United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	MR J GALBRAITH-MARTEN (of Counsel) Instructed By: Messrs Fox Williams Solicitors City Gate House 39-45 Finsbury Square London EC2A 1UU
For the Respondent	MR C WYNTER (of Counsel) Instructed By: Messrs Doyle Clayton Solicitors 69-70 Mark Lane London EC3R 7HS


 


MR JUSTICE HOLLAND:

Introduction

1. This is an appeal from the decision of an Employment Tribunal sitting at London Central, which decision together with Extended Reasons was sent to the parties on the 25^th April 2001. The matter relates to unlawful deduction from income.

The Facts

2. At all material times the Applicant, Mr. de Luca was employed by the Respondents, Longbridge International PLC, as a recruitment consultant. An original contract of employment of the 2^nd July 1997 was replaced by a further agreement in writing, this time dated 21^st October 1998. The following terms of this agreement are relevant to the present issue:

"Clauses 4(1). This Agreement supersedes and replaces all existing agreements and arrangements relating to the employment of the Employee with the Company.

8(1). The Employee shall be paid a salary and commission specified in Schedule 1.

24(2). The employment of the Employee hereunder maybe terminated by the Company without notice or payment in lieu of notice if he shall have:-

(c) committed any material breach of any express term of this Agreement; or

(d) been guilty of material misconduct … in the course of his employment …

24(4). If the Company has sufficient and reasonable grounds for believing that it may be entitled to terminate the employment of the Employee pursuant to sub-clause (2), it shall be entitled (but without prejudice to its rights subsequently to terminate such appointment on the same or any other ground) to suspend the Employee on full employee's basic rate of pay pending investigation.

29. The expiry or termination of this Agreement howsoever arising shall not operate to affect any of its provisions which are expressed to operate or have effect thereafter and shall not prejudice the exercise of any right or remedy of either party accrued beforehand.

Schedule 1(2). The Company shall pay the employee a commission, which shall be calculated by multiplying the aggregate value of placements (excluding VAT and disbursements) made by the employee during the previous calendar month by the Applicable Percentage.

(3). The Applicable Percentage referred to in Sub-paragraph (1) above shall be 20%.

The Company may in its sole discretion unilaterally vary the Applicable Percentage on giving the Employee one month's notice in writing.

(4). For the purposes of this contract, a placement shall be deemed to have been made on the date the applicant commences employment, and the value of that placement shall be the amount of that payment, excluding VAT and disbursements which the Company is entitled to receive in respect of such placement.

(5). Commission will be paid monthly in arrears at the end of the month in which the placement was made on the date for payment of the Employee's salary under this Agreement."

3. We turn to the relevant chronology:

12^th June 2000. The employers, having suspicions that Mr. de Luca was intending to set up some competing business, suspended him pursuant to Clause 24(4), presumably for material misconduct. As at this stage £10,200 by way of commission is due to him by reference to Schedule 1(2) and (4), payment to be at the end of the month as per schedule 1(5). In the event, so soon as the suspension becomes operative nothing is paid to Mr. de Luca save his basic salary, see Clause 24(4).

4^th July 2000. Mr de Luca gives 4 weeks notice of termination of his contract of employment pursuant to Clause 24. This notice is accepted as serving to terminate his employment on 3rd August.

19^th July 2000. Mr de Luca fails to attend a disciplinary hearing and the suspension continues.

3^rd August 2000. The employment terminates. As at this date the said sum of £10,200 remains unpaid. Further, payments of commission that had accrued by reference to Schedule 1(2) and (4) during the period since the 12^th June and totalling £29,322 remain unpaid.

The Issues

4. By way of an ET1 of the 26^th October 2000 Mr de Luca claimed, inter alia, £10,200 plus £29,322, £39,522, as moneys improperly deducted from his wages by his employer. It is helpful to cite from the Employment Rights Act 1996:

"Section 13(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 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."

It is common ground that for this purpose 'wages' can connote commission (see Section 27(1)(a)) and that if the sum, or any part of it was 'properly payable' as at termination the complaint must succeed. That brings us to the defence: the employers contend that as at the material time the sum was not 'properly payable' so as to be recoverable, hence why such had not been paid.

5. In the event the Employment Tribunal decided that the failure to pay £39,522 amounted to an unlawful deduction from the Applicant's wages and ordered payment. The employers appeal, contending that this decision reflects an error of law.

The Employers' Case

6. In attractive submissions Mr. Galbraith-Marten put his case thus:

a. Granted that there was a contractual obligation to pay Mr de Luca salary and commission (Clause 8(1)), that obligation was varied during a period of suspension so that the employers were only obliged to pay salary (Clause 24(4)).

b. In the event the period of suspension with the concomitant obligation only to pay salary continued to the 3^rd August.

c. Turn then to Clause 29: as at termination Mr de Luca did not currently have any right to payment of sums by way of commission. Given the unrelieved state of suspension no right to such had accrued beforehand. By contrast the employers had "an accrued right not to pay commission". In short, since the inception of the period of suspension commission was not 'properly payable'.

d. So far the argument proceeds on the basis that the sum total of the agreement is in the written contract: let it be supposed that that contract is inadequate in its express terms to deal with this issue, then resort must be had to the custom and practice of the recruitment industry as to which evidence was led before the Employment Tribunal. The effect of such evidence was, per his skeleton argument "that in the absence of any express contractual provision dealing with the circumstances that had arisen on this case, then by virtue of the custom and practice of the recruitment industry, any commission otherwise accrued at the date of termination was only payable at the discretion of the employer".

e. In the event the Tribunal had been wrong to reject this construction of the agreement and to place no reliance on the evidence as to custom and practice.

The Employee's Case

7. In equally attractive submissions, Mr. Wynter put his case thus:

a. The Agreement conferred commission upon Mr de Luca as a matter of contractual right as and when he made a placement as deemed in Schedule 1(4), with payment deferred to the end of the relevant month.

b. The fact of the suspension served to limit payment pro. tem., but it neither could nor did compromise eventual entitlement to previously earned commissions – that entitlement being a previously accrued right to take effect on termination (see Clause 29).

c. The Tribunal was right to place no reliance on the evidence that purported to show custom and practice of the recruitment industry: it had not shown any such thing but in any event there was no scope for its admission – the agreement was wholly in the contract.

Judgment

8. We start with the last point. We are entirely satisfied that this matter falls to be decided by way of construction of the agreement and that the Tribunal was right to pay no heed to such extraneous evidence as was put before it. Several short points arise:

a. Unlike the situation in, for example, Carmichael v. National Power PLC (1999) ICR 1226 we have here a document expressly intended to embody all the contractual terms (see Clause 4(1)) and plainly professionally drafted to achieve that end. It is old and trite law that it is only in exceptional circumstances that extrinsic evidence can be admitted "to contradict, vary, add to or subtract from the terms of a written contract" – a principle known as the Parol Evidence Rule.

b. As will become apparent, we are satisfied that there is neither need nor room for extrinsic evidence to add to the terms already cited. It is our prima facie duty to construe such and this we think we can do, aided if necessary by the contra proferentem principle that would seem apt to aid construction of terms which are said to limit the liability of the employers who 'proffered' the agreement.

c. In any event we find it difficult to envisage extrinsic evidence that could help intermesh the concepts of suspension and termination as used in this agreement. We are told by Mr. Wynter that such evidence as was adduced arguably did not cover relevant industry wide practice: it would be surprising were the position otherwise.

9. In our judgment the essential fallacy undermining the submissions of the employers is the proposition that suspension and termination are concurrent states, that is, that Mr de Luca's rights and obligations on termination fell to be assessed on the basis that he was concurrently suspended. So long as he was suspended he was an employee entitled to immediate continuing payment of a salary. Of his own volition he brought that state of affairs to an end as at the 3^rd August by termination on notice, such being accepted by his employers. His entitlement as at termination differed from that of, for example, the 2^nd August. As at the latter date he was entitled to, inter alia, his salary; as at termination there could be no longer any continuing entitlement to salary, for suspension had ceased. What remained was his entitlement to accrued rights which now fell to be honoured per Clause 29, with reciprocity for the employers. Perusal of the whole agreement serves to show matters which now became relevant with termination taking over from suspension: the future of lease contract with respect to a company car (Clause 11(2)); payment in lieu of accrued outstanding holiday entitlement (Clause 12(2)); continuing confidentiality (Clause 15); the restrictive covenant (Clause 18); return of property (Clause 25); and cessation of future entitlement to commission (Schedule 1(1)). It is in the context of this fresh forensic situation that the entitlement of Mr. de Luca falls to be considered free from the continuing effect of suspension.
10. Turning to the impact of suspension upon entitlement to commission, it plainly served to stay pro. tem. the payment of earned commission pursuant to Schedule 1(5) – so much indeed is conceded. It is not necessary to accord to the concept of suspension any greater or more lasting significance and to do so would be against the contra proferentem principle – if the employers wished not simply to stay payment pending investigation into the alleged misconduct but to terminate entitlement to earned commission it behoved them to make that explicit in this, their agreement and failing such terms there is no basis for so construing the agreement. Further, and in any event, did the parties seek to agree that suspension should do any more than introduce a temporary stay on payment of commission? A suspicion of misconduct warranting suspension has no necessary connection with pending commission entitlement and offers no justification for its termination. Yet further, as was pointed out in argument, it is in everyone's interests that that entitlement is unimpaired by suspension save as to immediate payment, so that the parties immediately resume their specified contractual relationship so soon as suspension is lifted. The notion that suspension serves to make subsequent payment of all pending commissions merely discretionary makes no practical sense and unsurprisingly is not provided for by the agreement.
11. It is thus that we hold that on a proper construction of the agreement Mr de Luca's entitlement to hitherto earned commissions continued during suspension unimpaired save as to immediate payment; and that, with the ending of suspension and the onset of termination, outstanding commissions with entitlement established by reference to Schedule 1(4) became payable by reference to 1(5) and Clause 29 and thus 'properly payable' for the purposes of Section 13(3). This was the decision of the Employment Tribunal: we dismiss the appeal against such.