United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	MS M TETHER (of Counsel) Messrs Norton Rose Solicitors Kempson House Camomile Street London EC3A 7AN
For the Respondent	MR M WESTGATE (of Counsel) Legal Officer UNISON 1 Mabledon Place London WC1H 9AJ


 


JUDGE H J BYRT QC: This is an Appeal against a decision, promulgated on the 20^th April 1998, of an Employment Tribunal Chairman, sitting alone in Brighton. By that decision, the Chairman held that HAWAM had made unauthorised deductions from the Applicant's wages amounting to £56.89, contrary to Section 13 of the Employment Rights Act 1996. HAWAM, the employers, appeal.

1. HAWAM is a wholly owned subsidiary of Lewes Tertiary College who employed Ms Hughes, the Respondent, as a secretary/administrative assistant between August 1995 and the 10^th October 1997, the date on which she resigned. Her contract of employment stated that her salary

"… will be reviewed annually in accordance with Corporation policy."

2. Each year, The Association of Colleges issued an annual recommended pay award for the staff at Colleges of Further Education. The individual colleges have a discretion whether to accept and implement the award, that decision being largely dictated by the funds available. For the year 1997/98, the Association recommended a pay increase of 2½% with effect from the 1^st August 1997. Lewes College decided that, owing to a shortage of funds, the only way they could consider such an increment in salary would be if they introduced a profit related pay scheme such as is provided for under Chapter III of the Income and Corporation Taxes Act 1988. Payments made under a registered scheme are exempt from income tax, and though staff volunteering to participate in such a scheme are required to accept a reduction of their gross pay, their total net pay in fact increases because of the beneficial tax regime applicable. Such a scheme is beneficial to the employer too in that it enables him to make savings out of which to afford a salary increase for the staff.
3. In April 1997, the College explained the advantages of a profit related pay scheme to the staff. They were told:

"The College is not in a position to guarantee the Nationally Agreed Pay Award for the coming year. However, in view of the cost savings possible to the College, the College proposed to guarantee that the award is met in full to all employees who enter the profit related pay scheme. The College will not be in a position to make this guarantee to employees not entering the scheme and will view each of those employees' remuneration package on an individual basis."

4. It was agreed with the Inland Revenue that a small group of staff falling within three particular categories would not be invited to join the scheme but, of the remainder, at least 80% had to express a willingness to participate if the Inland Revenue were to approve the scheme.
5. In due course, at least 80% signified their acceptance of a profit related pay scheme and that such a scheme was implemented as from the 1^st July. Those who had elected not to join were, by a letter from the employers dated the 9^th July, offered the opportunity to change their minds. Ms Hughes elected not to join and she held to her decision.
6. At a Corporation meeting, held on the 2^nd July, it was resolved that both those who had elected to join the scheme, and those excluded from it under the agreement with the Inland Revenue, would receive the recommended award of the 2½% increase in salary as from the 1^st August 1997. Those who had elected not to join and maintained that position, would not receive the increase until the 1^st July 1998. Those awards were announced to the staff on the 9^th July. From then on, Ms Hughes knew she was not in line for an increase in salary until July 1998. On the 10^th October 1997, Ms Hughes resigned from the College, and on the 2^nd January 1998, launched her applications before the Tribunal.
7. In concluding that there had been an unlawful deduction of wages, the Tribunal Chairman said this:

"15. The Corporation policy had always been to give the salary increase to all staff on a date to be decided. If the salary increase was dependant on the success of the profit related pay scheme, it would be logical to give the increase to those in the profit related pay scheme at an earlier date than other staff. However, the College was both illogical and vindictive in giving the increase on the 1^st August 1997 also to those not in the profit related pay scheme, and in delaying the increase to the 1^st July 1998 only to those who had not elected to join the profit related pay scheme.

16. … the applicant's salary was not reviewed annually in accordance with the Corporation policy. The applicant's contract of employment required that her salary should be reviewed annually in accordance with the Corporation policy and the Tribunal finds that the annual increase was awarded by this Corporation but the applicant was exceptionally excluded from that increase."

8. He therefore made an award based on deduction of 2½% wages between the 1^st August and the 10^th October 1997.
9. The Chairman's conclusion stemmed from his finding that the Corporation decision to extend the salary increase to all staff except those who had, of their own free will, decided not to participate in the profit related pay scheme was illogical and vindictive. Therefore, there had been no fair and reasonable implementation of Ms Hughes' contractual entitlement to an annual review, nor a fair and reasonable application of a Corporate policy. As a result, she did not get the salary increase she was contractually entitled to or for which she had a reasonable expectation.
10. Mr Westgate, for Ms Hughes, supported the Chairman's findings that the College had been illogical and vindictive in exempting Ms Hughes and those in her category from the salary increase. He submitted that this was a finding of fact for which there was evidence and which therefore should not be disturbed by this appellate Tribunal.
11. He then submitted an argument based on a careful analysis of what he contended was implicit in the Chairman's findings in the above quoted paragraphs 15 and 16 of his Reasons. The overall issue was whether the 2½% salary increase which the College Corporation had on the 2^nd July decided to pay to the rest of the staff was "properly payable" within the meaning of Section 13(3) of the Act, to Ms Hughes

(a) pursuant to the terms in her contract that there would be an annual review of the salary in accordance with Corporation policy and/or

(b) having regard to her reasonable expectations that she would be paid the same as her peers: see Kent Management Services -v- Butterfield [1992] ICR 272.

12. Mr Westgate submitted that once the Corporation had conducted their annual review and determined that there would be a 2½% salary increase, they were obliged to implement that policy decision across the board. That was Ms Hughes' contractual entitlement. Further in the alternative, he argued that even if Ms Hughes had no contractual entitlement to the salary increase, she had a reasonable expectation that she would be paid the same as the rest of the staff, and that, whilst the employers had a contractual right to determine whether and how a salary increase would be paid, the discretion thereby given them had to be fairly and reasonably exercised. Either way, he submitted the Chairman's decision was within that broad band of what is reasonable, and therefore the appeal should be dismissed.
13. Ms Tether, for the employers appealing, criticised the Chairman's finding that the Corporation's decision to exempt Ms Hughes and those in like position from the salary increase was illogical and vindictive. She submitted that such a finding was perverse. In his recitation of the facts, the Chairman had accepted as part of the essential narrative that the implementation of a profit related pay scheme was the only way the College could fund the recommended salary increase; that in April, the staff were told that the scheme entailed a reduction of their gross salary but that the tax benefits of the scheme would enable their net pay to be increased; that as an inducement to the staff to support the scheme, they were told that the 2½% recommended salary increase could be guaranteed if they accepted the scheme but that for those not willing to participate there could be no prospect of an increase in the immediate future. Such increase as might later be afforded would depend on the funding being available. Ms Tether suggested it would, in effect, have amounted to a breach of faith with those who opted to join the scheme had the Corporation decided on the 2^nd July to pay those who had opted out a salary increase of 2½% without a reduction in their gross salary, or had they decided to pay those who opted out the same salary increase they had promised the rest of the staff in April as an inducement for them to opt in.
14. She further submitted that the Corporation's policy decision on pay, taken on the 2^nd July, was reasonable when once the reasons for the introduction of a profit related pay scheme were properly understood, and the Chairman's decision to reject the employers' case as illogical and vindictive suggests he was substituting his own judgment for that of the employers.
15. For good measure, she submitted that the employers' pay decision entailed no breach of Ms Hughes' contract, and further, that there was no ground for suggesting she was entitled to receive an increase of the order of 2½%.
16. Ms Tether objected to Mr Westgate's argument, based on Ms Hughes' entitlement arising from what she might reasonably have expected. The point had not been taken below nor had it been addressed in her Notice of Appeal, and if the argument were allowed to be heard, it would entail the hearing of additional evidence as to what she might have reason to expect.
17. What is to be made of these respective arguments?
18. We think it is reasonably clear that what the Chairman regarded as illogical and vindictive was not the disparity of treatment meted out to those who opted in and those who opted out. It would seem he was criticising the increase in salary given to those three categories of staff who, by agreement with the Inland Revenue, were not allowed to join the scheme. The Chairman does not give his reasons for criticising the Corporation's decision in such perjorative terms but we think it is fairly obvious what they might have been. The problem presented by the latter grouping of staff would have been canvassed at the Corporation meeting on the 2^nd July, and the issue considered would have been whether, on the assumption that the funds were available to pay them the increase, that group should be included or excluded from the salary increase. A point of concern would have been whether it was fair to exclude them when it was the employers themselves who had deprived them of the choice by expressly excluding them from participation in the scheme. It is reasonable to infer from the decision taken that the funds were available to pay them the increase, and that it was thought fair that they should be paid such an increase, provided Ms Hughes and those like her who had made the election to opt out, were given the opportunity of changing their minds to opt in when, in the letter of the 9^th July, they had seen what was at stake.
19. It was not a matter for the Tribunal Chairman, any more than it is for us, to say whether the Corporation's decision was right or wrong. If it was within that broad bracket of what might be termed reasonable, no one would be right to criticise it. As it is, however, the Chairman clearly thought that their decision was outwith that bracket. He said it was illogical and vindictive. We cannot find anything in his findings which would justify that view. On the facts he recited, it would appear the Corporation had a difficult conundrum to answer and, prima facie, came to a decision which was reasonable. With respect, we are of the view that the Chairman made an erroneous assessment of his employers' decision; alternatively, he simply substituted his own opinion of what was reasonable. Either way, it is our judgment that in so doing, the Chairman erred in law. Unhappily, his assessment of the employers' conduct would have an obvious impact on the issues whether the employers had acted in breach of contract in making their arrangements for the salary increase or had denied Ms Hughes' entitlement to what she might reasonably have expected. Had the Chairman taken the view that the employers' decision as to which groups should be included in the salary increase was within the bracket of reasonableness, it would be difficult to conceive how that decision could be one which was in breach of contract or outwith what might reasonably have been expected.
20. In the circumstances, we think that this Appeal must be allowed. We have considered what further directions we should make. In our judgment, it was undesirable that the case should have been determined by a Chairman sitting alone. It is a case where both parties should have had the benefit of the full industrial jury, determining what, in the circumstances, was fair and reasonable. Accordingly, we direct that the case be remitted to be heard by members and a different chairman. It will be for that newly constituted Tribunal to hear and determine whether Ms Hughes should be allowed to amend her grounds of application so as to include an argument based on Butterfield's case (supra).