United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	MISS SUSAN CHAN (Of Counsel) Instructed by: HM Inland Revenue Room T115 East Wing Somerset House Strand London WC2R 1LB
For First Respondent For Second Respondent	MR SILK (Representative) THE RESPONDENT BEING NEITHER PRESENT NOR REPRESENTED


 


MR JUSTICE HOLLAND

1. This is an appeal from the decision of an Employment Tribunal sitting at Birmingham which decision together with the reasons were sent to the parties on 1 February 2001. The issue is as to enforcement under the minimum wage legislation.
2. It is helpful at the outset to cite the statutory provisions relevant to the powers of enforcement accorded to compliance officers by way of the National Minimum Wage Act 1998. Section 17(1):

"(1) If a worker who qualifies for the national minimum wage is remunerated for any pay reference period by his employer at a rate which is less than the national minimum wage, the worker shall be taken to be entitled that under his contract to be paid, as additional remuneration in respect of that period, the amount described in subsection (2) below.

(2) That amount is a difference between –

(a) the relevant remuneration received by the worker for the pay reference period; and

(b) the relevant remuneration which the worker would have received for that period had he been remunerated by the employer at a rate equal to the national minimum wage."

Section 19(1):

"(1) If an officer acting for the purposes of this Act is of the opinion that a worker who qualifies for the national minimum wage has not been remunerated for any pay reference period by his employer at a rate at least equal to the national minimum wage, the officer may serve a notice (an "enforcement notice") on the employer requiring the employer to remunerate the worker for pay reference periods ending on or after the date of the notice at a rate equal to the national minimum wage.

(4) A person on whom an enforcement notice is served may appeal against the notice before the end of the period of four weeks following the date of service of the notice.

(5) An appeal under subsection (4) above lies to an employment tribunal."

Section 20(1):

"(1) If an enforcement notice is not complied with in whole or in part, an officer acting for the purposes of this Act may, on behalf of any worker to whom the notice relates, -

(a) present a complaint under section 23(1)(a) of the Employment Rights Act 1996 (deductions from worker's wages in contravention of section 13 of that Act) to an employment tribunal in respect of any sums due to the worker by virtue of section 17 above;"

Section 21(1):

"(1) If an officer acting for the purposes of this Act is satisfied that a person on whom an enforcement notice has been served has failed, in whole or in part, to comply with the notice, the officer may serve on that person a notice (a "penalty notice") requiring the person to pay a financial penalty to the Secretary of State.

(2) A penalty notice must state –

(a) the amount of the financial penalty;

(b) the time within which the financial penalty is to be paid (which must not be less than four weeks from the date of service of the notice);

(c) the period to which the financial penalty relates;

(d) the respects in which the officer is of the opinion that the enforcement notice has not been complied with; and

(e) the calculation of the amount of the financial penalty."

(3) The amount of the financial penalty shall be calculated at a rate equal to twice the hourly amount of the minimum wage (as in force at the date of the penalty notice) in respect of each worker to whom the failure to comply relates for each day during which the failure to comply has continued in respect of the worker."

Section 22(1):

"(1) A person on whom a penalty notice is served may appeal against the notice before the end of the period of four weeks following the date of service of the notice.

(2) An appeal under subsection (1) above lies to an employment tribunal.

(3) On an appeal under subsection (1) above, the employment tribunal shall dismiss the appeal unless it is shown –

(a) that in the case of each of the allegations of failure to comply with the enforcement notice, the facts are such that an officer who was aware of them would have had no reason to serve any penalty notice on the appellant; …"

It is also necessary to turn to Section 23 Employment Rights Act 1996:

"(1) A worker may present a complaint to an employment tribunal –

(a) that his employer has made a deduction from his wages in contravention of section 13 (including a deduction made in contravention of that section as it applies by virtue of section 18(2),

(2) Subject to subsection (4), an employment tribunal shall not consider a complaint under this section unless it is presented before the end of the period of three months beginning with –

(a) in the case of a complaint relating to a deduction by the employer, the date of payment of the wages from which the deduction was made,

(4) Where the employment tribunal is satisfied that it was not reasonably practicable for a complaint under this section to be presented before the end of the relevant period of three months, the tribunal may consider the complaint if it is presented within such further period as the tribunal considers reasonable."

3. We turn from that citation to the facts. At all material times up to 16 November 1999 Mrs Badger worked for Mrs Silk, who is a seriously disabled person. She worked as a carer with a rate of remuneration at £3 per hour. From April 1999 that wage rate was less than a then prescribed National Minimum Wage rate that is £3.60p per hour.
4. Turning then to the chronology, on 21 October 1999 Mrs Badger received her last payments from Mrs Silk, that is, for the last time she received remuneration by reference to the rate of £3 per hour. Thereafter the Inland Revenue and more particularly a member of its staff Mr Morrisey-Limb became involved in this matter with a view to securing compliance in accordance with the terms of a National Minimum Wage Rate Act 1998. On 18 January 2000 he issued an enforcement notice pursuant to section 19 requiring Mrs Silk to remunerate Mrs Badger in a sum sufficient to make up the difference between the wages she received and those that were due to her by a reference of the National Minimum Wage Act as from 1 April 1999. The sum calculated as at 21 October to make up that difference amounted to £279.72p. We have in the bundle before us the enforcement notice then sent out. It indicated that it required payment of this sum by 25 January 2000 and it intimated that there was a right of appeal to an Employment Tribunal. It also forewarned Mrs Silk that failure to comply with the notice might result in her becoming liable to pay a financial penalty under section 21 of the Act.
5. On 24 January 2000 Solicitors then acting for Mrs Silk wrote to the Employment Tribunal with a copy to Mr Morrisey-Limb indicating that their client was unable to comply with the enforcement notice being impecunious. The letter set out her income and her weekly outgoings and maintained that it was quite impossible for her on financial grounds to pay the sum sought by the enforcement notice.
6. On 4 February 2000, no payment having been received pursuant to the enforcement notice, Mr Morrisey-Limb exercised the power that he had pursuant to section 20 by presenting a complaint to the Employment Tribunal seeking payment of the sums outstanding as unlawful deductions from the wages of Mrs Badger. The schedule appended to the ET1 sets out the essential chronology as it already appears in this judgment.
7. Grounds of resistance were filed on 21 March 2000 in these terms:

"The application will be resisted on the following grounds:-

1. The applicant, Mrs Pauline Badger, was a self-employed person providing services as a carer.

2. Mrs Badger had a contract, which was signed by both parties. This statement quite specifically stated that Mrs Badger was, at all times, self employed and therefore responsible for National Insurance and Income Tax. She was not eligible for Sickness Pay, Holiday Pay or Maternity Leave. No tax or National Insurance contributions were ever paid on behalf of Mrs Badger and she worked and took holidays at times to suit herself.

3. Owing to deterioration in the relationship and also the fact that Mrs Badger refused to undertake certain care duties, it was decided to terminate the arrangement on 16 November 1999.

4. An enforcement Notice has also been served under the provisions of the National Minimum Wage Act 1998. A letter has previously been sent asking the Tribunal to suspend the Notice until a ruling has been obtained on the status of Mrs Badger's employment.

5. A request was made that both the claims for wrongful dismissal and the appeal against the Enforcement Notice should be held in the same Tribunal hearing."

8. With the matter still pending before the Employment Tribunal on 16 May 2000 Mr Morrisey-Limb on behalf of his employers issued to Mrs Silk a penalty notice pursuant to section 21 of the National Minimum Wage Act 1998. That notice is before us. It is, as might be expected, in the standard terminology. The practical effect is that she is told that by reason of her failure to comply with the enforcement notice she had now incurred a financial penalty of £813.60p payable to the Secretary of State; it further indicated that as indeed is the case, she had a right of appeal against that notice. In the event she exercised that right and made an appeal to the Employment Tribunal on 6 June 2000.
9. We are now in a position to come to the issues as they fell to be considered by the Employment Tribunal, adding (to make sense of them) that Mrs Badger herself had made her own independent complaint of unfair dismissal. Reviewing the issues, the Employment Tribunal helpfully set them out in paragraphs 1 and 2 of the Reasons. These read as follows:

"The separate matters before the Tribunal were:-

(a) the first Applicant's complaint of unfair dismissal by the Respondent as from 16 November 1999;

(b) a claim by the Inland Revenue on behalf of the first Applicant for £279.72 arrears of wages (being the difference between the hourly rate paid by the Respondent and the national minimum wage, between 1 April and 16 November 1999) as an unauthorized deduction;

(c) an appeal by the Respondent under Section 22 of the National Minimum Wage Act 1998 against the penalty notice served on her and requiring her to pay a penalty of £813.60 in respect of her failure to comply with an enforcement notice served under Section 21 of the same Act; and

(d) references made by the first Applicant in correspondence to redundancy; in the event no evidence or argument was presented on redundancy and the Tribunal did not identify a redundancy situation in the matters it was asked to consider.

2. The response to the complaint of unfair dismissal was variously that the Respondent had no funds to pay the national minimum wage rate, that the contract with the first Applicant was terminated because the relationship had deteriorated and the first Applicant had refused to undertake certain care duties, and that the first Applicant's dismissal was by reason of her gross misconduct. However, to all the complaints, the Respondent contended that the first Applicant had been self-employed and was not employed by the Respondent, and consequently that the first Applicant was not entitled either to the protection of the Employment Rights Act 1996 in respect of her dismissal or to payment at the national minimum wage rate as she was not a worker nor an employee within the definition of those terms in Section 54 of the National Minimum Wage Act 1998."

10. Those being the issues, the Tribunal heard evidence and in due course reached decisions. Those decisions can be summarised. First, it ruled that Mrs Badger had been employed by Mrs Silk, that is, that she was not at the material time self-employed. The next ruling followed. That was that Mrs Badger had the protection of the Employment Rights Act 1996 and the National Minimum Wage Act 1998. Third, it ruled that Mrs Badger had been unfairly dismissed and was entitled to compensation to be assessed. It then went on to deal with the complaint by the Inland Revenue pursuant to Section 20. It did so in these terms citing paragraphs 18 and 19 of the Reasons:

"18 In considering the issues raised by way of enforcement of the National Minimum Wages Act 1998 the Tribunal has been mindful that these provisions are of a penal nature and should therefore be applied with scrupulous adherence to any conditions to which they are subject. One such condition is that applied by Section 23 of the Employment Rights Act 1996 to complaints brought to enforce payment of the national minimum wage. In this case the Inland Revenue, acting on behalf of the first Applicant, failed to meet that condition and presented a complaint outside the statutory time limit. Whilst the Inland Revenue acknowledged their mistake and pointed out that it could prejudice what was in effect the first Applicant's right of recovery, no attempt was made to suggest that it was not reasonably practicable for the complaint to have been presented to the Tribunal within the period of three months from the date of the last payment of wages below the national minimum wage level. In these circumstances the Tribunal is precluded by the mandatory terms of Section 23(2) of the 1996 Act from considering the complaint. This may prove to be a matter which the first Applicant seeks to pursue with the second Applicant.

19 It seemed to the Tribunal to follow that an ineffective enforcement notice should not be regarded as a sound basis for service of a penalty notice under Section 21 of the National Minimum Wage Act 1998; it appeared from the evidence given to the Tribunal that the officer presenting the complaint either knew or certainly should have been aware that it was out of time – he had been dealing with the case personally, had interviewed the parties and was acquainted with all the details. The same officer served the penalty notice, and, notwithstanding the directive terms of Section 22 of the 1998 Act, the Tribunal considers that on the facts known to him he would have had neither basis nor reasons to serve the penalty notice. We therefore uphold the Respondent's appeal against it and rescind the penalty notice dated 16 May 2000."

11. Turning to the proceedings before us, the first Applicant before the Employment Tribunal, Mrs Badger, does not appeal. She is understandably satisfied with the finding that she was unfairly dismissed. The Inland Revenue as the second Applicant does appeal. As helpfully presented this morning by Miss Chan, their case on appeal is as follows. First, whilst they do not contend that paragraph 18 cited above reflected any error of law she submits strongly that its content did not and could not serve to lead to a ruling that the Enforcement Notice was "ineffective", as is asserted in the first sentence of paragraph 19. She submits that the ruling made in paragraph 18 related purely to the question as to whether the complaint made to the Employment Tribunal of non compliance was within time pursuant to Section 23(2) of the 1996 Act.
12. Granted that there was a ruling against the Inland Revenue on that issue, that ruling could not and did not impugn the validity of the notice itself. She points out that, given findings made by the Employment Tribunal that Mrs Badger was employed at all material times, that she qualified for the minimum wage and that, further, she had not been remunerated at the appropriate rate, then the notice could readily be justified by reference to Section 19. Miss Chan further points out that in Section 19 there is no time limit specified within which the notice has to be issued. The only time limit that the Tribunal was concerned with was the time limit within which the complaint to the Employment Tribunal could have been made with respect to non compliance with the notice. There was nothing in the findings made for the purposes of paragraph 19 that served in any way to impugn the notice as such.
13. Turning then she says to paragraph 19 it is plain that having started on the wrong foot the Employment Tribunal misdirected itself as to law. The factors that it then took into account which served to permit it to uphold the Respondent's appeal all one way or another reflected that initial misdirection as to law. She submitted therefore that the appeal by Mrs Silk against the penalty notice should have proceeded on the basis that the enforcement notice was valid and that therefore there had been a failure to comply with such, which failure could justify the issue of a penalty notice pursuant to Section 21. It is convenient to break off to deal with our judgment on the appeal so far presented. We have cited Miss Chan's submissions. We have not cited any opposing submissions because those that have been helpfully made by Mr Silk understandably relate to a further issue to which we will come in a moment.
14. For our part, thus far we readily uphold Miss Chan's submissions. It is perfectly plain and for the reasons that she has put before us, that the Employment Tribunal clearly misdirected itself in law when it held that the enforcement notice was ineffective and that in its turn was a finding material to adjudication on the appeal with respect to the penalty notice. There is plainly no basis whatever for regarding that enforcement notice as ineffective.
15. What follows from that ruling by this Tribunal? There are two options. The first option is to remit the matter to the Employment Tribunal for a fresh appraisal of Mrs Silk's appeal, this time on the basis of a correct direction as to law. The second option is for us to exercise the same jurisdiction on the facts that are available to us in the light of the law as we have ruled it to be. Miss Chan invites us to adopt the second option and as we understand Mr Silk to agree: plainly nobody wants to go back yet again to the Employment Tribunal. Thus it is that we apply ourselves to the appeal of Mrs Silk against the penalty notice, this time by reference to our ruling as to the law.
16. Dealing with this aspect of the matter Miss Chan seeks to maintain the penalty notice. She invites us to dismiss the appeal. In advancing this part of her case, she emphasises the terms already cited of Section 22(3)(a). She submits that it invites a restrictive approach to the exercise of the discretion of an Employment Tribunal when dealing with an appeal raised under Section 22(2). She submits that the penalty notice can be sustained on the basis that it stems from the issue of a valid enforcement notice. It correctly asserts sustained non payment pursuant to that notice. She submits that the penalty notice follows, inevitably leading in its turn to the practical effect: is either payment of the penalty or enforcement of the penalty through the County Court. Mr Silk on behalf of his wife strongly disputes this restrictive mechanistic approach and urges that proper examination of the facts precludes any reason for a penalty notice. We can, we think, move straight to our judgment on the matter.
17. We start by drawing attention to Section 21(1). This plainly provides, as might be expected, a discretion as to whether or no a penalty notice is to be issued. We draw attention to the words "may serve". Second, we rule that that discretion has to be exercisable by the compliance officer by reference to the available facts. Those are the facts as to which he has actual or constructive knowledge, those are the facts that are referred to as such in 22(3)(a). Third, our construction 22(3)(a) leads to this. We agree with Miss Chan that it postulates the issue of penalty notice unless the facts are such as to deny any reason for such adequate draconian process. That then leads us to the facts, such plainly including in the present circumstances, matters of substantial importance. The first is there is clear evidence before the Inland Revenue provided by all the background circumstances but more particularly by the letter from the solicitors of 24 January 2000 that Mrs Silk is impecunious. Whether or no she would have any means whereby to pay the enforcement notice there is not the slightest evidence that she would ever have any means to pay the penalty. Her impecuniosity in our judgment must be a fact that is appropriate to be taken into account at this stage, either to inhibit the issue of penalty notice or (as I pointed out in the course of our argument) to encourage the issue of a penalty notice when as might well be the case a comparatively wealthy person is determined to deny an employee a minimum wage.
18. We then move on to the further fact particularly relied upon by Mr Silk and rightly so in our judgment. As at the date of issue of the penalty notice that is as at the 16 May 2000 there was current an unresolved and not wholly fanciful issue as to whether Mrs Badger had been at the material time a person who qualified for the minimum wage, that is, that there was current and still unresolved an issue as to whether all of this enforcement procedure was not based upon a false premise. With those matters waiting adjudication by an Employment Tribunal, we cannot for ourselves see any reason whatsoever why it was thought appropriate in May 2000 to issue a penalty notice. Turning to Section 22(3)(a), in our judgment the facts were such that Mr Morrisey-Limb as someone who had knowledge actual or constructive of them had no reason at all to serve any penalty notice on this defendant. That judgment arises from consideration of the two matters weighing with this Tribunal whether taken singly or in conjunction. In those circumstances going back to the judgment of the Employment Tribunal, for reasons that are different from those that weighed with them, we have no hesitation in dismissing the appeal.