United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellants	Mr A Hardman, Advocate Instructed by- Messrs A C White Solicitors 23 Wellington Square AYR KA7 1HG
For the Respondents	Mr D B Stevenson, Solicitor Of- Messrs Thompsons Solicitors 16-18 Castle Street EDINBURGH EH2 3AT


 


LORD JOHNSTON:

1. This is an appeal at the instance of the employer against a successful application by his employees to the Employment Tribunal with regard to unauthorised deduction of wages.
2. The background to the matter is that the company sought to introduce short time working against a background of falling orders and, in fact, did so, apparently resulting in the earnings of the employees being reduced from what they otherwise would have been if working to full capacity. The question to be determined by the Tribunal was whether or not that such could be regarded as an authorised or unauthorised deduction in terms of section 13 of the Employment Rights Act 1996.
3. That provision is in the following terms:-

"13 Right not to suffer unauthorised deductions

(1) An employer shall not make a deduction from wages of a worker employed by him unless-

(a) the deduction is required or authorised to be made by virtue of a statutory provision or a relevant provision of the workers' contract, or

(b) the worker has previously signified in writing his agreement or consent to the making of the deduction.

(2) In this section "relevant provision", in relation to a worker's contract, means a provision of the contract comprised –

(a) in one or more written terms of the contract of which the employer has given the worker a copy on an occasion prior to the employer making the deduction in question, or

(b) in one or more terms of the contract (whether express or implied, and, if express, whether oral or in writing) the existence and effect, or combined effect, of which in relation to the worker the employer has notified to the worker in writing on such an occasion.

(3) Where the total amount of wages paid on any occasion by an employer to a worker employed by him is less than the total amount of the wages properly payable by him to the worker on that occasion (after deductions), the amount of the deficiency shall be treated for the purposes of this Part as a deduction made by the employer from the worker's wages on that occasion."

4. Before us Mr Hardman, of Counsel, sought to amend his grounds of appeal by introducing two further ones in the following terms:-

"6 The grounds upon which the Appeal is brought are that the Employment Tribunal made a finding in fact that it was a term of the contract of employment implied by custom and practice that the employer was entitled to introduce short term working. In light of that finding, the Employment Tribunal erred in law:

a in concluding that there was any deduction from wages of the employee, the Respondent in this Appeal, and thus that they required to consider whether that contractual term was "a relevant provision" in terms of Section 13(2)(b) of the Employment Rights Act 1996;

b esto the Tribunal did not err in that respect, then it erred in law in concluding that the requirement under Section13(2)(b) of the Employment Rights Act 1996 to notify the existence and effect of a term of the employee's contract was equivalent to a requirement that the employer notify to the employee the dates of short time working."

5. The Tribunal's findings which were produced by a Chairman sitting alone, an unfortunate situation in a case of this importance, are not easy to follow since various findings in fact are made before the Tribunal thereafter appears to rehearse the evidence. However, the crucial part of the decision is as follows:-

"The applicant alleges that he has suffered an unauthorised deduction from his wages. As Ms Greenald correctly pointed out the terms of section 13 (1) (a) of the 1996 Act apply in this case. For the deduction to be a valid one it must be authorised by a relevant provision of the applicant's contract of employment. The Chairman considered firstly whether or not there was an express term in the applicant's contract which permitted the respondents to introduce short time working without USDAW's consent. Without much hesitation the Chairman concluded that the phrase "this working pattern" did indeed refer to the shift arrangements referred to in the hours of work clause. Within the basic working week of 39 hours the applicant was obliged to work certain hours on certain days. These hours constituted the working pattern. When the respondents sought to introduce short time working they were effectively reducing the basic working week. This was not a change to the working pattern. Moreover the Chairman concluded that the phrase "may be altered" did not mean that the alteration could be at the respondents hand only. This was an agreement that had been negotiated by the respondents and USDAW. If it was to be altered at the respondents hand only then the Chairman concluded that the agreement would have made that expressly clear. In the absence of same the Chairman concluded that there was no basis for any reasonable construction that the respondents were entitled to alter without the consent of USDAW. Accordingly the Chairman concluded that there was no express term which allowed the respondents to impose short time working on their workforce. It follows from that Mr Potter misinterpreted the relevant provision in production 8 when he considered that, when reducing the number of hours, he was altering the working pattern and that he was entitled to reduce these hours without the agreement of USDAW.

In relation to the custom and practice argument the Chairman concluded that there was indeed a custom and practice which had arisen over several years of the respondents introducing short time working with the consent of USDAW. There was clear evidence that in both 1999 and 2000 that the workforce did agree on Mr McVie's advice, to short time working. This was the lesser of two evils. Redundancies were to be avoided. In 1999 there was universal agreement to short time working. In 2000 there was a majority of the workforce who agreed to short time working. Mr Potter was aware of the misgivings of the workforce as to short time working. This was a view that he too shared. Given that no objection had been raised by USDAW, either formally or informally, with him in these previous years the Chairman concluded that in all the circumstances an implied term could be legitimately read into the applicant's contract of employment that by custom and practice the respondents were entitled to introduce short time working. The Chairman did not agree with Ms Greenald that these were ad-hoc agreements reached on a year to year basis with USDAW. There was no evidence of any agreement with USDAW at all. USDAW did not respond either positively or negatively to the short time working proposals contained in productions 18 & 19. However, the matter does not end there because, albeit that the Chairman has concluded that there is an implied contractual term based upon custom and practice he still requires to consider whether this constitutes " a relevant provision of a workers contract". This phrase is defined in section 13 (2)(b) as a term, whether express or implied, whose existence and effect the employer has notified to the worker in writing before he makes a deduction. The display of a general notice on a notice board is not sufficient notice – see Kerr –v- The Sweater Shop Scotland Ltd. This is how the respondents employees were advised of short time days. The thrust of section 13 (2) (b) is that the written notification must be to the worker individually. It follows from that therefore that notice to USDAW is also insufficient. The Chairman has considerable sympathy with the respondents here given that they negotiate with USDAW on behalf of not only their members but other employees who are not members of USDAW. They would doubtless expect that notice to USDAW of proposed short time days would be sufficient notice to individuals themselves. Unfortunately for them this is not the aim of section 13 (2) (b). Accordingly the Chairman concluded the deductions made on the basis of the implied term based upon custom and practice were not made in accordance with the provisions of Section 13 (1)(a) of the 1996."

6. Mr Hardman sought to argue that the Tribunal had misdirected itself by not having considered, firstly, if there was any deduction of wages in fact and, secondly, if so, whether there was a "relevant provision" within the meaning of the statute. He submitted there was no deduction because, in fact, the people were being paid for the hours they actually worked and, accordingly, the phrase "properly paid" should be directed to that factor and not to what they would otherwise have been paid if they had been working full time. In any event, he said the Tribunal had misdirected itself by not considering against that background if there was a deduction whether there was a relevant provision in the contract of employment. The issue of notification with which the Tribunal also dealt was, he submitted, nothing to the point. He was forced to recognise that the Tribunal's reasoning is contradictory and he submitted it should be overturned.
7. Mr Stevenson, appearing for the employees, pointed to his cross-appeal to the effect that the Tribunal had erred in law in holding that there was an implied term in the contract as they appear to do at the bottom of page 12 in the passage we have quoted. If there was no such implied term, there is no way upon which the deductions, if made at all, could be authorised, save by statutory provision which did not arise in the present case. What hours actually were being worked in respect of which payment was made was nothing to the point, he submitted, what mattered was whether the contract of employment authorised the reduction in hours.
8. The history of the matter although relevant is not, in our opinion, conclusive. It does appear that in the past the Union have agreed with the employer to reduce working hours but no such agreement was reached in relation to the present claims. It is not clear whether the Union were even consulted. However, we do not consider that the issue turns upon this point.
9. Looking initially at the matter generally, the scheme behind the provisions of section 13 is to prevent an employer from reducing wages, otherwise payable, without effectively the authority of a contract or a contractual term express or implied within the employee's contract. The problem that arises in the present case is that the reasoning of the Tribunal is totally contradictory inasmuch that it rejects the notion that there was an express term in the contract allowing the employer to vary the hours of work and pay accordingly, yet it imposes an implied term by reference to custom and practice without reference however to the history that reveals the existence of agreement in the past. It is difficult to see how there can be an implied term which rules in the absence of an express term but, be that as it may, the important point is that on the Tribunal's own findings, there was a term of the contract authorising deductions without agreement. If that is the correct view of the case, the question of relevant provision and notification does not arise because there is, by definition in this context, an intrinsic power within the contract.
10. The problem we have is that we are unable to accept upon the evidence that there was such an implied term in the contract. The fact that in the past there may have been agreements to vary the contract does not in itself create a power to enable the employer to do that unilaterally. Reduction in working hours is plainly a variation of a contract of employment and, unless expressly catered for within that contract, or allowed by implication again within the terms of the contract, any actual deduction of wages, even if related to the hours worked, is not authorised by the statute and can only be achieved by agreement. It therefore follows that we cannot support the reasoning of the Tribunal in this vital question and the cross-appeal, in our opinion, succeeds.
11. That seems to us to be the end of the matter since we are entitled to determine the issue upon the evidence ourselves having regard to the fact that the reasoning of the Tribunal is flawed. This we do upon the basis that for the reasons we give and not those of the Tribunal the deductions in question, if made, must be regarded as unauthorised in terms of the statute in the absence of any power in the contract so to do without the agreement of the employees. There is none to be found since we reject the notion of an implied term treated in the way set out by the Tribunal. There is nothing to suggest that the employees had agreed to an open-ended commitment to accept shorter working hours and lesser wages whenever the employer chose unilaterally to declare same.
12. In these circumstances we will adhere to the finding of the Tribunal but not based on its reasoning but rather upon ours. We therefore declare that the deductions in question, if made from the wages to which the employer would otherwise be bound to pay for a full working week, were unauthorised in terms of the statute.