequently and conveniently ignored. There are good reasons for this. In many cases there is little if any dispute about the facts: they can in large part be deduced from the documents or described without dissent by one party's or the other's advocate. Insofar as they may be disputed, as often as not the dispute does not matter. It is only where a dispute as to background or foreground fact is capable of having a bearing on the outcome that the tribunal will in the ordinary way be required to hear evidence from both sides.

In the present case it seems to me that Mrs. Goldman had probably been right in her initial submission that evidence was not required and that the Chairman's initial agreement, to which he reverted after Mr. Church had been examined, was probably correct. In the event it appears that, nothing in his findings of fact was contentious except the proposition that the price on each workbill was not negotiable; and it is not apparent that this came from Mr. Church. If it had mattered, common sense would have supplied the gloss that such a price is always in the last resort negotiable. But it may not have mattered because the dispute was about those regular jobs which until April 1996 bore a constant price. As to these there has been no suggestion that teams ever decided to turn down such workbills on price grounds or, therefore, ever raised the possibility of renegotiating them. As to a description of the commercial and employment relationships, it may or may not be that this could have added usefully to what, as his Reasons show, the Chairman in the event learned from the documents and the explanations of the parties. Even now we do not know, save in broad terms, what Mr. Ford's witnesses might have contributed; but one cannot say with confidence that they could have contributed nothing.

The Chairman may therefore have been wrong to hear Mr. Church; but having heard him cross-examined by a clearly experienced lay representative, and having evidently formed that view that nothing material was factually in issue, he faced a dilemma. He could either hear out the Respondents’ evidence or he could try to disregard Mr. Church's evidence and get on with the kind of informed and direct argument which industrial tribunals find the most useful, including each side's view of the commercial and employment relationships within which the legal issues had arisen. In choosing the second course, it seems to me (albeit after some hesitation) that he may have given the unintended impression that one side was being more favourably treated than the other. While fairness is principally a question of substance, in proceedings of a judicial nature appearances matter too. Having erred on the side of taking evidence from the applicant, the Chairman should have let the respondents call – and face cross-examination on - such evidence as they wanted to argue was relevant. The misreception of evidence is sufficient to vitiate his decision.

It follows, in my view, that this case should go back to a fresh Employment Tribunal (as it is now named) unless it can be said that irrespective of any further evidence the claim must either succeed or fail. It seems to me very difficult to reach so categorical a conclusion where, ex hypothesi, relevant evidence (which may of course cut either way) remains to be given. Since, however, my Lords are content to decide the appeal on the evidence given thus far, and notwithstanding the failure to hear the evidence in full, and since I have the misfortune to disagree with them about the outcome in these circumstances, it is necessary that I should set out my views on the substantive question of law on the evidence as it now stands.

Unauthorised deductions?

Mrs. Goldman puts her case in two ways. First, she submits that (as the Chairman held) it was a term of the contract of employment that there would be no reduction in workbill prices. She derives this from a letter of 8th July 1985 sent to all employees to notify them that, by agreement with the works committee, there was to be a 5% "revaluation" - meaning reduction - of workbills, but promising that "there will be no further revaluations or other steps taken that would affect everyone". This, I think, can be dealt with briefly. To make the undertaking a term of his employment would require evidence in each case that the employee concerned had been on the labour force in 1985 and had received this letter. There was no such evidence in Mr. Church's case.

Secondly, and more persuasively, Mrs. Goldman relies on the deliberately catholic wording of the legislation. Wages, she argues, are not limited to fixed sums contractually payable. Provided the sums are ascertainable on the payday, the "wages properly payable" include all sums due to the worker "whether payable under his contract or otherwise". Any unauthorised deduction from this sum is recoverable by statute. If, therefore, within a piecework system, an established rate for a regular job is suddenly reduced, this is a deduction from the wages properly payable at the end of the fortnight in which it occurs, and not the less so because the wage is paid collectively and allocated by mutual agreement among the team members.

Mr. Underhill argues that the proper starting point is not the established rate for the job but the amount which the leading hand notifies the employer is due to each employee in the course of the material fortnight. The employer has no knowledge of, and no interest in, the split agreed within each team. The only sum properly payable on payday is therefore the employee's eventual share of the particular workbill price. Absent an obligation to pay an ascertainable greater sum on the due date there can be no breach of the Act, both because there are no wages properly payable save those which are in fact paid and because, by parity of reasoning, there is no greater sum due, whether contractually or otherwise, from which a deduction can be made. Analytically, Mr. Underhill argues, there was no express term that workbill prices would be maintained; such a term is neither obvious nor necessary for business efficacy, and so cannot be implied; its content would in any case be uncertain, for example in relation to teams who had not done a particular regular job before; and absent a contractual right, there was nothing to make the greater sum "payable" at all, even allowing for the breadth of the statutory meaning of "wages".

Two things stand out in the present case. One is that the statutory purpose is to ensure that earnings are not arbitrarily reduced by employers. To this end all sums which are "properly payable" on each payday are protected, whether their source is contractual or not. The other is that the payment system operated by the appellant company, although it does not fit readily into the statutory language, is ex concessis a system for the payment of wages to employees.

In the more usual kind of piecework system a reduction in the rate of work will not amount to a deduction from wages; the employee's only protection is that an employer's failure to provide a reasonable amount of work, barring force majeure, is a breach of the contract of employment: see Devonald v. Rosser [1906] 2 KB 728. Nor can a contractually agreed reduction for poor workmanship be treated as an unlawful deduction: see Sagar v. Ridehalgh [1931] Ch 310. By contrast, to reduce the agreed payment per piece will, absent statutory or contractual authority or written consent, amount to a deduction from the wages properly payable. This much is common ground. The dispute is in effect as to the category to which the present case most nearly approximates.

In my judgment it is to the latter class. The reduction was not in the quantum of work but in the quantum of payment for particular pieces of work, and it was made without prior contractual assent. Each established job carried a known workbill price, and for each the price is now 10% lower. Because the workbill price is 10% lower, each employee's share of it, according to the agreed split within the team, is also 10% lower.

There is no difficulty in ascertaining, in respect of each employee, exactly what the reduction (and hence the deduction: see Bruce v. Wiggins Teape (Stationery) Ltd [1994] IRLR 536) has been. The established rate for each regular job up to the 1st April 1996 is a matter of record with the appellants. That the workbill price for each such job has since then been exactly 10% lower is common ground. Each employee knows, and can give in evidence, his agreed share of his team's workbill prices. There is no evidence (and none could have been given by the employers) that the split within a team, once agreed, was ever varied. The employee's evidence can be easily verified by aggregating his share with those of the rest of his team in order to ensure that they do not exceed 100% of the workbill price. The deduction in any pay fortnight, for statutory purposes, will be the difference between the employee's share of the previously established workbill price for a regular job and his share of the reduced version of it.

Although Section 13(3) of the Act lacks in particularity what it enjoys in brevity, it appears to me to support, indeed to require, this approach. The adverb "properly" is plainly there in order to reflect the phrase "or otherwise" in Section 27(1)(a), and as a deliberate alternative to "contractually". Because of the peculiarities of the New Century payment system, it may be, as Mr. Underhill has submitted, that until the workbill price had been accepted by the team and then split among its members no ascertainable wage was contractually payable by the employer. But it does not follow that this alone, and not a higher figure, was the amount properly payable. For the latter one has to look not only at the contract but at the payment system in order to give effect to the statutory meaning of "wages"; and, in order to decide whether there has been a deduction from the wages properly payable, to look at wages not in isolation on each payday but over time, in order to see whether what has hitherto been properly payable has continued to be paid and, if not, whether the deduction falls within the exemptions contained in Section 13(1)(a) and (b).

Mr. Underhill's argument, it seems to me, proves too much. Although he disavows any impact upon piece-rates generally, it must follow from his argument that in any system in which the price per piece is not contractually set but is offered with the job (and this is by no means peculiar to the Appellants), no breach of the Act occurs if a unilateral cut in established prices is made by the employer. In my view there are at least two reasons why this cannot be so. One is that there is likely to be a contractual term derived from custom and practice, setting the price per piece unless and until it is renegotiated. Such terms are well recognised in employment law as a source - sometimes the source - of many essential terms, including in particular rates of pay: see 16 Halsbury Laws, para 54. Since the rate of remuneration is probably the single most important element of any contract of employment, any party who admits the existence of such a contract but denies that any rate of payment is ascertainable before the job is accepted and done undertakes a hard task. From this flows the second reason. As the editors of Halsbury say (loc. cit.)

"Arguably, therefore, orthodox contract law on the implication of terms may need to be stretched in the context of employment, in particular by placing more emphasis on what would be reasonable terms and by allowing the court to look at the parties' behaviour during the employment but subsequent to the entering of the contract of employment."

This is no doubt why Parliament has not limited wages to what can be contractually ascertained. Defining them so as to embrace all that is "properly payable" aims by looking beyond the lawyer's contract to the industrial reality to avoid some of the niceties of legal analysis which would otherwise arise. The exemptions set out in section 13(1)(a) and (b) make it clear that only prior agreement to a deduction (or statutory authority) waives the rule: Parliament’s purpose, in other words, is precisely to prevent unilateral reductions in established rates of pay. The industrial reality, as Mr. Underhill has confirmed, was that a recurrent job carried a recurrent price. The documentary evidence set out earlier in this judgment makes it clear that the 10% reduction had no direct relationship with the price paid by the customer. It was an across-the-board reduction in workbill prices designed to meet the company's straitened situation. In such a situation the employer is not tied irrevocably to an unaffordable wage rate; but failing agreement he must terminate the contracts, offer new terms, and be prepared to defend the fairness of what he has done under Part X of the Act.

Modern statutes have begun to make a desirable break with a long tradition of Parliamentary drafting which in origin and style had more in common with 19th-century conveyancing than with the needs of modern society. The present legislation is a good example of the modern endeavour to make provisions broad and simple in order to effect a known purpose, avoiding the kind of prescriptive detail which, because the draftsman can never anticipate everything that life is going to bring, frequently proves self-defeating. A purposive construction and a purposive application of such legislation becomes proportionately more necessary. In my view, on the present findings the system with which this case is concerned falls squarely within the statutory purpose and comfortably within the statutory language.

Conclusion

For my part I would allow the appeal to the extent of remitting the case for a fresh adjudication upon complete evidence. Approaching the appeal on the footing favoured by my Lords, however, I would dismiss it.

LORD JUSTICE MORRITT:

1. In the circumstances described by Sedley LJ, which I adopt with gratitude, there are two questions for our determination, namely (1) did New Century contravene s.13(1) Employment Rights Act 1996 when it reduced by 10% the amount payable in accordance with the work bill for regular jobs accepted by the leading-hand? and (2) Did the Chairman of the Industrial Tribunal err in refusing to allow New Century to call evidence?

2. The material provisions of the Act are

13 Right not to suffer unauthorised deductions

(1) An employer shall not make a deduction from wages of a worker employed by him unless-

(a) the deduction is required or authorised to be made by virtue of a statutory provision or a relevant provision of the worker’s contract, or

(b) the worker has previously signified in writing his agreement or consent to the making of the deduction.

.......

(3) Where the total amount of wages paid on any occasion by an employer to a worker employed by him is less than the total amount of the wages properly payable by him to the worker on that occasion (after deductions), the amount of the deficiency shall be treated for the purposes of this Part as a deduction made by the employer from the worker’s wages on that occasion.

.......

27 Meaning of “wages” etc.

(1) In this Part “wages”, in relation to a worker, means any sums payable to the worker in connection with his employment, including -

(a) any fee, bonus, commission, holiday pay or other emolument referable to his employment, whether payable under his contract or otherwise.

[(b)- (j) describe sums payable pursuant to various statutory rights]

.......

(3) Where any payment in the nature of a non-contractual bonus is (for any reason) made to a worker by his employer, the amount of the payment shall for the purposes of this Part -

(a) be treated as wages of the worker, and

(b) be treated as payable to him as such on the day on which the payment is made.

(4) In this Part “gross amount”, in relation to any wages payable to a worker, means the total amount of those wages before deductions of whatever nature.

3. At the end of each fortnight the individual employee expected to receive a wage made up of the share appropriate to him of the work-bill amounts of all the jobs done by his team in the previous two weeks. The amount he expected may be described arithmetically in respect of each job by the equation w = a% x b where b is the work-bill amount for that job and a% is the share of the work-bill amount attributable to that employee. Thus the wage will be the aggregate of w for each job done in the pay period. Plainly the reduction of b by 10% constitutes a reduction by that proportion of an essential ingredient in the calculation of the wage. But does it give rise to a deduction from the wage? The answer to that question depends on the proper construction and application of the statutory provisions, in particular s.13(3).

4. The reduction in b was imposed with effect from 1st April 1996. Thus the question, in terms of s.13(3), is what was the wage properly payable to Mr Church on the first pay day thereafter. The word “payable” clearly connotes some legal entitlement. The adverb “properly” is also consistent with a legal requirement but is not necessarily limited to a contractual entitlement. This is confirmed by the provisions of s.27(1)(a) which show that the wages “properly payable” may not be due under the contract of employment. But the words “or otherwise” do not, in my view, extend the ambit of “the sums payable to the worker in connection with his employment” beyond those to which he has some legal entitlement. With the exception of the “bonus” referred to in s.27(1)(a) all the sub-paragraphs of that subsection refer to sums to which the employee has some legal entitlement. The case of a bonus is specifically dealt with in s.27(3) which provides that the amount of the bonus paid is to be treated “as payable”. The bonus is thereby deemed to have been a legal entitlement. In my view the provisions of s.27(1) and (3) confirm that “the wages properly payable by him [sc. the employer] to the worker” are sums to which the employee has some legal, but not necessarily contractual, entitlement.

5. The only legal entitlement on which Mr Church relies is his contract of employment. For Mr Church to have a contractual entitlement to a wage calculated in accordance with the formula it is necessary for him to establish two propositions; first, that his employer was not entitled unilaterally to reduce b, second, that a% was sufficiently certain to have contractual force. In my view Mr Church fails to establish either of them.

6. It is well established that where the employee is remunerated by reference to the work actually done, ie piece-work, the employer is bound to provide his employee with a reasonable amount of work. cf Devonald v Rosser [1906] 2 KB 728. But there is nothing in Mr Church’s contract of employment which entitles him or his team to do the same jobs each week for the same price or work-bill amount. Plainly the client of the employer may take his custom elsewhere or reduce the amount he is prepared to pay for the job. It would be contrary to the practice of the employer and employees to imply any such entitlement. In my view, therefore, there was no obligation on the employer to maintain b at a fixed amount.

7. The finding of the Industrial Tribunal as to a%, contained in paragraph 7 of the decision, was that

“Within the team, it is agreed between the leading hand and other members how much each will receive as a proportion of the amount paid by [the employer] for each job. In the case of Mr Church, he and his colleague split the amount for the job equally. The leading hand thereafter completes a daily wage summary showing the job number, the amount to be paid to the individual team member and the amount for the job done by the team. The leading hand also completes a weekly wage summary, showing how each weeks total for all jobs will be split between the members of the team. On the basis of those documents, [the employer] pays each member of the team the amount shown in the weekly wage summary..”

It is clear from this description that the amount due to each employee in respect of each job is dependent on the agreement reached by him with the leading hand and, no doubt, the other members of the team. Thus a% is not a fixed proportion, nor is it objectively ascertainable; it depends on the agreement made by the employee with a third party. In my view the uncertainty as to a% prevents the ascertainment of a wage properly payable on the first pay day after 1st April 1996. It all depended on the agreement made as to what should be paid on that day in respect of each job going to make up the overall wage.

8. It follows that the reduction of b by 10% was not a deduction from the wage payable but a change in one of the components necessary to its calculation. This distinction was recognised by this court in the context of the Truck Acts in Sagar v Ridehalgh & Son Ltd [1931] 1 Ch. 310 and is, in my view, equally applicable to the proper construction and application of the provisions of the Employment Rights Act 1996 relevant to this appeal. It follows that in my view both the Industrial Tribunal and the Employment Appeal Tribunal were wrong in the conclusion they reached on the basis of the evidence tendered by Mr Church so that the appeal should be allowed on that ground alone.

9. In these circumstances it is unnecessary to reach a conclusion on the second question unless the other members of the court reach a different conclusion on the first question. If the point does arise it is necessary to approach it on the assumption that this court concludes that the Employment Appeal Tribunal reached the correct legal conclusion on the facts, as found by the Industrial Tribunal.

10. But in that event I find it impossible to uphold the conclusion for the Industrial Tribunal only heard evidence from the employees. The reason for this unusual, and prima facie irregular, procedure was the uncertainty of the chairman whether the issue before his was one of law alone or a mixed question of law and fact. In my view it was clearly a mixed question of law and fact in respect of which he was bound to afford the employer an opportunity to adduce evidence. Even if it was a pure question of law, having heard evidence from one side he should have been astute to ensure that the evidence the employer sought to adduce was wholly irrelevant before refusing to hear it. Even then it would have been necessary to explain in some detail the basis of the decision to refuse to hear the evidence of one of the parties. The decision of the Industrial Tribunal is silent on the point.

11. If the Employment Appeal Tribunal had concluded that the issue before the Industrial Tribunal was one of law alone and if the decision of the Industrial Tribunal had explained in detail the reason for the decision then the rejection of the complaint that the Industrial Tribunal had wrongly denied the employer an opportunity to adduce any evidence in answer to that of the employee might have been supportable. But the decision of the Employment Appeal Tribunal was to the opposite effect. They concluded that the Industrial Tribunal was entitled to reach the conclusion it did because it was

“a decision on the facts as found in this case....The proper construction of the expression “properly payable” in s.13(3) will depend on the facts of each case and may be left to the good sense of Industrial Tribunals.”

Though the application of the section will depend on the facts its construction cannot. Thus the Employment Appeal Tribunal must have been referring to the application of the section. But in that event their conclusion, omitted from the quotation above, that

“We do not accept [the employer’s] complaint that he was prevented from calling material evidence which would have altered the factual basis for the Chairman’s decision.”

is unacceptable. The employer undoubtedly had material evidence to give. First, there was the question whether the work-bill amount quoted by the employer to the leading hand was treated by them as negotiable. Second, there was the overall commercial relationship which was relevant to the implication of a term that the work-bill amount might not be reduced unilaterally by the employer. It was not for the Employment Appeal Tribunal to decide that none of that evidence could have caused the Chairman to alter the factual basis for his decision.

12. Accordingly if the decision of this court on the first question is in favour of Mr Church, for the reasons I have given, I consider that the decision on the second question must be in favour of the employer. In that event I would allow the appeal, set aside the order of the Employment Appeal Tribunal and direct that the application of Mr Church be reheard by a differently constituted Industrial Tribunal.

LORD JUSTICE BELDAM:

For over 150 years Parliament has intervened to prevent employers making unauthorised deductions from the wages properly payable to their employees. In practice, however, it has proved difficult to apply the legislative provisions to all the varied systems of payment throughout industry. The Truck Acts 1831-1940 and the Wages Act 1986 disclosed and sought to overcome some of the difficulties. In this case the court is required to apply the more far reaching provisions contained in Part II of the Employment Rights Act 1996 to a method of payment of wages introduced in the early years of the century. The system, as far as I am aware, is unique to the industry of window cleaning but contains some of the attributes of piecework. The way in which the payment of wages operated in this case is set out in the judgment of Sedley L.J. and I gratefully adopt his account for the purpose of this judgment. It is taken from the findings of the Employment Tribunal after it decided to hear evidence from the applicant employee only. I approach the issues in the case on the basis of those findings with the reservation that they are not based on agreed facts and in particular do not take into account all the facts set out in paragraph 4 in the employer’s statement of particulars of the grounds on which it intended to resist the application. In this paragraph the employer contended:

“4. ...when a window cleaner is given a work bill, he is in effect being offered the opportunity of doing the work concerned for the wage value shown on that occasion. He may decline to do the work at that price and attempt to negotiate a higher payment; alternatively, the respondent may offer the work to somebody else. While the respondent is obliged to provide him with work so that he can earn his wages, and extra work can often be made available, it is under no obligation to ensure that he earns any specific amount. The respondent therefore submits that his complaint does not fall within the provisions of S. 1 Wages Act 1986 (now S. 13 Employment Rights Act 1996), and should therefore be dismissed.”

Mr Underhill Q.C. for the employer raises two questions for the court.

First he submits that the chairman of the tribunal was not justified in holding that the employer could not reduce the amount of the rate offered for regular jobs by 10% without contravening the provisions of Section 13 of the Act.

Secondly he submits that, in failing to accord the employer the opportunity to call evidence in support of its interpretation of the terms of employment, the chairman acted contrary to natural justice.

I consider the answer to the first issue depends on what is meant by the words in Section 13(3) of the Act:

“... the total amount of the wages properly payable by him to the worker on that occasion (after deductions) ...”

The occasion referred to is clearly the occasion of the payment of wages from which it is claimed that an unauthorised deduction has been made. The question is what wages under the system in operation in this case were “properly payable” to the employee. The employee contends that the amount properly payable to each of the employees in the team is that shown in the work bill completed and handed in by the team leader for the payment period immediately prior to the reduction by 10% in the amounts offered by the employer for the individual jobs.

The effect of the employee’s claim is that once a job has been accepted at a particular rate it cannot thereafter be offered at a lower rate without his consent. If the job is accepted and paid for at a lower rate, there has been an unlawful deduction from the amount of the wages properly payable.

The employer, on the other hand, submits that the amount properly payable is that shown in the work bill completed for the payment period for which payment is made.

The reasons given by the chairman of the Employment Tribunal for deciding in favour of the employee’s interpretation were contained in paragraphs 24 and 25 of his decision.

“24. In my judgment the rate of remuneration for the jobs was a contractual entitlement of the Applicants. It could not be varied without the consent of the workers. I arrive at that decision having regard to the view that I have formed about the role played by the rate in the calculation of wages; and having regard to the implied term established by the decision in Devonald’s case.

25. I further find, in the alternative, that even if the rate of remuneration is not a contractual entitlement, it nevertheless constitutes a key element in the calculation of the sum payable to the worker in connection with his employment, and therefore directly affects the sum payable as “wages” as defined by Section 27(1). Having regard to the extended definitions set out in the statute, and the case law to which I have referred, I find that the “wages properly payable” are those which were being received before the unilateral reduction in rates and therefore there has been an unlawful deduction within the application of Section 13.”

The first reason for the decision is contractual entitlement. Having regard to the chairman’s perception of “the role played by the rate in the calculation of wages” and having regard to the implied term established by the decision in Devonald’s case, he finds that the amount offered by the employer for the jobs was a contractual entitlement. The chairman’s alternative finding is that, even if the amount was not payable under the employee’s contract it could not be varied by the employer because it was “within the extended definition of wages in Section 27”. The chairman is paraphrasing the words “whether payable under his contract or otherwise” in Section 27(1)(a). Beyond stating that the rate of remuneration is a key element directly affecting the sum payable as wages, he does not identify any circumstance making the amount payable otherwise than under the employee’s contract.

I find it convenient to consider his alternative finding first.

For wages to be “properly payable” by an employer he must be rendered liable to pay either under the contract of employment or in some other way. Section 27 contains some examples of sums which may be payable either under contract or because for some other reason the employer is liable to make payment as an addition or supplement to “wages”. An example of a sum properly payable otherwise than under contract would be a minimum wage payable by order of a wages council. Nor is it difficult to see how a fee, bonus, commission, holiday pay or other emolument referable to employment may be payable otherwise than under the contract of employment. Such payments may be customary or required by collective agreements without express provision being made in a contract of employment. In the present case the employees were paid £17 per day for Bank Holidays and £125 per week holiday pay. But the remuneration for work actually carried out was I think payable in accordance with the proper interpretation of the terms of the contract of employment or it was not. The terms either entitled the employer to vary the amount of the rate he was prepared to offer for each individual job or they did not. If they did and the amount was accepted by a team leader as the basis on which he completed the work bill, the amount as divided between the team became the amount payable on that occasion. If a term could be implied into the contract of employment that, once an amount offered for the job had been accepted, the employer could not reduce it by offering less, then the amount payable would be the amount agreed on the earlier occasion. In either case the amount would be payable under the contract of employment.

Mrs Goldman for the employee argued that provided the amount of a shortfall could be ascertained on the pay day it was “properly payable” but in my view this begs the question. Whether something more than the amount stated in the work bill was “payable” depended upon the proper interpretation of the contract of employment and since there was no express term to that effect whether it is reasonable to imply such a term.

So I turn to consider how far in this case the chairman was justified in his conclusion in paragraph 24.

The chairman stressed “the role played by the rate (offered by the employer) in the calculation of wages”. Of course the rate offered was a key factor in deciding in any week the total amount the team earned (though not how much each member of the team earned as Morritt L.J. has pointed out). But the rate played the same role whether it changed or not. It was, no doubt, perceived as having a significant bearing on the total amount of the wages each member of the team earned but there were a number of additional background facts which it seems to me could have a bearing on the interpretation to be placed on the offer of the rate by the employer.

(i) The employer was not bound to consult with the employees before fixing a rate for any particular job.

(ii) Separate and different rates were offered for each job.

(iii) It was accepted on both sides that the employees could on collecting the work bill choose whether or not to do a particular job on the work bill. I understand this to mean that, even if they had on an earlier occasion accepted a job at the rate offered, they were not thereafter bound to accept it.

(iv) If a job was refused by a team, the employer was free to offer it to another of the teams.

(v) The teams had no set hours of work. They arranged the work in their own time and decided among themselves how to divide the amount offered for each particular job.

In the course of argument I understood Mrs Goldman to accept that an employee would have no claim under Section 13 if a regular job was cancelled by the customer and so lost altogether. Further, where a cleaning contract did not come within the definition of a regular job for example one which was only available periodically, the employee could have no claim under Section 13. These circumstances raise other significant questions. If a team refused the offer of a job and the employer was free to offer it to another team, did it have to be offered at the same rate or could the employer fix a different rate? Further, if a regular job was lost, could the work of other teams be re-arranged so that the loss (insofar as it could not be made up by other jobs) would be shared between all the teams and not fall entirely on the one team which was doing that job? It was apparently accepted that in the present circumstances the employer had been able to find additional work to make up for the reduction of 10% in the amounts offered but employees, or some employees, were having to work additional hours to achieve the same earnings.

We were referred to the judgments in the case of Devonald -v- Rosser [1906] 2 KB 728 on which the chairman relied.

In that case the defendant employer had closed its tin plate works for lack of work. The plaintiff, who was paid on piecework rates, sued to recover damages based on the average weekly amount of his earnings during the period of the notice to which he was entitled. The court held that there was an implied undertaking by the defendant to provide the plaintiff with a reasonable amount of work so long as the employment lasted and that the measure of what was reasonable was the average amount the plaintiff earned previously to the stoppage of the work. After considering the terms of the contract, Lord Alverstone C.J. said at page 740:

“In my opinion the necessary implication to be drawn from this contract is at least that the master will find a reasonable amount of work up to the expiration of a notice given in accordance with the contract. I am not prepared to say that that obligation is an absolute one to find work at all events, but the evidence shewed that it was subject to certain contingencies, such as breakdown of machinery and want of water and materials ...”

Sir Gorrell Barnes, the president, said at page 742:

“That leaves the question to be determined what is the implication which ought to be adopted with regard to this contract? The contract is one in which the workman is obliged to remain at work until the expiration of a notice such as that contemplated by the contract. Neither he nor his employer can put an end to the contract except in accordance with the terms provided as to notice in rule 1. So that there is a binding obligation to work, and it seems to me that there must be a necessary implication - an implication arrived at by applying the principles which Bowen L.J. laid down in The Moorcock - that, unless restricted by something else, an employer ought to find work to enable a workman to perform his part of the bargain, namely, to do his work. It seems, therefore, that the question which really has to be considered is how far that general and necessary implication in such a contract is qualified by considerations as to who takes any particular risks which may affect the continuance of the work ... Therefore the general implication that, on the one side, the workman shall work, and, on the other, the employer shall find work for him to do, does not seem to me to be cut down by anything in this case so as to relieve the defendants from their obligation to continue the contract and provide the necessary work.”

Farwell L.J. said at page 743:

“What, then, are we to infer would be a reasonable bargain such as the parties here, being businessmen, must have intended to make? We are, as Bowen L.J. said, “not to impose on one side all the perils of the transaction, or to emancipate one side from all the chances of failure, but to make each party promise in law as much, at all events, as it must have been in the contemplation of both parties that he should be responsible for in respect of those perils or chances.” In my opinion it would be eminently unreasonable for the master to claim the right to say “I do not consider these prices sufficiently remunerative and I will therefore decline to find any further work for the man during the time when he is bound to hold himself ready to obey my orders”. On this question of reasonableness it is to be noted that judges in former days have taken the same view ...”

The background circumstances in that case were clearly of significance to the implication of the term there implied that, if the workman was obliged to work until the expiry of notice, the employer was bound to provide work or pay wages based on average earnings. Two criteria inform the judgments. First the term implied was not to be regarded as “absolute” in the sense of applying to all eventualities and secondly the nature of the term to be implied into the relationship was reciprocal or bilateral. The question in this case is whether when the parties have agreed on this method of payment it is reasonable to imply a term that a rate, once offered by the employer for a “regular” contract and accepted by one of the teams on that occasion, could not be changed without the consent of the employee.

In Liverpool City Corporation -v- Irwin [1977] AC 239 at page 253 Lord Wilberforce described the process of implication thus:

“To say that the construction of a complete contract out of these elements involves a process of “implication” may be correct; it would be so if implication means the supplying of what is not expressed. But there are varieties of implications which the courts think fit to make and they do not necessarily involve the same process. Where there is, on the face of it, a complete, bilateral contract, the courts are sometimes willing to add terms to it, as implied terms: this is very common in mercantile contracts where there is an established usage: in that case the courts are spelling out what both parties know and would, if asked, unhesitatingly agree to be part of the bargain. In other cases, where there is an apparently complete bargain, the courts are willing to add a term on the ground that without it the contract will not work - this is the case, if not of The Moorcock (1889) 14 PD 64 itself on its facts, at least of the doctrine of The Moorcock as usually applied. This is, as was pointed out by the majority in the Court of Appeal, a strict test - though the degree of strictness seems to vary with the current legal trend - and I think that they were right not to accept it as applicable here. There is a third variety of implication, that which I think Lord Denning M.R. favours, or at least did favour in this case, and that is the implication of reasonable terms. But though I agree with many of his instances, which in fact fall under either one or the other of the proceedings heads, I cannot go so far as to endorse his principle; indeed, it seems to me with respect, to extend a long, and undesirable, way beyond sound authority.”

For my part I would accept that the current legal trend in contracts of employment is against too strict an interpretation and favours a liberal approach to terms to be implied if only for the purpose of promoting good industrial relations. Nevertheless this does not seem to me a sufficient mandate for the Industrial Tribunal to imply the term implied in the present case. Such a term seems inconsistent with the right of the employees to refuse to carry out a job if, for example, they decided the rate offered was insufficient. It appears to give the employees the right to demand more but with no reciprocal right in the employer to offer less. As the employees complain that as a result of the reduction the team has to work longer hours to earn the same or in some cases an increased wage, the term seems to imply that all jobs offered must be capable of being completed in a set number of hours but this seems contrary to general method of payment in which the time taken is left to the team members.

For example, suppose the employer obtains a new job with greater profit margins and able to be done in the same time as one of the jobs which make up a team’s fortnightly programme. The employer wishes to substitute the new job and at the same time to make a reduced offer for a regular job. The overall amount offered to the team for the programme is not reduced. The wages and hours worked remain the same and there is no deduction but the term implied by the Industrial Tribunal would mean that the employer could not take this course without the consent of the employees.

Having regard to the nature of the employment and to the terms in fact agreed, I find it difficult to hold that it was an implied term that once the amount offered for a regular job was accepted by a particular team that job had to be offered to the same team, though it usually was, or that the amount offered to the team to do the job would necessarily remain unaltered. Accordingly I would hold that the amount of wages properly payable by the employer to the worker under Section 13(3) was in the circumstances of the present case the amount stated in the work bill completed by the leading hand and handed to the employer for the payment period in question.

If, however, I am wrong about this, I would nevertheless accept Mr Underhill’s second submission that this matter should be remitted to the Employment Tribunal to give the appellant employer the opportunity to call the evidence he desired to call and which the chairman declined to hear. I agree that the reasons given by the Employment Appeal Tribunal for rejecting this ground of appeal are unsatisfactory and I agree with Morritt L.J. that the employer had material evidence to give in the circumstances of this case. The way in which the jobs were costed and allocated and the practice of the employer concerning the allocation of jobs to particular teams and that adopted if a regular contract was lost could, it seems to me, have affected the question how far it was necessary in the contracts of employment to imply a term that the employers could not change the amount offered for a particular job once it had been offered to and accepted by one team. I do not believe it is for this court in these circumstances to attempt to assess the relevance or weight of evidence which the employer could have given but was prevented from putting before the tribunal. To my mind it is not simply the substance and form that matters, it is the appearance of justice. Justice is the giving of each party his right. Having decided to hear evidence from one side, the chairman ought to have afforded the employer the opportunity to call the evidence he wished. The position was not so clear that whatever evidence was offered it could have no effect on the result of the case. For these reasons, I would allow the appeal.

Order: Appeal allowed with costs, costs to include the costs reserved on the respondent's application on 5 October 1998; originating application dismissed; application for leave to appeal to the House of Lords refused. ( This order does not form part of the approved judgment )