United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	MISS C O'DONNELL (of Counsel) Instructed by: Low Pay Unit 9 Arkwright Road Hampstead London NW3 6AB
For the Respondent	MR V O'MALLEY (of Counsel) Instructed by: Mrs J Cobb c/o Free Representation Unit Peer House 4th Floor 8-14 Verulam Street London WC1X 8LZ


 


HIS HONOUR JUDGE PETER CLARK

1. By an Originating Application presented to the London (South) Employment Tribunal on 16 May 2000 the Applicant, Mr Paggetti, complained first of unfair dismissal, and secondly, a failure to provide him with a written statement of terms and conditions of his employment (the section 11 complaint) by his former employer, the Respondent, Mrs Cobb. The latter complaint was withdrawn when the matter came before a Tribunal chaired by Mrs F J Silverman on 2 October 2000.
2. By that Tribunal's Decision, promulgated with Extended Reasons on 5 December 2000, the Tribunal found that the Applicant had been unfairly dismissed, but had contributed to the dismissal by his own conduct to the extent of thirty per cent.
3. The Tribunal then went on to assess compensation for unfair dismissal, awarding him the sum of £900 by way of a basic award and a compensatory award of £598. The thirty per cent deduction was applied only to the latter award. It is against the Tribunal's method of calculation of both awards that this appeal is brought.

The relevant facts

4. The Appellant commenced his employment with the Respondent as a groom in April 1995. He was provided with free accommodation by the Respondent. According to his Originating Application he worked a 63.5 hour week and was paid £120 per week gross; £111 per week net.
5. The employment ended with the Appellant's resignation in May 2000 in circumstances which the Tribunal held amounted to a constructive dismissal.

The remedies decision

6. It appears to be common ground before us that the Appellant, who, like the Respondent, appeared in person below, withdrew the section 11 complaint after the Chairman pointed out that his employment had ended. Similarly, it seems that the Respondent was dissuaded from challenging the Appellant's evidence that he worked a 63.5 hour week in circumstances where it was pointed out that there was no claim brought under the minimum wage legislation.
7. For the purposes of the basic award the Appellant's gross weekly pay was taken to be £120. He was entitled to seven and a half weeks pay; £900. For reasons which are not explained, no deduction was made for contributory conduct under section 122(2) Employment Rights Act 1996 (ERA). However, there is no cross-appeal against that award.
8. As to the compensatory award, the Tribunal found that the Appellant was out of work from 7 May - 5 June 2000, a period of four weeks. They calculated compensation under this head as follows:

(1) Four weeks loss of net pay at £111 per week: £444

(2) Loss of free accommodation, four weeks @ £50 per week: £200.

(3) Loss of statutory rights: £250

Total: £894

Less 30% contribution: £598.

The total basic and compensatory awards were thus £1196.

The Appeal

9. Miss O'Donnell submits that in determining what is a week's pay for the purposes of section 221(2) ERA and what is the relevant net pay rate for calculating the loss of earnings element of the compensatory award under section 123(1) ERA, the Tribunal ought to have taken into account the minimum wage legislation but failed to do so. Three questions arise:

(1) was the point taken below? We think that it was. In his witness statement, read to the Tribunal, the Appellant said:

"My basic wage for a 63 and a half-hour week was £120. This is £1.88 per hour, which falls short of the National Minimum Wage laid down by the law."

and in an addendum to that statement he said:

"If I had received £3.60 per hour for 63 and a half-hours my gross pay would have been £228.60 per week. A notional rent of £128.60 per week for very poor accommodation would have been excessive."

It seems to us that where it is contended that the employee is paid less than the National Minimum Wage (NMW) that is a matter which must be investigated by the Tribunal when assessing both the basic award and compensatory award for determining the proper level of compensation recoverable for unfair dismissal. It is no answer that the Applicant made no claim under the minimum wage legislation per se, as the Chairman appears to have considered judging by her letter to the EAT dated 9 April 2001. We would add this enquiry to the list of issues which properly arise for consideration by the Tribunal set out in Langston -v- Cranfield University [1998] IRLR 172.

(2) Does the NMW impact on the calculation of a week's pay for the purposes of sections 221-229 ERA ? We accept Ms O'Donnell's submission that it does.

Section 1(1) of the National Minimum Wage Act 1998 (NMWA) provides that a person who qualifies for the NMW 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 NMW. By section 17, a worker who is paid less than the statutory minimum shall be taken as entitled to be paid under his contract the difference between what he was paid and the amount of his entitlement under the Act. Section 49(1) prohibits contracting out of the statutory right to be paid the minimum wage.

At the time of the Appellant's dismissal the NMW was set by statutory regulation at £3.60 per hour. It would appear that the Appellant qualified for the NMW.

Does it follow that in calculating a week's pay for the purposes of section 221(2) ERA that calculation is subject to the statutory minimum wage? We think that it does. In Cooner -v- P S Doal & Sons [1988] IRLR 338, the applicant, Mrs Cooner made a successful application for maternity pay. She worked in the clothing industry. Her employment was governed by a Wages Council Order which provided for a statutory minimum wage. Her maternity pay fell to be calculated in accordance with the definition of a week's pay in the predecessor to section 221(2) ERA, that is paragraph 3 of Schedule 14 to the Employment Protection Consolidation Act 1978. A Tribunal nevertheless calculated her maternity pay entitlement on the basis of her actual gross weekly wage paid by the respondent employer, which fell below the statutory minimum wage. On appeal the EAT upheld the applicant's contention that in calculating a week's pay under the 1978 Act it must be at a level not less than the statutory minimum imposed by the Wages Council Order. By parity of reasoning we conclude that precisely the same principle applies in the present case. Insofar as the Appellant's actual gross wage of £120 per week fell below the statutory minimum wage under the NMWA, the higher figure must be used for calculating a week's pay in accordance with section 221(2) ERA. To do otherwise would be to disregard the legal obligation of the employer to pay the statutory minimum wage.

A similar conclusion was also reached by the EAT in W A Armstrong & Sons Ltd -v Borrill [2000] ICR 367. There it was argued that from the statutory minimum wage payable under the relevant Agricultural Wages Order there fell to be deducted the value of board and lodging paid to the applicant's mother when determining a week's pay under section 221(2) ERA for the purposes of redundancy payment entitlement (precisely equivalent to the basic award). That argument failed. A week's pay meant the minimum wage set by the Order.

(3) What then is the impact of the NMW on the calculation of the compensatory award in this case?

10. In calculating the loss sustained by the complainant in consequence of his dismissal the starting point is the net wage to which the Appellant was entitled under his contract. For the reasons given above we are satisfied that his entitlement under his contract of employment was to a weekly sum not less than the NMW. See Kinzley -v- Minories Finance Ltd [1987] IRLR  490.
11. Having calculated the gross weekly pay in accordance with the NMW, that sum must be reduced by the notional tax and National Insurance deductions payable to provide the net weekly wage.
12. Returning to the Tribunal's calculation of the compensatory award in this case, the basis for calculating the loss of earnings claim is the net wage actually received by the Appellant. There was no investigation as to the statutory minimum wage to which he was entitled.
13. However, there is a further complication in this case. The free accommodation provided to the Appellant by the Respondent. On termination of his employment he immediately lost that accommodation. Hence the Tribunal's award of £200, representing four weeks loss of accommodation at a notional £50 per week.
14. Whereas the provision of free accommodation does not go to reduce the statutory minimum wage for the purposes of calculating a week's pay in the context of a basic award, it seems to us that in assessing the compensatory award there will be an element of double recovery if no account is taken of the notional value of the accommodation in the net weekly wage based on the NMW.
15. Miss O'Donnell has very properly drawn our attention to the relevant provisions of the National Minimum Wage Regulations 1999. Regulation 30(d) permits the employer to deduct from the minimum wage, in addition to monies actually paid, the value of free accommodation provided by him, subject to the maximum provided for in regulation 36, that was £2.85 per day at the relevant time, or £19.95 per week.
16. We would therefore approach the matter, applying the just and equitable principle contained in section 123(1) ERA, in the following way. Calculate the gross week's pay by reference to the actual hours worked multiplied by the statutory minimum wage, then £3.60 per hour. Deduct the maximum allowance under Regulation 36, £19.95. That will give the gross weekly pay, which must then be netted down to allow for tax and National Insurance contributions. That will be the multiplier for the purposes of calculating the loss of earnings over the four week period.
17. In addition, the Appellant is entitled to the actual value to him of the loss of accommodation over that period, assessed by this Tribunal at £50 per week.

Conclusion

18. It follows, in our judgment, that this appeal must be allowed.
19. Miss O'Donnell invites us to recalculate the award for unfair dismissal ourselves. We decline to do so. As Mr O'Malley points out, the Respondent was not given the opportunity below to challenge the weekly hours figure of 63.5 contended for by the Appellant. The Tribunal did not consider this to be a live issue. For the reasons which we have given we think that it was.
20. It follows that we shall remit the case to a different Tribunal for calculation of both the compensatory and basic awards in accordance with the principles stated above. The deduction of 30% from the compensatory award only stands.