United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	Ms M Gribbon, Solicitor Of- Messrs Thompsons Solicitors Berkeley House 285 Bath Street GLASGOW G2 4HQ
For the Respondents	Miss D Campbell, Solicitor Of- Messrs Dundas & Wilson Solicitors 191 West George Street GLASGOW G2 2LD


 


LORD JOHNSTON:

1. This is an appeal at the instance of the employee applicant in respect of a finding by the Employment Tribunal confirmed on review that in the relevant circumstances the respondent employer was not in breach of section 1(1) of the National Minimum Wage Act 1998 nor had they made any unlawful deductions from the applicant's wages in contravention of section 13(1) of the Employment Rights Act 1996. The application was therefore dismissed.
2. The issue arises in sharp profile.
3. Prior to the introduction by way of Regulations of the requirements of the National Minimum Wage Act 1998, on 1 April 1999, the appellant's contract of employment entitled him to a basic hourly rate of £3.27 plus an attendance bonus of 70p per hour which was subject to certain attendance qualifications which if not met might result in non payment of the bonus. With effect from 1 April 1999, the respondents sought to vary their conditions of employment to the extent of increasing the hourly rate to £3.67 but reducing the attendance allowance to 30p per hour, again based on certain conditions in relating to attendance which were in fact more favourable than had applied before as regards the employee.
4. The decision of the Tribunal at the first hearing is as follows:-

"Grounds of decision

This was a complaint that the respondent has not paid the applicant (who was at the time aged 22) the appropriate minimum wage in terms of the National Minimum Wage Act 1998 and the National Minimum Wage Regulations 1999. As stated above, there was no dispute of fact on the essential basic facts necessary for the Tribunal to reach its decision, although there were differences in the evidence in relation to surrounding matters.

Immediately prior to 1 April 1999 the applicant was paid a basic hourly rate of £3.27 per hour plus an attendance bonus, the conditions of payment of which were stated in his Terms & Conditions of Employment as:

"Attendance bonus: £0.70p per hour up to a maximum of 40 hours.

Qualification:- Full attendance at work during normal working hours. Unauthorised absence or lateness by more than 5 minutes in any week may result in no bonus being paid for that week. Employees on holiday for all or part of a week are not entitled to this bonus."

There was no dispute that from 1 April 1999 (the date the Regulations came into force) the applicant was paid a basic hourly rate of £3.67 per hour, plus an attendance bonus of 30p per hour. The applicant's new Terms & Conditions of Employment (the acceptance of which he signed on 12 May 1999) provide that the conditions of payment for the attendance bonus are now:

"Attendance bonus: 0.30 p.hour up to a maximum of 40 hours.

Qualification:- Full attendance at work during normal working hours is a material term of your contract. Unauthorised absence or lateness by more than 5 minutes in any week may result in a part or all of that bonus being lost as follows:-

Up to 5 mins in any one day - 2 hours bonus.

More than 5 minutes in any one day - loss of day's bonus.

More than one instance of lateness in any week - loss of week's bonus.

Unauthorised absence of 1 day in any week - loss of week's bonus.

You hereby agree that the Company may withhold bonus from you in accordance with the above, which may be varied by the Company from time to time."

Whatever the size of the attendance bonus, these terms are less harsh in the treatment of lateness or absence.

There was regrettably no consultation by the respondent before the changes, neither with the 20 or so employees directly affected, nor with the workforce as whole of about 100, but around the time of the introduction of the national minimum wage the respondent put up on its notice board a general notice in the following terms:-

"April 1 1999

Minimum Wage Legislation - Effective 1st April 1998[sic]

You will be aware that from the 1st of April 1998 [sic] Government legislation requires employers to pay their employees a minimum wage the rates being:

Employees aged under 18 years No minimum

Employees aged over 18 years and under 21 years £3.00 per hour

Employees aged over 21 years £3.60 per hour

Whilst no employee previously working a full contractual week earned less than the new minimum wage levels, advice indicates that bonuses such as our attendance bonus may be excluded from calculation of minimum pay rates. To avoid any possible doubt the pay structures of the two grades affected (4 and 4a) have been amended with effect from 1st April 1999 to ensure that the company complies fully with the minimum pay legislation.

Employees directly concerned will be advised of the changes.

Yours sincerely

Douglas Tasker

Company Secretary"

At the side of the first paragraph there had been added in handwriting:

after £3.00 per hour - "+96p ATT BONUS"; and below that,

after £3.60 per hour - "OR + 70p" ".

At the foot of that notice there had also been added in handwriting:

"The Attendance Bonus for those affected by the above have had theirs cut to 37p per hr."

The applicant said he had seen the top handwritten additions and interpreted them as meaning he would be paid £3.60 plus 70p attendance bonus, but although he accepted that the lower handwritten addition was on the notice (which was his production A5) he denied having read that. The Tribunal regretted it was unable to accept that denial.

In the applicant's first pay packet after 1 April the respondent inserted a letter (which, although the applicant denied ever seeing it, the Tribunal accepted he was given with his pay for the week ending Friday 2 April) which stated:

"April 1 1999

Minimum Wage Legislation - Effective 1st April 1998 [sic]

You will be aware that from the 1st of April 1998 [sic] Government legislation requires employers to pay their employees a minimum wage the rates being:

Employees aged under 18 years No minimum

Employees aged over 18 years and

under 21 years £3.00 per hour

Employees aged over 21 years £3.60 per hour

Whilst no employee previously working a full contractual week earned less than the new minimum wage levels, advice indicates that bonuses such as our attendance bonus may be excluded from calculation of minimum pay rates. The basic rate of pay for grade 4a is £3.27 p.hour. To avoid any possible doubt the pay structure of grade 4a has been amended with effect from 1st April 1999 to ensure that the company complies fully with the minimum pay legislation.

Details of the rates of pay which will apply with effect from 1st April 1999 to employees on grade 4a are as below:-

Current w.e.f. 1st April

Rates of pay - basic £3.27 p.hour £3.60 p.hour [sic]

Attendance bonus £0.70 " £0.37 " [sic]

£3.97 " £3.97 "

An amended contract will be issued shortly.

Yours sincerely

Douglas Tasker

Company Secretary"

Mr Tasker was unable to explain the errors in the final column - the figures in which should have been £3.67 and £0.30 - except as typographical errors. Mr Orr accepted in evidence that if he had seen that letter he would have understood that the attendance bonus was being cut.

However it was clear from the evidence, including the applicant's pay slips, that he was in fact paid from 1 April 1999 at the rate of £3.67 per hour, with an attendance bonus of 30p per hour.

In the week ending 9 April the applicant was paid for 34 hours at £3.67 plus 30p [as he missed 6 hours of his shift on 31 March]; while in the week ending 16 April he was only paid for 26 hours at £3.67 with no bonus [as he missed 6 hours on 7 April and all day on 8 April]. In the latter case he accepted in cross-examination that he received more than he would have done before the change to his Terms & Conditions, contradicting his own statement in examination-in-chief that his pay packet had not really changed.

On all that evidence the Tribunal therefore found that the respondent has since 1 April 1999 been paying the applicant above the rate of the national minimum wage of £3.60 prescribed in Regulation 11 of the 1999 Regulations. What occurred with effect from 1 April was that the respondent consolidated part of the previous attendance bonus into the applicant's standard pay. The Tribunal is not aware of anything in the legislation preventing the respondent from doing that; and it was within the letter of the legislation in doing so.

While in terms of Regulations 2(1) and 31(1)(d) the remaining attendance bonus cannot be counted as part of standard pay, the respondent has not attempted to do that.

However the Tribunal did feel that it would have been better - and might have avoided this application - if the change the respondent made to the applicant's pay structure in April 1999 had been preceded by more consultation with those affected; and if clearer and more accurate notices about it had been issued. Mr Tasker essentially accepted these points with hindsight. But that did not affect the basic legal position.

The Tribunal therefore found that the respondent was not in breach of section 1(1) of the National Minimum Wage Act 1998 or regulation 11 of the National Minimum Wage Regulations 1999 in respect of the applicant's remuneration from 1 April 1999. It was thus also satisfied that the respondent had made no unlawful deductions from the applicant's wages in contravention of section 13(1) of the Employment Rights Act 1996. Accordingly the whole application is dismissed."

"Grounds of decision: review

The applicant's submissions on his grounds for review related essentially to how the respondent achieved payment of the national minimum wage for him. At the review hearing it was not seriously disputed that the applicant has in fact been paid the national minimum wage since 1 April 1999. What was in issue was how that had been achieved. The applicant submitted that it was achieved by unilateral variation of the attendance bonus by reducing it, which was thus an unlawful deduction from the wages properly payable to him.

But having carefully considered all the submissions for the applicant, the Tribunal decided that it could not look at the matter in segments or in isolation in this way; and that it had to look at the whole picture. The respondent has never been under a contractual obligation to pay the applicant the national minimum wage plus 70p attendance bonus. Thus the variation in the attendance bonus was to the applicant's advantage, as it removed the condition about prompt attendance from part (40p) of the attendance bonus, which was to the applicant's advantage, as he accepted in relation to at least 1 occasion after 1 April 1999. The variation also relaxed the condition in relation to the remainder of the attendance bonus. Therefore even if the respondent was in breach of contract in making a unilateral variation, the applicant had no loss. Even if the consequence of a permitted or lawful act is a drop in income, that does not in itself amount to an unauthorised deduction from wages in term of section 13 of the 1996 Act: Hussman Manufacturing Ltd v Weir [1998] IRLR 288 (EAT)."

6. There was a preliminary issue before us as to whether the grounds of appeal, particularly ground 15(c) properly identified that an appeal was being made under the Wages Act, now the Employment Rights Act section 13 but this point was accepted by Miss Campbell appearing for the respondents.
7. Thereafter, Ms Gribbon sought to argue that the overall result of the change in the conditions of contract which we have narrated, was that there was an unlawful deduction of wages in terms of section 13 of the 1996 Act inasmuch that the attendance allowance had been reduced. Reduction is the equivalent of deduction, she submitted, under reference to Bruce & Ors v Wiggins Teape (Stationery) Ltd [1994] IRLR 536. That for such a deduction to be lawful it either had to be authorised by statute or by agreement, McCree v London Borough of Tower Hamlets [1992] IRLR 56, nor was it appropriate to rejig a remuneration package under reference to Davies & Ors v M J Wyatt (Decorators) Ltd EAT/1262/99 (unreported), where it was held in the absence of agreement to be unlawful to fund holiday pay by removing sums from the basic wage package. By a different route that is what happened here and she therefore maintained that the Wages Act provisions had been breached.
8. She recognised that the matter could be cured by agreement but maintained on the evidence that her client had signed the new contract under protest. In any event, that such a signature had not been appended to the document until the middle of May and there therefore was approximately a six week period where an unlawful deduction was being made in any event.
9. Miss Campbell responded by pointing to the fact that the issues raised and focussed by the National Minimum Wage Act and attendant Regulations was entirely different in relation to "remuneration" particularly with regard to allowances, when compared with that operating as wages under section 13 of the 1996 Act. The Tribunal, she submitted, had approached the matter correctly by looking at the package being proferred to the employee both before and after 1 April 1999. Since the total sum available was the same, there had been no unlawful deduction.
10. In any event, she submitted, the issue of consent had not been properly ventilated and the matter could not be determined at this stage by this Tribunal.
11. Section 1 of the National Minimum Wage Act 1998 is in the following terms:-

"1(1) A person who qualifies for the national minimum wage shall be remunerated by his employer in respect of his work in any pay reference period at a rate which is not less than the national minimum wage."

12. The National Minimum Wage Regulations 1999 per Regulation 30 and 31 regulate or attempt to regulate exclusively by the former what may be taken into account in calculating remuneration in terms of section 1 of the Act and by the latter what must be left out of account which includes in Regulations 31(1)(d) "any money payment paid by the employer to the worker by way of an allowance other than the allowance attributable to the performance of a worker in carrying out his work."
13. It is therefore our clear conclusion that in calculating remuneration in terms of section 1 of the Act, attendance allowances must be left out of account. However, in terms of section 27 of the 1996 Act for the purposes of section 13 all such allowances can be taken into account for the purposes of calculating wages.
14. The net result of this position, in our opinion, is that therefore allowances come into account in calculating wages but do not come into account other than for productivity purposes in calculating the minimum wage.
15. It therefore follows in this case that if the employer had not raised his basic hourly rate of pay to £3.67 with effect from 1 April, he would from that point onwards if still only paying £3.27, have been in breach of the National Minimum Wage requirement.
16. So far so good but what then has to be considered, is whether or not it is appropriate still to look at the overall package in terms of ultimate take home pay or rather as to what effect the new package had on allowances.
17. We prefer the latter approach since there is no doubt that under the new arrangement the attendance allowance, even if the conditions were varied, was in fact reduced to a maximum entitlement of 40p per hour. We consider that this arrangement, that is to say, removing part of the attendance allowance to supplement the rate of pay up to the appropriate level, cannot be distinguished from the exercise that was carried out in Davies supra where holiday pay was to be funded from wages. We would therefore follow that case and hold that in the present case the effect of the arrangement introduced on 1 April 1999 was to create an unlawful deduction of wages of up to 30p per hour. This could become lawful by reason of consent which therefore becomes to our mind a compelling issue in the case.
18. We cannot decide it on the evidence before us. If an employee agrees to a contractual variation even under protest, he can be said to affirm it if he continues in the workplace. What is required to avoid such a conclusion in that situation is a lack of consent which may be evidenced either by a refusal to accept the position or by succumbing to some form of duress or pressure. Merely to sign under protest is not enough.
19. In these circumstances it will be immediately apparent that there is a claim in this case for an unlawful deduction of wages between 1 April 1999 and the date of the signing of the contract and that is inescapable. To that extent we will allow this appeal.
20. Beyond that, we can take the matter no further and require to remit the case back to the same Tribunal to determine the issue of consent. If the appellant signed the contract and was thus consenting, albeit under protest, then he has agreed to the variation. He will have to establish that his signature was appended under such duress as amounts to vitiation of consent.
21. In these circumstances the appeal is allowed to the extent of the claim for the period we have mentioned, beyond that the case is remitted back to the same Tribunal to consider only the issue of consent.