United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	MISS J EADY (Of Counsel) Instructed by: HM Inland Revenue Room T22 East Wing Somerset House Strand London WC2R 1LB
For the Respondent	MR DANIEL OUDKERK (Of Counsel) Instructed by: Messrs Dechert Solicitors 2 Sergeants Inn London EC4Y 1LT


 


JUDGE J R REID QC

Introduction

1. This is an appeal from a decision of an Employment Tribunal held at Cardiff on 7 August 2001 by which it rescinded an enforcement notice under section 19 of the National Minimum Wages Act 1998 served on Bebb Travel plc on 6 October 2000 by the Inland Revenue. The decision was sent to the parties and entered on the Register on 11 September 2001. The basis of the decision was that the Inland Revenue was not entitled to serve the enforcement notice at the time when it did. Against that decision the Inland Revenue appeals.

Facts

2. The relevant facts of this case can be summarised shortly:

2.1 Bebb operates a coach service. Until May 2000, it employed stewards and stewardesses on the coaches to carry out various tasks on 14 routes for which they received their basic pay. When not engaged on those tasks they were entitled to provide and sell refreshments and to retain any profits made from the sales, but had to bear any losses. At various times the workers concerned included the 25 workers listed in the schedule to the enforcement notice. Bebb ceased to employ stewards and stewardesses on its coaches in May 2000. Some of them had ceased working for Bebb long before that: for example a Ms McCarthy's last pay reference period ended on 10 April 1999.

2.2 On 10 February, 5 May and 4 September 2000, Mr Mark Vaughan, a National Minimum Wage Compliance Officer acting for and on behalf of the Inland Revenue, visited Bebb's premises and examined the wage records. He formed the view that the 25 workers listed were or had been employed by Bebb and were entitled to be remunerated at a rate at least equal to the national minimum wage but, for the various pay reference periods specified in the schedule to the enforcement notice (the last of which expired on 27 May 2000), had been paid at an hourly rate less than the minimum wage.

2.3 On 6 October 2000, Mr Vaughan served an enforcement notice on Bebb, requiring it to make good alleged short-falls in remuneration paid to these workers, the sums allegedly due ranging from £26.52 to £4,892.45, the total amount of the short-fall alleged being £37,649.43.

2.4 By notice dated 31 October 2000, Bebb appealed against the enforcement notice to the Employment Tribunal. The grounds of that appeal included, amongst other grounds, the contention that the enforcement notice served in this case was invalid as it did not relate to any pay reference period ending on or after the date of service of the notice.

The National Minimum Wage

3. The right to receive the national minimum wage came into effect on 1 April 1999. It was introduced by the National Minimum Wages Act 1998 and is governed by the provisions of that Act and by the National Minimum Wage Regulations 1999 SI 1999/5 84 ("the Regulations"). At the relevant time, the national minimum wage was set at £3.60 per hour, though it has now increased.
4. In outline, all "workers" are entitled to be paid the national minimum wage, provided that they have reached school-leaving age and ordinarily work in the UK. "Worker" is defined broadly and is intended to cover everyone save the genuinely self-employed.
5. In order to determine whether an individual is being paid the national minimum wage, it is necessary to determine the hourly rate of pay. This is calculated as the average hourly rate and it is therefore necessary to establish the total pay received in a pay reference period and the total number of hours worked during that period. Reg 10 provides that the pay reference period is one month or, if the worker is paid by reference to a shorter period than a month, that shorter period. Where remuneration is received at some date after the pay reference period during which it was earned (e.g. bonus pay or commission), then reg 30(b) provides that it is to be allocated to the period during which it was earned, rather than that when it was received. Generally, the Regulations provide a detailed set of rules for calculating pay and hours for the purposes of the Act, including detailed rules on how various types of payment are to be treated (regs 30-37) and as to how different categories of work are to be treated (regs 15-29A).
6. Employers are under a duty to keep records in respect of each worker for a minimum of three years so as to be able to demonstrate that the worker is being paid at a rate at least equivalent to the national minimum wage (reg 38). A right to inspect those records is provided both to the individual worker who suspects that he has not been paid the national minimum wage (section 10 of the Act) and to an enforcement officer (section 14).
7. The enforcement mechanisms under the Act are four-fold:

(1) Inspection of records

(2) Employment Tribunal and County Court claims: a worker who is not paid the national minimum wage is deemed to have a contractual right to the short-fall and can therefore bring a claim for an unlawful deduction of wages in the County Court. A worker who is dismissed or victimised for asserting a right under the Act may also be able to claim unfair dismissal or unauthorised deductions from pay in proceedings before the Employment Tribunal.

(3) Enforcement officer action: both in relation to the employer's record-keeping obligations and in respect of failures to pay the national minimum wage, - the subject of the appeal.

(4) Criminal sanctions: an employer may commit a number of criminal offences, for example refusing or wilfully neglecting to pay the national minimum wage and failing to keep records.

The sections in issue

8. The terms of section 19 of the Act are as follows:

"19. Power of officer to issue enforcement notice

(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.

(2) An enforcement notice may also require the employer to pay to the worker within such time as may be specified in the notice the sum due to the worker under section 17 above in respect of the employer's previous failure to remunerate the worker at a rate at least equal to the national minimum wage.

(3) The same enforcement notice may relate to more than one worker (and, where it does so, may be so framed as to relate to workers specified in the notice or to workers of a description so specified).

(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.

(6) On an appeal under subsection (4) above, the employment tribunal shall dismiss the appeal unless it is established

(a) that, in the case of the worker or workers to whom the enforcement notice relates, the facts are such that an officer who was aware of them would have had no reason to serve any enforcement notice on the appellant; or

(b) where the enforcement notice relates to two or more workers, that the facts are such that an officer who was aware of them would have had no reason to include some of the workers in any enforcement notice served on the appellant; or

(c) where the enforcement notice imposes a requirement under subsection (2) above in relation to a worker,—

(i) that no sum was due to the worker under section 17 above; or

(ii) that the amount specified in the notice as the sum due to the worker under that section is incorrect;

and in this subsection any reference to a worker includes a reference to a person whom the enforcement notice purports to treat as a worker.

(7) Where an appeal is allowed by virtue of paragraph (a) of subsection (6) above, the employment tribunal shall rescind the enforcement notice.

(8) If, in a case where subsection (7) above does not apply, an appeal is allowed by virtue of paragraph (b) or (c) of subsection (6) above-

(a) the employment tribunal shall rectify the enforcement notice; and

(b) the enforcement notice shall have effect as if it had originally been served as so rectified.

(9) The powers of an employment tribunal in allowing an appeal in a case where subsection (8) above applies shall include power to rectify, as the tribunal may consider appropriate in consequence of its decision on the appeal, any penalty notice which has been served under section 21 below in respect of the enforcement notice.

(10) Where a penalty notice is rectified under subsection (9) above, it shall have effect as if it had originally been served as so rectified."

9. "Enforcement notice" is defined by Section 55 of the Act as follows:

"55. Interpretation

(1) In this Act, unless the context otherwise requires,— …

enforcement notice' shall be construed in accordance with section 19 above;"

10. Section 19 refers to section 17 which is in these terms:

"17. Non-compliance: worker entitled to additional remuneration

(I) 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 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 the 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.

(3) In subsection (2) above, 'relevant remuneration' means remuneration which falls to be brought into account for the purposes of regulations under section 2 above.

11. Under section 20 an enforcement officer can present a complaint in an employment tribunal or sue on behalf of any worker to whom an enforcement notice relates to recover any sums due under section 17. If an employer has failed to comply with an enforcement notice, then the enforcement officer can serve a penalty notice on the employer. This will provide for a penalty of twice the hourly amount of the minimum wage (at the rate in force at the date of service of the notice) per worker per day. There is provision for an appeal against penalty notices in section 22. The only ground of appeal on which the penalty notice can be rescinded (as opposed to amended) is if "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 a penalty notice on the appellant" (see section 22(3)(a)). Sections 23 and 24 give a worker the right not to suffer detriment (to put it briefly and not entirely accurately) as a result of act or deliberate failure to act by the employer arising from worker's right to the minimum wage and to obtain redress for such detriment in an Employment Tribunal. Section 28 puts the burden of proof on the employer in any proceedings in which a question arises as to whether person qualifies or qualified for the minimum wage, and in Employment Tribunal or County Court if he makes a claim on the basis he was paid less than the minimum wage. Sections 32 to 34 deal with offences and proceedings for offences.

The Revenue's case

12. The Revenue contended that Section 19(2) of the Act allows the issuing of an enforcement notice in respect of a past short-fall in remuneration, as calculated for the purposes of section 17 and that this power is not parasitic upon section 19(1). In support of this contention the Revenue made the following submissions:

12.1 Section 19(2) refers to "an" not "the" enforcement notice. This was contrasted with the language of Section 19(3), which refers to "The same" enforcement notice, which can be issued in respect of more than one worker. If the power afforded under section 19(2) was to be dependent upon section 19(1), then there could be no enforcement notice in the former case: only a notice issued under section 19(1) to which an additional requirement could be added to make good a past short-fall in pay. In such circumstances, the reference would be to "The" or "The same" enforcement notice (as in section 19(3)).

12.2 The words "may also" do not render section 19(2) dependent upon 19(1). The words should be construed as permissive without connoting any necessary dependency.

12.3 The overall structure of Section 19 supports this view. The power to issue an enforcement notice arises provided that the enforcement officer "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". If the power only arose where the breach was current or threatened for the future, then this would have been stated.

12.4 The language of Section 19 suggests:

(1) That where an enforcement officer 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, he is empowered to issue an enforcement notice.

(2) An enforcement notice may require the employer to remunerate the worker at a rate equal to the national minimum wage in respect of current and future pay reference periods.

(3) An enforcement notice may require the employer to make good any past short-fall in remuneration paid to the worker, as calculated in accordance with Section 17. This interpretation is supported by the definition of "worker" in S54 of the Act, which includes past workers.

12.5. A purposive reading of the Section would support the Revenue's argument. If Bebb's construction (upheld by the Employment Tribunal) were correct:

(1) No enforcement notice could be issued where the worker's employment had come to an end (i.e. where there was no current or future pay reference period to which the notice could relate). This would mean that an employer would get away with past breaches of the Act unless the worker pursued his own complaint.

(2) The enforcement officer could not require payments in respect of past failure to comply where the employer was paying national minimum wage as at the date of issue of the notice. Thus, for example, where the enforcement officer's investigation was (as here) dilatory the employer could avoid any enforcement notice by putting its house in order for the future. This would avoid making good any past short-fall.

12.6 This construction of the section 19 would not combat the mischief which the use of an independent enforcement agency was designed to prevent: in particular, to ensure that the right of a qualifying worker to receive the national minimum wage as from 1 April 1999 was enforced, without the need for the particular worker to take individual action and to ensure that an enforcement officer could take independent action after investigating the position without being frustrated by the employer (possibly colluding with individual workers). The purpose of empowering an independent agency to enforce the national minimum wage is to ensure that (perhaps particularly in the "fringe economy") enforcement is taken out of the hands of individual workers.

12.7 Even where the employment relationship has come to an end, the worker might still be dependent upon future employment opportunities with that employer (indeed this will invariably be the case in casual or seasonal work, where non-compliance with the Act might be seen as a particular problem), or he might not wish to be seen by other local employers to be making a public complaint. In many cases the sums involved will be relatively small in amount. In all such cases, there is a very real continuing need for the Revenue to be involved in enforcing the Act. In any event there remains the problem of the continuing employment relationship where there has been past noncompliance but where there is no current or threatened future breach.

12.8. The fact that the Revenue is not empowered to pursue complaints of unfair dismissal or of unlawful detriment does not assist in determining its powers to ensure compliance with the Act in terms of actual remuneration. Parliament considered that unfair dismissal and unlawful detriment complaints (which can arise both within a continuing employment relationship and after its termination) would not be appropriate for third party enforcement. On the other hand, it was plainly considered that it would be appropriate for an external agency to be involved in the enforcement of actual payments of the rate set by the Act.

12.9 It is irrelevant that workers (or former workers) may themselves take proceedings to recover short-falls in pay. That would be true both as regards a continuing employment relationship and one that has ceased.

12.10 As for the question of time limits:

(1) A worker could pursue claims in the County Court for damages for breach of contract for up to six years after the date of the breach in question.

(2) The Revenue's powers under section 20 of the Act would still be subject to the time limits imposed in respect of Section 23 Employment Rights Act 1996 or County Court proceedings.

(3) There are many reasons why both current and former workers might not wish to take proceedings themselves to enforce the national minimum wage and recover any past short-fall in wages: eg fear of the repercussions with that employer or in the local employment market; because the sums in question are fairly small in amount; or because they themselves might have colluded with the employer in respect of certain obligations in respect of pay.

(4) The purpose of empowering an independent agency to enforce the national minimum wage is to ensure that it is paid (perhaps particularly in the "fringe economy")

12.11 The Act does not just establish a right to be paid the minimum wage, it imposes an obligation on employers to pay it. Where it has not been paid, then an enforcement officer can take action to ensure that it is. This is the purpose of section 19. To remove or cut down that power in respect of past breaches of the Act would be to undermine the very purpose of the section and to reduce the effectiveness of the enforcement mechanisms provided by the Act.

Bebb's submissions

13. On behalf of Bebb Mr Oudkerk submitted:

13.1 The Revenue was plainly not entitled to serve an enforcement notice under section 19(1). Under that subsection the Revenue may serve an enforcement notice in respect of a worker where the officer is of opinion that the worker "qualifies" for the minimum wage "for pay reference periods ending on or after the date of the notice at a rate equal to the national minimum wage". The notice served by the Appellant was dated

October 2000. The last pay reference period ended on 27 May 2000.

13.2 The draftsman was well able to distinguish between "qualifies" and "qualified": see section 28(1) where the draftsman carefully uses the expression "qualifies or qualified at any time". When the notice was served none of the workers in respect of whom the notice was served had been employed for over 4 months. Whilst the officer could have been of the view that the workers qualified whilst they were still in employment he could not have been of that view that they still qualified once the employment had ended.

13.3 The notice was not served for pay reference periods ending on or after the date of the notice. The notice therefore could not be valid under Section 19(1). The Tribunal held at paragraph 8 of its Extended Reasons that the wording to remunerate "for pay reference periods ending on or after the date of the notice" could hardly be clearer. The empowering sub-section is concerned purely with pay reference periods subsisting in the month leading up to the notice or after the notice. In Bebb's case there was no pay reference period subsisting in the month leading up to the date and when the notice was served there had not been one for over 4 months.

13.4 There is no free-standing power to serve an enforcement notice under section 19(2). The power to "serve a notice" is contained in section 19(1). The effect of section 19(2) is to provide that an enforcement notice served under section 19(1) "may also require" the employer to pay the worker in respect of a previous failure to remunerate the worker. The definition of "worker" in S54 to include past workers is intended to cover only workers whose employment terminated during a current pay period but before the date of an enforcement notice relating to that pay period.

13.5 Sub-section (2) does not empower an officer to serve notice. It merely empowers him to include previous failures in a validly served notice. There is nothing in sub-section (2) capable of altering the clear meaning of sub-section (1). It merely adds to it. This is clearly indicated by use of "also", and by reference not to a worker and an employer but "the" worker and "the" employer.

13.6 The Revenue's construction of section 19 is wrong as a matter of construction and policy. On its interpretation there would be no limitation period for the service of an enforcement notice under section 19(2), nor would there be any limitation period for proceedings by the Revenue under section 20. It would enable the Revenue to bring proceedings for unauthorised deductions under section 13 of the Employment Rights Act 1996 at any time after the employment had terminated. This contrasts with the position of a worker who would be subject to a time limit of 3 months under section 23 of the ERA. Such a power would require express words.

13.7 Section 19 of the Act is neither ambiguous nor obscure and accordingly no reference to Parliamentary material is required, but in any event Bebb's construction of Section 19 is consistent with the Parliamentary materials which were before the Employment Tribunal. Those do not suggest any intention to enable the Appellant to bring proceedings for unauthorised deductions under section 13 of the 1996 Act at any time after the employment had terminated.

Discussion

14. Section 17 provides that a qualifying worker who is paid less than the minimum wage is to be taken to have a contractual right to the shortfall. This contractual right could be enforced either in the Employment Tribunal (in which case the proceedings would have to be launched within three months after the underpayment) or in the County Court (in which case the 6 year contractual limitation period would apply). The issue of an enforcement notice under section 19 does not prevent an employee from launching his own proceedings. Section 20 provides limited circumstances in which an enforcement officer, having served an enforcement notice, can bring proceedings on behalf of a worker to recover unpaid sums. The section does not extend to allow the enforcement officer to bring proceedings on behalf of a worker who alleges he has suffered detriment within section 23. One of the oddities of the Act is that an officer bringing civil proceedings could be met by a limitation act defence, but the daily penalty under section 21 for failing to pay the statute-barred amount would continue to run until payment. Whilst it was suggested that it would be rare for an enforcement officer to be able to find more than six years of records and so it was unlikely that a notice specifying more than six years of underpayment would be issued, it is by no means impossible. Both parties sought to make some capital from these provisions, but it seemed to us in the end that the provisions (though capable of giving odd results) did not assist us one way or the other in resolving the issue before us.
15. By section 19(1) "if an officer…is of opinion that a [qualifying] worker has not been [properly] remunerated" he may serve "a notice (an "enforcement notice") on the employer" (ie the employer of that worker) "requiring the employer to remunerate the worker for pay reference periods ending on or after the date of the notice at [the proper] rate". Thus far it is clear that the notice can only be served in respect of the current or future periods. It also seems to us to be clear that an "enforcement notice" is a notice containing a requirement as to future payment.
16. Then we come to subsection (2). "An enforcement notice may also require the employer to pay to the worker within such time as is specified in the notice the sum due under section 17 above in respect of the employer's previous [underpayment]". The words "may also" show that the notice must contain the requirement as to future payments referred to in subsection (1), whether or not it contains in addition a requirement for payment for past underpayment. If it does not contain a requirement as to future payment, it is not an "enforcement notice" as identified by subsection (1). It may or may not "also require" a payment in respect of past periods, but it cannot only make such a requirement and not contain a requirement as to future periods. The fact that section 55 requires the expression "enforcement notice" to be construed "in accordance with section 19 above" does not assist the Revenue. Indeed, it reinforces Bebb's construction is correct, because in accordance with section 19 an enforcement notice is one which, (as section 19(1) says, contains a requirement as to future payment.
17. It seems to us the use of the definite article in the expressions "the employer" and "the worker" in subsection (2) are harking back to the employer on whom the notice referred to in subsection (1) was served and the worker in respect of whom it was served. If this were not so the words used would be "an employer" and "a worker". This is further support for the view we have formed as to the clear meaning of the section.
18. Another indication which supports us in our view is that in section 19(1) the draftsman has used the words " a worker who qualifies". That indicates a worker still in employment at least at the time the officer's opinion is formed. If the words were intended to include also a former worker, then the expression used would be "qualifies or qualified at any time" as in section 28(1).
19. A still further minor indication that an enforcement notice under section 19 is intended only to deal with current workers is that there is nothing in the Act which provides for the situation where the worker cannot be traced. The requirement under section 19(2) is for "the employer to pay to the worker". There is nothing, for example, which enables the employer to get a good discharge by paying the Revenue amounts demanded to be paid to a vanished worker. The possibility of not being able to trace a worker is a real one when dealing with long gone casual short term workers: for instance in the present case one of the workers to whom Bebb was required to make payment was a lady who appears to have worked for only two weeks in April 1999 and had left some eighteen months before the notice was served. An employer (however anxious he was to pay up) would be at risk of a continuing daily penalty for failing to pay a person whom he could not find.
20. We have taken into account an oddity to which our construction leads, namely that if there are two workers who are underpaid one of whom leaves just before the pay period to which an enforcement notice relates, the notice can require back payments to the one who has stayed on but not to the one who has left. Notwithstanding this anomaly, the considerations we have set out persuade us the construction at which the Employment Tribunal arrived was clearly the correct one. Subsection (2) provides a summary way of obtaining underpayments for existing workers. It was not intended to enable or require enforcement officers to investigate and initiate recovery proceedings for workers who had long since moved on. In those circumstances we do not regard the Parliamentary material placed before us as being admissible, but in any event we did not regard it as shedding any real light on the construction of this particular section. We also acknowledge the apparent anomaly that would permit an employer who becomes aware of the Revenue's intention to serve an enforcement notice could with impunity dismiss all the relevant employees before the notice is served. Indeed, this in effect what happened in this case. However, the circumstances which would allow an employer to dismiss his employees and still carry on his business will be very rare, and in any case Parliament has ensured that such workers have their own remedy in the Employment Tribunals and the County Courts.

Conclusion

21. For the reasons given above we take the view the decision of the Employment Tribunal was correct and the appeal must be dismissed. At the conclusion of the hearing each side asked for leave to appeal if it had lost. As the point may be one of some general significance, we indicated we would give the loser leave to appeal. In the result, we give the Revenue leave to appeal.