United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	MR M MAGEE (of Counsel) Instructed by: Messrs Charles Russell Solicitors 8-10 New Fetter Lane London EC4A 1RS
For the Respondent	NO APPEARANCE OR REPRESENTATION BY OR ON BEHALF OF THE RESPONDENT


 


MR RECORDER LUBA QC

1. This appeal concerns an unlawful deduction made by an employer from an employee's pay. It arises in this way. On 25 June 2002 the Bury St Edmunds Employment Tribunal gave its decision on an application made to it by Miss Janine Cuddington. The Respondents to that application were her former employers, Autonomy Systems Limited. We will refer to them in this judgment as "the Company".
2. The Tribunal dismissed claims by Miss Cuddington that she had been discriminated against on grounds of sex. It also dismissed her claim that there had been a breach of her contract of employment. However, the Tribunal decided that the Company had wrongly failed to pay Miss Cuddington wages due to her. The Tribunal ordered that she be paid by the Company the sum of £6,000; which sum the Tribunal found had been wrongfully deducted from her pay, contrary to Part II of the Employment Rights Act 1996.
3. Miss Cuddington brings no appeal from the dismissal of her claims in respect of sex discrimination and breach of contract. However, there is before us an appeal by the Company against the Decision and Order relating to deduction from pay.
4. On 17 October 2002 this Tribunal ordered that this appeal do go forward for a full hearing and gave directions. It is the full appeal that is before us today. Miss Cuddington, the Respondent to the appeal, does not appear today and is not represented. We have received a letter from her solicitors indicating that she will not be taking part in the appeal and we have proceeded on that basis.
5. We have had the considerable assistance of Mr Magee of Counsel, who appears for the Company today, and appeared for the Company before the Tribunal. The background facts can be very shortly stated in the circumstances. They are fully set out in the comprehensive and closely-reasoned Extended Reasons of the Employment Tribunal.
6. Shortly, the facts are these. From 1 November 2000 Miss Cuddington was employed by the Company as a Senior Sales Executive. Her terms of employment were set out in a letter from the Company dated 18 October 2000. In respect of remuneration, the package was a basic salary of £50,000 per annum and a commission of 7% on sales. Provision was also made for one month's notice each way.
7. Furthermore, paragraph 3 of the letter of 18 October made provision for advanced payment in respect of commission. The paragraph was in these terms:

"The Company will pay an advance on commission earned, at the rate of £2000 per month gross, for a period of three months. This advance is only offered on the understanding that it will be deducted from your actual commission earnings, pursuant to the paragraph above. Further, if your employment with the Company terminates for any reason and the sum advanced hereunder exceeds your actual commission earned, you must repay the excess within one month of the effective date of termination."

Those terms, as set out in that letter, were accepted by Miss Cuddington in an email that she sent to the Company on the same day, 18 October 2000.

8. In the event, Miss Cuddington was dismissed with effect from 9 April 2001. By that date she had received, in addition to her salary, several advance payments of commission but she had in fact earned no actual commission. The Tribunal found, at paragraph 38 of its Extended Reasons, that as a matter of contract Miss Cuddington was obliged to repay the Company the advances she had received within one month of the termination of her employment, i.e. by 9 May 2000. That finding was of course fully justified, given the terms of paragraph 3 of the letter which we have just read.
9. However, what in fact happened was that the Company deducted £6,000, representing the commission it had paid in advance, from the final payments due to Miss Cuddington at the termination of her employment. The issue for the Tribunal was whether the Company were entitled to do as they had done or whether, as was contended for by Miss Cuddington, the Company had acted wrongly and unlawfully in deducting the sum from the monies otherwise payable to her.
10. The Tribunal directed itself to the relevant law, set out in Part II of the Employment Rights Act 1996, and in particular asked itself whether the contract of employment entitled the Company to make the deduction that had been made. Its material conclusions are expressed at paragraphs 39 and 40 of its Extended Reasons and those paragraphs are respectively in these terms:

"39 What the contract did not do, however, was to entitle the Respondent to deduct it [that is, the advance commission] from the Applicant's wages. She should have been paid her normal wages and thereafter should have been asked to repay the sums due to the Company. The purpose of Part 2 of the Employment Rights Act is to prevent employers simply deducting from their employee's wages money which they may correctly or incorrectly assert is owed to them. Employees should be paid their salary without deduction unless those deductions are authorised by the contract or signified as agreed in writing.

40 The Respondents had simply deducted the sums which were due to them. They were not authorised to do so. This was an unlawful deduction of wages. Accordingly, the Respondents are ordered to repay to the Applicant the sum of £6,000 unlawfully deducted. The impact of section 25 (4) upon this means that the Respondents will not be able to recover this sum from the Applicant elsewhere. This is in effect a penalty. It is intended as a penalty to ensure compliance by employers with Section 13."

Those, as we have said, were the findings and the reasons given by the Tribunal.

11. The Company brings this appeal on a single ground, expressed in the Notice of Appeal in the following terms:

"6 The grounds upon which this appeal are brought are that the Employment Tribunal erred in law, that in calculating the compensation due to the Respondent in respect of unlawful deduction from wages, the Tribunal failed to take account of the sum of £6,000 already paid by the Appellant to the Respondent as an advance against future commissions, contrary to section 25 (3) of the Employment Rights Act 1996."

12. By paragraph 6 of the Skeleton Argument received from Mr Magee, on behalf of the Company on this appeal, it is conceded that the Company had no contractual right to make the deduction from final salary which it had made. It follows that, as is also conceded at paragraph 8 of the Skeleton Argument, that the Tribunal was right to find that there had been an unlawful deduction from wages within the meaning of the Act.
13. The appeal is, accordingly, entirely focused on the narrow point as to whether the Tribunal erred in law in ordering, pursuant to section 24 of the 1996 Act, the repayment in full of the deducted sum without offsetting the £6,000 earlier paid by way of advance commission.
14. The relevant provisions of the 1996 Act are, for the purposes of this appeal, sections 24 and 25. The appeal turns on the words of section 25 (3) which are that:

(3) "An employer shall not under section 24 be ordered by a tribunal to pay or repay to a worker any amount in respect of a deduction or payment, or in respect of any combination of deductions or payments, in so far as it appears to the tribunal that he has already paid or repaid any such amount to the worker."

15. Mr Magee contends, for the Company in this appeal, that, as a matter of fact, the sum of £6,000 had been "already paid" by the Company to the employee before the unauthorised deduction was made of that sum and before the Tribunal's order. Accordingly, it is argued, the Tribunal ought not to have ordered the repayment by the Company of the £6,000 wrongfully deducted, as that amount had been "already paid" for the purposes of section 25 (3).
16. In support of the appeal Mr Magee draws our attention to the decision of the Court of Appeal in Robertson v Blackstone Franks Investment Management Ltd [1998] IRLR 376. That is a judgment of a three-member Court of Appeal, the judgment being given by Mummery LJ, to whose judgment the other two members of the court expressed their assent.
17. In the Robertson case, advance payment of commission had been made to the worker and subsequently the employer had deducted from actual commission entitlement those advanced payments. The issue turned on the wording of the 1986 Act (at that time) which is now reflected in the wording of section 25 (3). The Court of Appeal was satisfied that what is now section 25 (3) prevented the Employment Tribunal from ordering repayment of that deduction as the deducted sum (that is, the advance on commission) had already been paid.
18. We are satisfied, having considered the terms of the judgment of Mummery LJ, with which, as we have noted, the other two members of the court agreed, that the headnote to the report in the Industrial Relations Law Report properly and accurately distils the judgment in that case. The material paragraph in the headnote reads:

"Section 25 (3) applies to any payment made by an employer to a worker in respect of a deduction at any time before the date on which the Industrial Tribunal makes an order against the employer."

19. That case is, in our view, different from the facts of the instant case only to the extent that here the advances of commission payments were recouped from final salary, not as, in the Robertson case, recouped from actual commission payments. But we are satisfied, having invited Mr Magee to consider that point, that that is not a material difference between the Robertson case and the instant case.
20. Accordingly, we are bound to follow and apply the Robertson case and indeed it is our view that the Employment Tribunal ought to have followed and applied the Robertson case. They gave no explanation as to how they thought it distinguishable. In the result, the decision of the Court of Appeal is binding upon us and we loyally follow it.
21. In those circumstances the result is that we must allow this appeal to the extent that we set aside the Employment Tribunal's Order requiring payment by the Company of £6,000.