United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellants	MR NICHOLAS UNDERHILL QC Messrs Nabarro Nathanson (Solicitors) 1 South Quays Victoria Quays Sheffield S2 5SY
For the Respondents	MISS BEVERLEY LANG QC Messrs Whittles Solicitors Pearl Assurance House 23 Princess Street Albert Square Manchester M2 4ER


 


JUDGE PETER CLARK: This is an appeal by the employer, Aviation & Airport Services Ltd ('the Company') against a decision of the Manchester Employment Tribunal, promulgated with extended reasons on 20th December 1999, upholding complaints of unauthorised deductions from their pay by Mrs Bellfield and 15 other employees ('the applicants'). The case involves the proper application of the National Minimum Wage ('NMW') provisions, which came into force on 1st April 1999.

The Facts

1. The Company provided services for the disabled under contract at Manchester Airport. That service operated 24 hours a day, 7 days a week, 365 days a year.
2. The applicants were employed by the Company at the airport on that contract. The case of Mrs Bellfield was treated as typical of all 16 applicants. She was employed as a Customer Care Agent.
3. Her terms and conditions of employment were, it was common ground, accurately reflected in an undated Statement of Terms and Conditions of Employment ('the Statement') subject to subsequent written variations.
4. Immediately prior to 1st April 1999 the material terms of her contract were as follows:

A basic rate of pay of £2.85 per hour.

A 42 hour working week, including weekends and public holidays when rostered.

Compulsory and voluntary overtime, payable at the rate of 1½ times basic pay Monday to Saturday and double time on Sundays, once 42 hours had been worked in any one week.

Public holidays payable at double the basic rate plus a day off in lieu.

An attendance allowance of £55 per week payable if the employee worked the whole of her rostered shift for a given week without absence, lateness or other default.

Clause 20 of the statement provided:

"AMENDMENTS

Any change will be notified to employees in writing and or by displaying a notice at the Company's office."

5. All staff worked a shift rota, there being 5 or 6 shifts in any one day. The shift rota for 12 months was published a year in advance so that each employee knew what shifts they were expected to work. The tribunal regarded it as highly significant that they thus knew well in advance what their attendance requirement would be in order to qualify for the £55 allowance. There was no other precondition for that payment. The Company retained a discretion as to what, if any, payment it would make to an employee who failed to give full attendance in any one week.
6. The Company operated its contract with the airport authority on tight commercial terms. Financial margins were thin. In these circumstances it occurred to management that, on the face of it, the then basic pay rate of £2.85 per hour fell short of NMW of £3.60 per hour, due to become law on 1st April 1999. They sought to alter the structure of the applicants' pay package so as to meet their NMW obligation.
7. The applicants were members of the GMB union, a trade union not recognised for collective bargaining purposes by the Company.
8. Between February and April 1999 the Company sought the agreement of the applicants, through their employee representatives rather than through the union, to an alteration to their pay package. No agreement was reached. Finally, on 29th March 1999, Ms Hewitt, the General Manager, wrote to the applicants "announcing" major changes to pay and conditions for the staff.
9. In response, the union wrote to the Company on 1st April 1999 stating that the proposal would constitute a unilateral change to the employees' Terms and Conditions which would be challenged through legal proceedings. On 5th April the Company replied, asserting that it was not seeking to change the employees' contractual Terms and Conditions unilaterally but would be seeking a solution at the end of the consultation process.
10. On 15th April the Company wrote to the applicants with what was described as a pay award and the introduction of a revised benefits package which included the following:

A basic pay rate of £4 per hour.

A 40 hour week, down from 42 hours.

Attendance allowance £20 per week (if sick or absent deducted at Management discretion).

Overtime at a fixed rate of £5 per hour including bank holiday overtime.

Overtime on Christmas, Boxing and New Years Day to be paid at £8 per hour.

Provision for pension and sick pay schemes.

11. The applicants refused to accept the revised package and on 6th May the Company issued a notice to all staff stating that the 15th April terms would be implemented in full from 10th May 1999, back-dated to 1st April 1999. There was one further alteration; public holiday basic rate and overtime rate was increased to £5.80 per hour for all Bank Holidays.
12. It was common ground that, excluding overtime payments, an employee who provided full attendance during a week would earn:

(a) pre-1st April 1999. 42 hours @ £2.85 per hour plus attendance allowance of £55: £174.70.

(b) under the Company's revised terms from 1st April 1999. 40 hours @ £4 per hour plus attendance allowance of £20: £180.

(c) on the basis of the pre-1st April 1999 terms, applying NMW, 42 hours @ £3.60 per hour plus attendance allowance of £55: £206.20.

The Complaints

13. By their Originating Applications the applicants contended that the Company had unilaterally changed their contractual Terms and Conditions, resulting in an unlawful deduction from wages; alternatively non-compliance with the NMW.
14. The Company denied any unlawful deduction or non-compliance with the NMW.

National Minimum Wage

15. The statutory NMW was brought into effect from 1st April 1999 by a combination of the National Minimum Wage Act 1998 ('the Act') and regulations made thereunder, the National Minimum Wage Regulations 1999 ('the Regulations').
16. It was common ground that the applicants qualified for the general right to be paid the NMW, initially set at £3.60 per hour.
17. Material to the present case are the following provisions.

S 18 of the Act provides an enforcement mechanism via a claim for unauthorised deductions from wages presented to the Employment Tribunal, where the employer has failed to pay the NMW to a worker.

Part IV of the Regulations defines remuneration counting towards the NMW. The scheme of Part IV, for present purposes is as follows:

First, calculate the total of remuneration in a pay reference period, here a week, by adding together all money payments paid by the employer to the worker in the week (Regulation 30(a)).

Second, make the reductions from the total of remuneration provided for in Regulation 30. Of particular relevance here is Regulation 31(1)(d) which identifies:

"any money payment paid by the employer to the worker by way of an allowance other than an allowance attributable to the performance of the worker in carrying out his work;"

"Allowance" is defined in Regulation 2(1) as meaning:

"… any payment paid by the employer to a worker attributable to a particular aspect of his working arrangements … that is not consolidated into his standard pay, but does not include an allowance designed to refund a worker in respect of expenses incurred by him in connection with his employment."

The expression "performance" in Regulation 31(1)(d) is not defined in the General Interpretative provisions found in Regulation 2(1). The word does appear elsewhere in Regulation 4, the meaning of salaried hours work, where at Regulation 4(4)(a) there is reference to "performance bonus".

"performance bonus" is defined in Regulation 2(1) as:

"a performance bonus or other merit payment attributable to the quality of amount of work done in the course of more than one pay reference period, and not therefore payable directly in respect of work done in specific hours."

18. The Department of Trade and Industry has published a Guide to the NMW. It is not a Code of Practice and does not have statutory force.
19. Section 8 of the Guide is headed:

"What does not count as National Minimum Wage pay?"

Paragraph 92, under the heading "Allowances" states:

"92. Special allowances over and above standard pay may be paid by an employer to a worker for all kings of things: for working in dangerous conditions; working unsocial hours; working in a particular area (for example, London Weighting); performing special duties over and above a workers normal duties; being "on call" for work; regular prompt arrival at work. Such allowances do not count towards national minimum wage pay unless they are consolidated into standard pay. If they are consolidated, they do count towards national minimum pay."

20. For completeness we should add that Counsel referred us to passages in the First Report of the Low Pay Commission dated June 1998. We found that report of no real assistance in determining the questions of law raised in this appeal.

The Employment Tribunal decision

21. Based on the facts as found and the law as they applied it, the tribunal made the following principal determinations on the issues raised before them:

(1) The Company was not contractually entitled to unilaterally vary the £55 attendance allowance without the consent of the applicants, consent not having been given. Clause 20 of the Statement did not provide such a right.

(2) The attendance allowance was not an allowance attributable to the performance of the worker within the meaning of Regulation 31(1)(d). By reference to the definition of "performance bonus" in Regulation 2(1) the tribunal concluded that performance relates to the quality and amount of work; in their view the natural meaning of the word performance has to do with the way in which somebody does their job and not the fact that they are there (cf. this attendance allowance).

(3) Accordingly the applicants were entitled to stand on the original contractual terms. That meant that they retained the £55 attendance allowance, subject to full attendance, and in addition were statutorily entitled to basic pay of £3.60, rather than £2.85 per hour under the NMW legislation. Failure to pay £3.60 per hour amounted to an unauthorised deduction from their wages. The complaints succeeded.

The Appeal

22. Mr Nicholas Underhill QC attacks the tribunal decision on three grounds.

(1) Breach of contract

It is submitted that the tribunal was wrong in law to conclude that the Company was in breach of the contract of employment by, as Mr Underhill puts it, reclassifying the elements of the pay package.

He argues that the employees had no contractual right to be paid £55 per week by way of allowance. Their contractual right was to a total sum of money at the end of each week, calculated in accordance with the contract.

Applying that approach, what happened here was that the pay package was revised in a way more favourable to the employees than before. Instead of a conditional payment of £55 per week, dependent on full attendance, that conditional element was reduced to £20, the remaining £35 being consolidated into unconditional basic pay. The result was that instead of a package involving unconditional basic pay of £2.85 for a 42 hour week, plus a conditional payment of £55, the new arrangement involved unconditional basic pay of £4 per hour for a 40 hour week plus a conditional payment of £20. Overall, assuming full attendance, that left the employee better off, earning £180 per week as opposed to £174.70 per week before 1st April 1999.

Looked at in that way it followed:

(a) that the applicants were paid basic pay in excess of the NMW of £3.60.

(b) there was no unauthorised deduction from wages as defined by s. 13(3) of the Employment Rights Act 1996 ('ERA'). The total amount of wages paid was more, not less than the amount properly payable.

(c) as a matter of contract, the applicants were not entitled to hold on to the £55 allowance and in addition claim entitlement to the NMW of £3.60, as opposed to £2.85 per hour basic pay, the NMW not having been in the contemplation of the parties at the time when the contract was entered into.

23. In response, Ms Beverley Lang QC contends that a strict approach is required to the construction of the contractual terms. The attendance allowance, also referred to in the Company's documentation as a shift premium or weekly shift allowance was not payable at the discretion of the employer. It was payable as of right provided that full attendance was achieved.
24. The contract provided, by individual and separate terms, various items making up the employee's total remuneration. It was not open to the employer, unilaterally, to vary any of the individual terms without the employee's consent. That is what happened here.
25. The employees did not have a contractual right simply to a total sum of money at the end of the week. On the contrary, only basic pay of £2.85 was guaranteed; additional pay in the form of overtime payments was dependent on overtime being worked and the attendance allowance was payable subject to full attendance. Anything less than full attendance allowed the employer to withhold the whole of the allowance, or part of it at his discretion.
26. The NMW imposed a minimum level of basic pay by statute. Thus, applying s. 13(3) ERA, from 1st April 1999 the Company paid less than the total amount of wages properly payable to the applicants, those wages properly payable including both the existing contractual entitlement to wages, and the statutory NMW.
27. On this aspect of the case we prefer the submissions of Miss Lang. It seems to us, on the tribunal's findings of fact, that under the original terms of the contract basic pay and the attendance allowance were separate payments. It would have been open to the parties to agree that part of the conditional attendance allowance be consolidated into basic pay so as to raise it above the NMW level. However, such agreement was not reached. Subject to the Clause 20 argument, dealt with below, the alterations to the pay package imposed by the Company with effect from 1st April 1999 constituted a unilateral variation amounting to a breach of contract, as the tribunal found. We therefore reject the principal ground of appeal advanced by Mr Underhill.
28. (2) Clause 20

Mr Underhill contends that on a proper construction Clause 20 of the Statement gives the Company the right to make changes in the contract, of the type found here, provided that the overall payment to the employee is not reduced.

29. We reject that construction. As the Court of Appeal opined in Wandsworth London Borough Council v D'Silva [1998] IRLR 194, whilst either party to a contract can reserve the ability to change a particular aspect of the contract unilaterally by notifying the other party that such is the situation, clear language is required to reserve to one party such a power. A party cannot give himself carte blanche to make any changes he wants simply by inserting a contractual term to that effect. See United Association for the Protection of Trade Ltd v Kilburn and others (EAT/787/84. 17th September 1985. Waite J. Unreported).
30. In our judgment Clause 20, as drafted, is no more than a general statement as to the mechanics of notifying employees of amendments to the contract. It may well be that a variation so notified to the employee will, in the absence of protest, be deemed eventually to become a consensual variation by acquiescence. What the clause does not do is to permit the employer to make unilaterally any changes, subject to an implied term as to reasonableness, which he wants to make without the actual or implicit consent of the employee.
31. (3) Regulation 31(1)(d)

The final point taken by Mr Underhill concerns the meaning of the word "performance" in Regulation 31(1)(d) of the Regulations.

32. He submits that full attendance at work is an integral part of the employee's performance. The DTI Guide is wrong to suggest, at paragraph 92, that an allowance paid for regular prompt arrival at work does not count towards the NMW.
33. Again, on this aspect of the case we find ourselves in agreement with the tribunal's construction. It seems to us that "an allowance attributable to the performance of the worker in carrying out his work" properly refers to his performance whilst at work. It covers things like a production bonus, payable on the achievement of a specified quality/quantity target. This attendance allowance does not fall within the exception. It therefore falls to be deducted from the total remuneration paid to the applicants for the purpose of calculating the NMW payable.

Conclusion

34. It follows that we shall dismiss this appeal and uphold the tribunal's decision. It seems to us that having failed to reach agreement with their workers the Company went ahead with a unilateral variation to the contracts of employment in an attempt to circumvent the new statutory NMW regime. The applicants would have none of it. They stood on a mixture of their contractual and statutory rights. The Company did not terminate the old contracts on notice and offer new terms. Consequently the complaints were well-founded.

Permission to appeal

35. At the close of oral argument we indicated that we would take time to consider this appeal. Mr Underhill then made a protective application for permission to appeal to the Court of Appeal.
36. We accept that the NMW regime is comparatively new and of general importance. Nevertheless, for the reasons given here and below, we do not consider that a further appeal by the Company on the facts of this case enjoys a real prospect of success. Consequently, we shall refuse permission.