United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	MR IAN SCOTT (of Counsel) Instructed by: Messrs Thompsons Solicitors Price House 37 Stoney Street The Lace Market Nottingham NG1 1NF
For the Respondent	MR THOMAS KIBLING (of Counsel) Instructed by: Messrs Browne Jacobson Solicitors 102 Colmore Row Birmingham B3 3AG


 


HIS HONOUR JUDGE J McMULLEN QC

1. This case considers whether the contractual principle of affirmation of a breach applies when deciding whether an unlawful deduction from pay has been made under Part II of the Employment Rights Act 1996. The judgment represents the views of all three members. We will refer to the parties as Applicants and Respondent.

Introduction

2. It is an appeal by the Applicants in those proceedings against the decision of an Employment Tribunal sitting over four days at Nottingham, Chairman Mr T R Capp, registered with Extended Reasons on 30 July 2003. The Applicants were represented there and here by Mr Ian Scott of Counsel; the Respondent was represented there by a solicitor and here today by Mr Thomas Kibbling of Counsel.
3. The Applicants claimed that unlawful deductions had been made from their pay. The Respondent denied the claim. The Tribunal decided against the Applicants in each of their claims. An appeal which was lodged on behalf of all of the Applicants/Directions were given by His Honour Judge Serota QC in chambers sending this matter to a full hearing.

The Legislation

4. The relevant provisions of the legislation for the protection of wages are in Part II of the Employment Rights Act 1996. Section 13 sets up the right:

13 (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 worker's 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 the 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."

5. The mechanism for making a complaint is provided by section 25 which generally imposes a requirement to make an application within three months, subject to section 23 (3) which provides as follows:

23 (3) "Where a complaint is brought under this section in respect of –

(a) a series of deductions or payments, …

the references in subsection (2) to the deduction or payment are to the last deduction or payment in the series or to the last of the payments so received."

6. Wages are defined by section 27 and for the purposes of this claim it includes the allowance paid by the Respondent by way of contract. Nothing turns on the nature of the allowance the Tribunal finding that the allowance was subject to tax.

The Facts

7. The Applicants were employed by the Respondent, which is a local authority. In August 1988, a lease scheme was introduced. In 1993, a cash alternative scheme was introduced. In early 2000, a number of suggestions for savings was circulated to UNISON, the trade union representing the Applicants in these proceedings and recognised by the Respondent for the purposes of collective bargaining.
8. In May 2000, the union wrote setting out the basis on which they were prepared to consider the revision of the car allowance schemes. Potential savings were identified. There were meetings during which UNISON agreed on behalf of its members that there should be some phasing out of the car lease scheme, subject to further negotiations. There were further communications indicating proposals for softening the blow which would be likely to fall following the identification of the savings. On 17 October 2000, the union indicated that it would not support the proposals because it meant in each case a reduction in the employees' terms and conditions of employment.
9. On 2 November 2000, the Respondent's Policy and Resources Committee approved the proposal for the termination of the scheme, which would be phased out. On 24 November 2000 the Applicants were informed of the application of this decision in their cases. One of the Applicants, Mr Stamper, immediately indicated that that might be a breach of contract. There was further correspondence from him.
10. Following the period of phasing out, the change became effective so that in the salary packets for the month of November 2001, with effect from 2 November, the reduction in the salary of the staff occurred. The scheme is worth between £2,400 and £2,800 a year, according to the relevant recipient's entitlement.
11. Mr Stamper again became exercised and there was a sequence of correspondence culminating on 24 December 2001 with Mr Stamper's being informed about the reduction which would inevitably happen to his pay.
12. In early February 2002 all of the Applicants registered grievances about this matter. The Tribunal found that deductions had been made, since there was no right in the employer to vary the terms of the schemes. The change was imposed upon all of the essential users and lease car drivers who were covered by the relevant schemes. The deductions in fact did not take place until 2 November 2001 when what is described as a provision as to half protection came into force.
13. The Tribunal decided that none of the Applicants suffered any deduction until 2 November 2001. It uses the phrase in what Mr Kibbling for the Respondent describes as a liberal fashion in a number of places. It must be born in mind that this was a claim based under Part II as the Tribunal concerning unlawful deductions from the Applicants' salaries: see paragraph 1 of the reasons.
14. The Tribunal decided, however, that applying section 13 of the Act required an approach which embodied examination of contractual principles. The one in issue here was affirmation. A person who continues (in this example) to work after a unilateral change has been effected may have affirmed the breach or accepted the change in the contract and may not therefore claim either a breach of contract or an unlawful deduction, contrary to the terms of the contract.
15. As a matter of fact the Tribunal decided as follows:

38 "Mr Stamper's position is different in that he did contact the respondent individually in December 2001 asking for an explanation of the deductions. He last wrote on 17 December 2001 and received the respondent's final reply by e-mail on 24 December 2001.

39 Whilst his position clearly differs from the other applicants he too continued to work for a period in excess of a month after that communication before he registered his grievance and we again consider, taking into account the context of the longevity of the dispute, that this delay is sufficient to give the appearance to the respondent that he had elected to affirm the new terms and conditions."

16. That indicates that during a period which began on 24 December 2001 (since the words "that communication" is clearly based upon that date) and early February, each of the Applicants had affirmed the contract. Early February is a reference to paragraph 5 (s) of the Tribunal's reasoning indicating grievances were registered between 1 and 14 February 2002. The Tribunal did not say upon which date affirmation occurred except that it indicated that a period in excess of a month was sufficient for the affirmation to be effective.

The submissions

17. The Applicants submitted that the Tribunal had erred in law in that it had failed to pay attention to the express terms of the statute and had imported from the law relating to affirmation a matter which did not find place within section 13. There was no right to vary the contract, the decision was imposed upon the Applicants and a deduction had been made as at 2 November 2001. Alternatively, the Applicants suffered a series of deductions within the meaning of section 23 (3) (above).
18. Mr Scott contended that if it were possible to import such a doctrine it would defeat Parliament's intention to allow a repeated series of similar deductions to be actionable because at some stage the employees would be criticised for having affirmed the contract. Affirmation was a question of mixed fact and law and the Tribunal's decision on affirmation after a period of a month or so was unsustainable and wrong in law.
19. On behalf of the Respondent, Mr Kibbling contended that the proper approach is to begin with the contract and to see what is properly payable under it. The provision relating to a series of deductions was a procedural mechanism indicating when time began to run for the purposes of registering an effective claim. It was a jurisdictional tool and did not assist in the elucidation of the issue on appeal.

The Legal Principles

20. The legal principles appear to arise from the following authorities. From New Century Cleaning Co Ltd v Church [2000] IRLR 27 CA it is clear that a contractual approach must be adopted. Morritt LJ said:

43 "The … question, in terms of s.13 (3), is: what was the wage properly payable to Mr Church on the first payday thereafter? The word 'payable' clearly connotes some legal entitlement. The adverb 'properly' is also consistent with a legal requirement, but is not necessarily limited to a contractual entitlement. This is confirmed by the provisions of s.27 (1) (a), which show that the wages 'properly payable' may not be due under the contract of employment. But the words 'or otherwise' do not, in my view, extend the ambit of 'the sums payable to the worker in connection with his employment' beyond those to which he has some legal entitlement. … In my view, the provisions of s.27 (1) and (3) confirm that 'the wages properly payable by him [sc. the employer] to the worker' are sums to which the employee has some legal, but not necessarily contractual, entitlement.

Beldam LJ, agreeing, said:

62 For wages to be 'properly payable' by an employer, he must be rendered liable to pay, either under the contract of employment or in some other way. Section 27 contains some examples of sums which may be payable, either under contract or because for some other reason the employer is liable to make payment as an addition or supplement to 'wages'. An example of a sum properly payable otherwise than under contract would be a minimum wage payable by order of a wages council. Nor is it difficult to see how a fee, bonus, commission, holiday pay or other emolument referable to employment may be payable otherwise than under the contract of employment. Such payments may be customary or required by collective agreements without express provision being made in a contract of employment. In the present case, the employees were paid £17 per day for bank holidays and £125 per week holiday pay. But the remuneration for work actually carried out was, I think, payable in accordance with the proper interpretation of the terms of the contract of employment or it was not. The terms either entitled the employer to vary the amount of the rate he was prepared to offer for each individual job or they did not. If they did, and the amount was accepted by a team leader as the basis on which he completed the workbill, the amount as divided between the team became the amount payable on that occasion. If a term could be implied into the contract of employment that, once an amount offered for the job had been accepted, the employer could not reduce it by offering less, then the amount payable would be the amount agreed on the earlier occasion. In either case, the amount would be payable under the contract of employment." (emphasis added)

This is because the search is on for what is properly payable under the contract.

21. Secondly, the approach in Group 4 Nightspeed Ltd v Gilbert [1997] IRLR 398 is not of assistance in the determination of whether or not there had been a clear breach of contract and in determining, for this purpose, whether there had been affirmation of such breach.
22. Thirdly, in Reid v Camphill Engravers [1990] IRLR 260 a claim was based upon a statutory requirement in those days to pay a legal minimum wage pursuant to Wages Council Orders. That case is authority for the proposition that a failure to pay according to a statutory obligation enables an employee to bring proceedings and will not be defeated by any suggestion of affirmation or agreement since this would be precluded by what is now section 203 of the Employment Rights Act 1996.

Conclusions

23. In our judgment the submissions made by Mr Kibbling are correct. The starting point for this statutory exercise has to be what it properly payable under the contract. It is different from the exercise of considering whether there is a statutory requirement to make payment at a certain level, for here there is reference to bilateral arrangements between the employer and the employee determining what the contract should contain. Once it is determined what the terms, are it is possible to identify what is properly payable and thus whether there has been any deduction from that sum.
24. The incidents of a contract of employment are therefore relevant: offer, acceptance, consideration, intention to create legal relations, certainty of terms, together with affirmation. If there comes a time when there is no longer an unauthorised deduction because some deduction has been accepted, it is possible to say that there has been an affirmation pursuant to the contract. Therefore a different view will be taken of what is properly payable. In this case, from the chronology we have given above, the Tribunal has indicated that there was affirmation at a period some time, let us say, in January 2002.
25. Given the findings of the Tribunal that there was no unilateral power to change the terms relating to the scheme, on at least 2 November 2001 there was a deduction from what was properly payable and there was no authorisation for it. Time stopped running, however, when there was affirmation.
26. The Tribunal has decided as a matter of fact that affirmation occurred a relatively short period after the change was effected. It did so taking into account the context of the longevity of the dispute. In other words, this matter had been brewing and well-known to both the Applicants and their union for well over a year and the decision of the Tribunal as to what we regard as a comparatively short timescale for affirmation must be seen in that very special context. It must also be seen in the context of a trade union environment with employees all entitled to raise grievances in accordance with a sophisticated public sector collective agreement.
27. The Tribunal is unspecific about the date when affirmation occurred, but it is clear from its findings that it has not followed through to its consequence its decision that on 2 November 2001 there was an unlawful deduction. There must therefore be a period of time following that and prior to affirmation when there was a continuing deduction. Since that spans more than a month and these are monthly paid officers that would constitute a series of deductions.
28. We therefore will allow the appeal on the basis that there was an unlawful deduction from 2 November 2001 until affirmation. Having fully canvassed the alternative disposals of this appeal the parties, no doubt with a keen eye on the just result to be achieved and the saving of further costs, have invited us to make a decision. Doing the best we can and faithful to the Tribunal's decision that affirmation occurred some time after 24 December 2001 and before early February 2002, we will substitute 15 January 2002. Unlawful deductions, we declare, occurred from 2 November 2001 to 15 January 2002. If there are difficulties in calculation that will have to be sent back to the Employment Tribunal.
29. We would like to thank both Counsel for their careful submissions and for their flexible approach to the resolution which we am sure is in the interests of both the local authority and all of the trade union members involved. The appeal is allowed in part.