United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	MR RAPHAEL COHEN (of Counsel) Instructed by: Employment Dispute Solutions Ltd PO Box 4 Shipley West Yorkshire BD18 1YW
For the Respondent	MR BENNISON (of Counsel) Instructed by: The Malley Organisation Ltd t/a First Business Support Hurstwood Hey Road Rawtenstall Lancashire BB4 6AJ


 


HIS HONOUR JUDGE A WILKIE QC

1. This is an appeal by Mr Evans against a Decision of the Employment Tribunal, sitting at London South, on 31 October and 1 November 2000, which dismissed his various claims against The Malley Organisation Ltd t/a First Business Support. In particular, they dismissed his claim that the Respondent had made unauthorised deductions from his wages, and it is against that Decision that he appeals.
2. The complaint of unauthorised deductions was in respect of two matters: one was in respect of accrued holiday pay due to him on the termination of his employment on 29 March 2000, and the second was in respect of his pay whilst suspended from employment for a period of eleven days up to 24 March, which was the date his employment terminated, not the 29^th.
3. The Applicant was paid, in respect of both of these periods, his basic rate of pay which, pursuant to the contract, was £10,000 per annum. He says that there was an unlawful deduction in that he should have received a payment taking account not only of his basic rate, but also commission, falling under the contract.
4. The business of the Respondent is providing services to small and medium sized businesses in areas of employment law and health and safety. The Appellant was employed as a sales representative. The Employment Tribunal made findings of fact, both as to the terms of his employment and the way in which commission fell to be calculated and paid.
5. As to the former, those were contained in a Statement of Terms and Conditions of Service. It set out set hours of work between 9 am - 5.30 pm, though there was a requirement to work additional hours determined by the needs of the business. Remuneration was, as we have said, comprised of a basic salary of £10,000 per annum plus commission payments which were detailed in the offer letter. Holiday pay was provided for by the contract, and it stated that:

"Your rate of pay for holidays is your normal basic rate"

6. In respect of disciplinary investigations and hearing, there was contractual provision for the employer to suspend the employee with pay, pending the conclusion of any investigation and subsequent hearing. It was made clear in that term, that suspension with pay was not, of itself, a disciplinary action, and was seen as a temporary measure to assist the proper conduct of the disciplinary process. It also provided that following the initial investigation, if there were a case to answer, a disciplinary hearing would be established as soon as possible.
7. The Tribunal made findings in respect of commission. The agreements which they were seeking to sell to clients were mostly for a term of three years. The Tribunal found that the normal method by which clients would pay for these three year deals were in thirty six equal standing order payments. Commission fell due to the sales representative once 25% of the fee had been paid to the Respondent by the client. Thus in the case of a three year contact, where fees were paid monthly, commission would arise at the end of the month following the month in which at least twenty five per cent of the overall fee had been paid, that is to say, normally at least nine months after the contract had been made.
8. We were informed in the course of argument today by both Mr Cohen and Mr Bennison, who have addressed us with succinctness and greatly to our assistance, that the payment of commission was of a certain percentage of the overall fee under the agreement with the client, that it was made as a one off payment when the trigger had arisen, namely after 25% of the fee had been paid by the client, and that these payments continued as a potential tail of commission, even after the end of the employment.
9. The circumstances in which Mr Evans came to leave the employment of the Respondent were that he and a number of his fellows apparently were becoming disenchanted with life with the Respondent and there was a general move to work for a competitor. This resulted in the period of suspension, once these matters had come to light, followed with a dismissal, which the Tribunal concluded was not unfair, which finding is not the subject of any appeal.
10. However, at the conclusion of the Appellant's employment, he had accrued holiday which he not taken, and therefore, accrued holiday pay. The payment of accrued holiday pay was on the basis of normal basic rate of pay, that is to say the rate provided expressly by the contract. The Appellant argued that, notwithstanding the express terms of the contract, he was entitled to payment, pursuant to the statutory scheme incorporating the Working Time Regulations 1998, and by reference, from that, to section 221 of the Employment Rights Act 1996. Regulation 16 of the Working Time Regulations, subparagraph (1) provides that:

"A worker is entitled to be paid in respect of any period of annual leave to which he is entitled under regulation 13, at the rate of a week's pay in respect of each week of leave."

11. Regulation 13 provides, amongst other things, for accrued holiday payment. Subparagraph (2) of Regulation 16 provides that:

"Sections 221 to 224 of the 1996 Act shall apply for the purpose of determining the amount of a week's pay for the purposes of this regulation"

subject to certain irrelevant modifications. Section 221 is a section within chapter II of the relevant part of the Employment Rights Act 1996 which provides that:

"The amount of a week's pay of an employee shall be calculated for the purposes of this Act in accordance with this Chapter."

Section 221(1) provides that this section applies:

"where there are normal working hours for the employee when employed under the contract of employment in force on the calculation date."

Subsection (2) provides that:

"if the employee's remuneration for employment in normal working hours ….. does not vary with the amount of work done in the period, the amount of a week's pay is the amount which is payable by the employer under the contract of employment in force on the calculation date if the employee works throughout his normal working hours in a week."

Subsection (3) provides that:

"……if the employee's remuneration for employment in normal working hours ….. does vary with the amount of work done in the period, the amount of a week's pay is the amount of remuneration for the number of normal working hours in a week calculated at the average hourly rate of remuneration payable by the employer to the employee in respect of the period of twelve weeks ending -

(a) where the calculation date is the last day of a week, with that week, and
(b) otherwise, with the last complete week before the calculation date."

12. Taking those three subsections together, and applying them to the present case, this was a case where it was common ground that the Appellant was employed for employment where there was a normal number of working hours. The amount of work done in the period of normal working hours did not vary in the sense that payment was not based on the amount of work done. Rather payment of commission was based on the outcome of that work, whether fortuitous or due to good performance. Therefore, as these three sections stand, one would have thought that the natural meaning was that commission would not be included as part of payment, so that the averaging out of provisions of subsection (3) would not apply. However, section 221(4) provides that:

"In this section references to remuneration varying with the amount of work done includes remuneration which may include any commission or similar payment which varies in amount."

It seems to us clear that this subsection has the effect of overriding the normal meaning of subsection (3) so that somebody who receives payment by way of commission, which is not payment by reference to the amount of work done but payment by reference to the varying result of work done, is provided for by subsection (3) rather than subsection (2).

13. It therefore follows that, in our judgment, the Tribunal, in rejecting the argument of Mr Evans that he was entitled to holiday pay, calculated by reference to the previous twelve weeks actual earnings of normal basic pay plus commission, erred in law. It therefore follows that, in respect of the accrued holiday pay entitlement, he is entitled to have that payment calculated by reference to the statutory formulation in section 221(3).
14. The second argument concerns payment due during the period of suspension. The parties are at one in accepting that the statutory framework does not apply in respect of this payment. Therefore whether Mr Evans was entitled, during the period of suspension, to receive the normal basic rate of pay or his pay including an element of commission, calculated by reference to the type of averaging out procedure which statute imposes under section 221(3), is a matter of contract.
15. The Tribunal addressed this issue at paragraph 24 of its Decision. It found against Mr Evans on the basis that there was no evidence to support his complaint that he should receive more than the basic rate of pay during the period of his suspension. They cited that they had heard no evidence of any custom or practice in the workplace that might support his contention. They effectively dismissed his complaint on the burden of proof because there had been no evidence cited by him in support of it.
16. It seems to us that the Tribunal, in approaching this issue, has failed to address the proper legal contractual analysis. This was a case in which the contract expressly made some distinction between basic pay and commission payments. It applied to holiday pay where the contract expressly provided that holiday pay was to be paid at the basic rate, albeit it was, as we have concluded, overridden by the statutory scheme. However, the contract is silent as to what the word "pay" means in respect of the disciplinary procedure which provides for suspension on pay. This is in a context where the basic rate of pay is, apparently, very small in comparison with the type of sums expected to be paid by way of commission. The figures in Mr Evans' case are that the basic rate of pay is some one sixth of what he had been earning, including commission.
17. It seems to us that what is meant by "pay" must be a question of implication and that is a matter not simply of evidence, but of law as well, based upon what the parties would themselves have regarded as obvious, or what an objective bystander would have regarded as obvious, in the circumstances of the case. The Tribunal has not addressed that question at all. Nor has it addressed the question that the provision for suspension with pay is contained in what appears to be a standard form document, issued by the employer to the employee, so as to consider whether if, at all, the contra proferentem rule of construction should apply.
18. It seems to us, tempting though it is, that we are not in a position to decide what the proper implied term should be. But we are in a position to decide that the Tribunal manifestly approached this issue in an erroneous way. Much has been made by Mr Bennison in arguing both on the issue of holiday pay and suspension with pay, that what Mr Evans argues for is effectively double payment, but we do not see the force in that argument. Whether somebody is away from work on holiday or has been suspended from work, they are, for that period of time, unable to make the relevant visits which may or may not have the consequences down the line of earning significant sums of commission. That is an opportunity which cannot be revisited once they come back to work, either because the holiday is finished, or because the suspension has come to an end their not having been dismissed as a result of any disciplinary process. It is not for us to conclude what the position truly is, but we find it hard to accept in argument that payment based on basic rate plus an averaged out commission during that period of absence, would or could amount to double payment, when it simply reflects a projected loss of shortfall, someway down the line, in the commission which would otherwise become due and owing.
19. It is right to say that Mr Evans did not, in his original Notice of Appeal, raise any question concerning the correctness of the Tribunal's Decision on suspension with pay. The issue arose on the preliminary hearing of this appeal because the Employment Appeal Tribunal indicated that the same position would apply in relation to pay during suspension, as in relation to holiday pay, and this, therefore, has caused both sides to argue the question of suspension with pay, and what exactly that means as a matter of law. We do not think that the Respondent to this appeal has been particularly prejudiced by the unorthodox way in which this matter has come to be argued before the EAT, and indeed, Mr Bennison has addressed forceful and, although unsuccessful, nonetheless effective arguments on the issue.
20. Therefore, we give permission to amend the Notice of Appeal to include an appeal against that particular Decision and the outcome of this appeal is that we uphold the appeal in both limbs by substituting our decision on the limb in respect of holiday pay, and by remitting the matter to the Tribunal to hear evidence on the true meaning, either express or implied, of "suspension with pay".