United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellants	MR R PULLEN (of Counsel) O H Parsons & Partners Solicitors 3rd Floor Sovereign House 212-224 Shaftesbury Avenue London WC2 8PR
For the Respondents	MR J McDONALD (Representative) Tara Management Services 7 Woodstock Drive Worsley Manchester M28 2NP


 


JUDGE WILCOX: This is an appeal from the decision the Employment Tribunal at Manchester on 13th August 1999. The unanimous decision of the tribunal appealed against is that the respondents are not and have not been in breach of the provisions of the Working Time Regulations 1998 and therefore the appellants' complaints that they have made unauthorised deductions from wages are dismissed.

1. The respondents are a decorating company. The appellants were engaged by them, Mr Davies, Mr Rickerby and Mr Seel.
2. The matter can be shortly put into perspective in terms of the findings of the tribunal.
3. Until April 1997, the majority of the people who worked including the respondents, had their remuneration paid gross without deduction in respect of tax and National Insurance. They were not paid when they were not working, including when they were on holiday. Of course, as is known, the Inland Revenue looked closely at these arrangements and many of the business such as this company, in the business of supplying painting and decorating services and having some 70 employees, decided that they would 'put their employees on cards'. They issued contracts of employment. The status of the appellants then changed from being self-employed to being employed persons under a contract of service.
4. The arrangement then it seems was that holiday arrangements were funded by way of a holiday scheme. A weekly deduction that the tribunal found was £20 per week was made from the employees' wages. This provided a fund out of which £40 per day was paid to the employees for 15 days annual holiday and eight days of statutory holiday. The holiday year was stated to run from 1st January to 31st December.
5. The finding of the tribunal at paragraph 7 is in ambiguous terms:

"Whether or not all or some of the employees took exception to the scheme, the fact of the matter was that they agreed to it and worked under it. The Tribunal is satisfied, having considered all the evidence, that the gross remuneration for employees, before the deduction of the £20 per week for the Holiday Fund, was arrived at on the basis of taking into account the fact that employees would be making payments into the fund in order that they could receive remuneration whilst on holiday."

6. The earlier scheme that operated was submitted by the employers to have been a voluntary scheme. There is no evidence before us one way or other in relation to that. There is no finding of the tribunal as to that matter. There is no documentation in the material that is before us that would throw any light upon it.
7. What is clear beyond a doubt is that by the time the 1998 Regulations came into force on 1st October 1998, these were contractual employees. They were being paid a rate of pay.
8. What is the effect of the 1998 Regulations so far as they were concerned? Mr McDonald accepts when it was put to him in the course of argument, that the object of the 1998 Regulations was to confer a benefit upon the employees.
9. What did the respondents do? The respondents, as so found by the tribunal, mindful of the 1998 Regulations, decided that it was necessary to review their remuneration policy since they would have to fund paid holidays of their employees in accordance with the 1998 Regulations. They therefore decided unilaterally to reduce all employees' hourly rates of pay in order to assist them in meeting the cost of future holidays. This was to take effect from 1st January 1999. In the case of Mr Davies, his hourly rate was reduced from £5.94 per hour to £5.64. Thereafter he was entitled to four weeks paid holiday.
10. It seems to us clear upon the submissions of Mr McDonald and the figures before us, that the reduction in the hourly rate was in order to fund the obligation of the employers to provide holiday pay. The reduction was unilateral. That is, it was not with the consent or agreement of the employees. It was something that had been foisted upon them.
11. It seems to us that that finding alone justifies us characterising the approach to this matter by the tribunal below as an error in law in concluding that the £20 deduction made by the respondent from the appellants' salaries, discharged the respondents' liability to provide paid holidays under the 1998 Regulations.
12. We go to those 1998 Regulations. Firstly, Regulation 13:

"(1) Subject to paragraphs (5) and (7), a worker is entitled in each leave year to a period of leave determined in accordance with paragraph (2)."

We need not trouble with paragraph 2 nothing turns upon it in this case. It goes to the assessment of the entitlement to paid leave.

13. Regulation 16 provides for payment in respect of periods of leave:

"(1) A worker is entitled to be paid in respect of any period of annual leave to which he is entitled under regulation 13, at the rate of a week's pay in respect of each week of leave."

The rate of pay is set down in Regulations 16(2) making reference sections 221 and 224 of the Employment Rights Act 1996:

"Sections 221 to 224 of the 1996 Act shall apply for the purpose of determining the amount of a week's pay for the purposes of this regulation, subject to the modifications set out in paragraph (3)."

Nothing turns upon that in relation to this matter.

14. It seems to us that what the tribunal has done is to make a fundamental error of law by holding that under a contract of employment agreed between the parties they can without consent, and unilaterally reduce the entitlement to pay and wages in order to fund the holiday pay. Other considerations may arise if there has been a consensual arrangement, either by a variation of contract or a new contract. Here there was no such agreement, and we find that no deduction in this case could properly be made.
15. We think that there is no point sending this back to a tribunal. The appeal is allowed and we order that those deductions made in relation to each of the three appellants shall be repaid to them.
16. Out of deference to the arguments of Mr Pullen, I should briefly mention two matters. He addressed arguments to us under Regulation 16(5) as to contractual remuneration paid to a worker. Since it does not arise on the facts of this case, we do not intend to express a view upon that. Furthermore, he addressed arguments in relation to Regulation 35, restrictions on contracting out. He clearly saw the ambiguous finding at paragraph 7 of the tribunal's findings. We have already expressed the view that that clearly is overtaken by the tribunal's firm and, its seems, uncontroverted finding that this was a unilateral imposition of deductions. Therefore questions of consensual agreement and whether they offend against Regulation 35 we find in this case do not arise and we do not express a view therefore.