United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	MR ALASTAIR HARDMAN (Advocate) Instructed by: Messrs Turcan Connell Solicitors Princes Exchange 1 Earl Grey Street, Edinburgh EH3 9EE
For the Respondent	MR CALUM MCNEILL (Advocate) Instructed by: Messrs McKenzies Solicitors 26 East Fergus Place Kirkcaldy KY1 1XT


 


SUMMARY

National Minimum Wage

Contract of Employment – Damages for breach of contract

Following a Pre Hearing Review, an Employment Tribunal held that the Claimant's claim was not time-barred. It had been argued that it was a claim for a failure to pay the National Minimum Wage and was, accordingly out of time, an argument which had been countered by the submission that it was a breach of contract claim. The decision of the Tribunal was not disturbed on review. On appeal, the Employment Appeal Tribunal held that the claim was not a contractual one and it was, accordingly, time-barred.


 


THE HONOURABLE LADY SMITH

Introduction

1. The Claimant was employed as a Head Gamekeeper. He is the Respondent in this appeal. He presented a form ET1 to the Tribunal on 3 May 2005. The form is typed and has plainly been completed by his solicitor, whose details are provided. In it, he claimed that he had been unfairly dismissed and also sought payments under three heads: "CLAIM FOR PAYMENT OF THE NATIONAL MINIMUM WAGE", "UNLAWFUL DEDUCTION FROM WAGES", and "BREACH OF CONTRACT CLAIM". The last of these related to bonuses and to the value of refurbishments effected to tied accommodation (a claim that has since been withdrawn). Regarding the claim for bonuses, the narrative in the ET1 includes:

"It was a term of the claimant's contract of employment that he would be paid bonuses based on the number of birds reared and shot. The respondents contracted with the claimant that he would be paid ten pence per poult reared and ten pence per bird shot……"

There then follow details of the numbers of poults reared and birds shot dating back to the year 2001/2002.

2. The paragraph in the ET1 that was presented on 3 May 2005 set out his claim for payment of the National Minimum Wage by giving details of the hours that he alleged he worked for the periods 26 July to 29 October, 30 October to 1 February, and 9 February to 31 March. No years are specified but given that parties were agreed that the Claimant did not work after 9 November 2004, the years in question must be 2004 and 2003 or prior thereto. The "Unlawful Deductions" part of the claim was narrated as being in respect of a failure to pay holiday pay on the termination of the Claimant's contract. Part of the claim - that relating to wages matters - was resubmitted, again in an ET1 prepared by his solicitor, following the intimation of a grievance, on 16 August 2005. The resubmitted ET1 narrated:

"The claims presented in this application were previously submitted with inter alia a claim in relation to unfair dismissal/breach of contract...…The present claims were allocated pre-acceptance number GLA 1351 and the claimant given an opportunity to state these claims (that is Wages Act and Minimum Wage) by way of written statement of grievance. The written statement of grievance was intimated to the respondents by letter dated 12^th July 2005. The respondents elected not to deal with the grievance and accordingly the claimant wishes to proceed with these claims."

3. The claims advanced in that ET1 were specified as being "Claim for Payment of the National Minimum Wage" and "Unlawful Deduction from Wages/failure to pay Holiday Pay" and were in almost identical terms to that which had been specified under those heads in the original ET1.

The Issue

4. It seems clear to me that the point at issue is a short but significant one: is the Claimant's claim that he had been paid less than the national minimum wage a claim for an unlawful deduction (Employment Rights Act s.13(3)) or is it a contractual claim at common law? If it is the former, it is time-barred. If the latter, it is not.
5. I was advised that it was not until the hearing on 20 October 2005 that the Respondents became aware that the Claimant was seeking to advance this claim as a claim for breach of contract. I note also that the response of the Respondents to this part of the Claimant's claim in their form ET3 (presented on 8 June 2005 in response to the first ET1) appears to proceed on the basis that they have taken it that the claim is being advanced as an unlawful deductions claim as it is submitted that the claim is time-barred on the basis that the latest date that the NMW could not have been paid was three months after July 2004. That submission is repeated in the ET3 that they presented in September, in response to the Claimant's resubmitted ET1.

Tribunal Decision

6. The Tribunal Chairman, Mr McGowan, sitting at Edinburgh, in a judgment registered on 17 November 2006, decided that, regarding the national minimum wage claim:

"27 …I am satisfied that this claim is a competent one, and may be brought as a breach of contract claim.

28. It was agreed that if I so held, the claim was in time. Thus I hold that there is jurisdiction."

7. I was advised by Mr Hardman that that was not an accurate statement of the parties' agreement. Whilst the Respondents had agreed that if it was determined that the claim was in fact being advanced as a breach of contract claim, then it was not time-barred, they had not agreed that the claim was not time-barred simply because it could be advanced as a breach of contract claim.
8. Earlier, he had noted that section 17 of the National Minimum Wage Act 1998 provided that if a worker is not paid the national minimum age, he:

" …shall be taken to be entitled under his contract…"

to be paid the necessary remuneration to take him up to that wage. He had also noted the provisions of s.13 of the Employment Rights Act, to the effect that where a worker is paid less than the wages properly payable to him, 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….".

9. At paragraph 23, the Tribunal had reasoned:

"Reading these two sections together, I am satisfied that a failure to pay the national minimum wage can be brought as unlawful deductions claim. Equally, I see nothing which prevents such a claim being brought as a breach of contract claim."

10. The Respondents sought a review and a hearing took place on 13 February 2006. They submitted that the Tribunal had failed properly to reach a decision on the question of whether the claim was brought as an unlawful deductions claim or one of breach of contract. The Respondents contended that the claim had been brought as an unlawful deductions claim. For the Claimant, it was contended that the claim was brought as a breach of contract claim; the Claimant's solicitor declined the opportunity to propose an amendment to the ET1 when he was asked whether he wished to do so. In a judgment following the review hearing, which was registered on 23 February 2005, the same view that the claim could be brought as either an unlawful deductions claim or a breach of contract claim is repeated at paragraph 11:

" …I am satisfied that there is nothing in principle which prevents a claim in respect of an alleged failure to pay the National Minimum Wage being presented as either a claim for unlawful deductions or as a claim for breach of contract."

11. Then, at paragraphs 13 and 14, the Tribunal explains its reasons for refusing the review application:

"13. Mr Hardman also indicated that he was entitled to know what the claimant's case was. In my view, it is implicit in the decision previously made that this case can only now be a breach of contract claim, because it is accepted that an NMW claim, brought as an unlawful deduction, would have been out of time. Mr Cooke has abjured any such claim. Thus Mr Hardman and his clients now know that this is a breach of contract claim and nothing else. It may be that there are remaining issues about specification, but in my view they can have no doubt about the underlying basis of the claim.

14. There was some discussion about whether the claimant could should now amend to make it clear that this was a breach of contract claim. However, it appears to me that simply adding the phrase "this is a breach of contract claim" adds nothing at all to the substance of what is before me, but simply highlights one must be concerned with the substance of the claim rather than the form of it."

The Relevant Law

12. Section 1 of the National Minimum Wage Act 1998 ("the 1998 Act") provides for a person who qualifies under the Act to be paid not less than the national minimum wage ('NMW'). Section 17 of the 1998 Act provides:

"(1) If a worker who qualifies for the national minimum wage is remunerated for any pay reference period by his employer at a rate which is less than the national minimum wage, the worker shall be taken to be entitled under his contract to be paid, as additional remuneration in respect of that period, the amount described in subsection (2) below."

There is thus statutory implication of a term into any relevant worker's contract of employment to the effect that he will be remunerated at a rate which is, at least, the NMW.

13. Under section 19 of the 1998 Act, an officer acting for the purposes of the Act can issue what is referred to as an "enforcement notice" in the event that he is satisfied that a relevant worker has received less than the NMW, requiring the employer to remunerate the worker at a rate equal to the NMW.
14. The provisions of section 28 of the 1998 Act include:

"(2) Where –


(a) a complaint is made-

(i) to an employment tribunal under section 23(1)(a) of the Employment Rights Act 1996 …

and

(b) the complaint relates in whole or in part to the deduction of the amount described as additional remuneration in section 17(1) above, it shall be presumed for the purposes of the complaint, so far as relating to that amount, that the worker in question was remunerated at a rate less than the national minimum wage unless the contrary is established.

(3) Where in any civil proceedings a person seeks to recover on a claim in contract the amount described as additional remuneration in section 17(1) above, it shall be presumed for the purposes of the proceedings, so far as relating to that amount, that the worker in question was remunerated at a rate less than the national minimum wage unless the contrary is established."

15. The terms of section 18(3) of the 1998 Act are also such as to indicate that the possibility of additional remuneration under s.17(1) being claimed in civil proceedings on a claim in contract is envisaged.
16. The provisions of section 13 of the Employment Rights Act 1996 ("the 1996 Act") include:

"(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.

…

(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 any 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."

and the provisions of section 23 of the 1996 Act include :

"(1) A worker may present a complaint to an employment tribunal

(a) that his employer has made a deduction from his wages in contravention of section 13…

(2) An employment tribunal shall not consider a complaint under this section unless it is presented before the end of the period of three months beginning with –

(a) in the case of a complaint relating to a deduction by the employer, the date of payment
of the wages from which the deduction was made….

(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."

17. Accordingly, an employee who claims that he has been paid less than the NMW can present a complaint to the Employment Tribunal that, by so doing, his employer has made an unlawful deduction from his wages but he must do so within three months of the underpayment or, if a series of underpayments, within three months of the last of them. There are extension provisions in the event that it was not reasonably practicable for the complaint to be presented within that three month period (s.23(4)) but they were not relied on in the present case.
18. Where an Employment Tribunal finds a complaint of unlawful deduction from wages well- founded, it must make a declaration to that effect and, in the case of a complaint under s.23(1)(a), order the employer to pay the amount of the deduction to the employee (s.24 of the 1996 Act).
19. Section 131(2) of the Employment Protection (Consolidation) Act 1978 empowered the relevant Minister to provide that proceedings in respect of a claim for damages for breach of a contract of employment and a claim for a sum due under such a contract, to be brought before an Employment Tribunal. Article 3 of the Employment Tribunals Extension of Jurisdiction (Scotland) Order 1994 ("the 1994 Order"), in exercise of that power, provides:

"Proceedings may be brought before an employment tribunal in respect of a claim of an employee for the recovery of damages or any other sum ( other than a claim for damages, or a sum due, in respect of personal injuries) if –

(a) the claim is one to which section 131(2) of the 1978 Act applies and which a court in Scotland would under the law for the time being in force have jurisdiction to hear and determine;

(b) the claim is not one to which article 5 applies ; and

(c) the claim arises or is outstanding on the termination of the employee's
employment."

20. Article 5 is not relevant for the purposes of the present claim. Article 6 of the 1994 Order provides that proceedings on a contract claim are to be brought before an employment tribunal by presenting a complaint. Article 7 of the 1994 Order provides that such a complaint shall not be entertained unless it is presented within three months of the effective date of termination of the contract of employment.
21. Given the implication into the employee's contract of the term that he will be paid at least the NMW that is effected by s.17(1) of the 1998 Act, a claim in respect of any shortfall is a claim for a sum due under the contract. If that claim either arises or is outstanding at the date of termination of the employee's contract of employment, then it can, given the terms and effect of the 1994 Order be pursued as a contract claim before an Employment Tribunal provided the complaint is presented within three months of the effective date of termination of the contract of employment. The normal rules of prescription would seem to apply when determining whether a sum due under a contract is outstanding at any particular time; that impression would appear to be reinforced by the fact that an enforcement notice issued under s.19 of the 1998 Act cannot impose a requirement in respect of any pay reference period ending more than six years before the date of service of the notice.
22. In short, therefore, it is evident that where an employee has been paid less than the NMW he can make one of two complaints. One is that his employer has made unlawful deductions from his wages. That is a claim which he can only advance under s.23 of the 1996 Act. The other is that he is contractually entitled to a payment of additional remuneration to make up the shortfall. That is a claim which he can only advance as a common law claim and it is open to him to do so by presenting a complaint to an employment tribunal.
23. Moving on, I turn to consider some authorities which are relevant to the issue which arises in this case.
24. In the case of Taylorplan Services Ltd v Jackson and others [1996] IRLR 184, where an Employment Tribunal had to consider whether a complaint was time-barred or not, the Employment Appeal Tribunal held that it was not appropriate for the Tribunal to have proceeded to consider the time-bar issue without first identifying the precise cause of action that was being advanced. At paragraph 14, HHJ Peter Clark said:

"In our view, the correct starting point is to identify the cause of action."

and at paragraph 19, he said:

"It is quite apparent to this Appeal tribunal that having failed to identify the nature of the complaint here, this chairman failed to carry out the exercise set out above. In these circumstances, we are satisfied that he fell into error. We cannot see how the chairman could conclude that these claims were clearly out of time, without identifying the date from which time began to run……"

25. As regards general consideration of the purpose of time limits, I would refer to the case of British Newspaper Printing Corporation (North) Ltd v Kelly and others [1989] IRLR 222 where the Master of the Rolls Lord Donaldson, referred, with apparent approval to the following comments that were made in the case of Chapman v Goonvean and Rostowrack China Clay Co Ltd [1972] IRLR 124:

"At the end of the day, the majority say, Parliament has set down rules covering the lodging of applications to Industrial Tribunals. These rules include time limits for the very simple reason that respondents are entitled to know by a prescribed date what their commitments are or might be to an employee or group of employees."

26. Then, when considering the matter of compliance with the Employment Tribunal's procedure rules, Neill J, giving the judgment of the Employment Appeal Tribunal in Burns International Security Services v Butt [1983] IRLR 438 whilst accepting that the rules did not require that a complaint presented to the Tribunal should be free from all defects, commented:

"The purpose of the rules is to ensure that the parties know the nature of the respective cases which are made against them."

Thus, the cause of action requires to be identifiable from the terms of the complaint presented to the Employment Tribunal and identified by that Tribunal, and the interests of Respondents in knowing when they can consider themselves free of obligation to employees should be borne in mind when considering time-bar issues.

The Appeal

Submissions for the Respondents

27. For the Respondents, Mr Hardman said that two issues required to be addressed. One was whether the Tribunal had to identify the Claimant's cause of action as being either an unlawful deductions claim or a breach of contract claim? The other was, if they did require to do so, what was the cause of action in this case?
28. He submitted that the Chairman had failed to decide what the cause of action was in this case. He decided that the claim in question could be competently advanced under either head but did not decide which it was. He required to do so. If, as he seemed to think, an unlawful deductions claim was the same as a breach of contract claim in this respect, what was the purpose of the relevant parts of the 1996 Act? Parliament had prescribed time limits for s.23 claims which do not apply to contractual claims. Thus, the matter went to the justice of the cause and required to be determined. Mr Hardman added that if the claim proceeded, it would widen the scope of the enquiry and increase the burden on the Respondents considerably, particularly given the reverse onus provisions of the 1998 Act.
29. Mr Hardman then submitted that the Chairman had, in both his original and review judgments, effectively avoided the time-bar decision. He did not dispute that the Claimant could competently have advanced the claim as a contractual one but his argument before the Tribunal had been that the Claimant had not in fact done so and the Chairman had avoided answering that issue. His decisions were, in all the circumstances, perverse.
30. Mr Hardman then submitted that this Tribunal should determine the matter. The relevant facts were not in dispute and had been set out in full by the Tribunal. He submitted that, on those facts, one was led inexorably to the view that the claim had been advanced as one for unlawful deductions.
31. Conscious of a comment that had been made by Mr Justice Holland, sitting in the Employment Appeal Tribunal, in the case of Walton v The Independent Living Organisation Ltd, delivered on 25 April 2002, to the effect that it was "arguable" whether a claim presented under s.23 of the 1996 Act should not have been so presented since it 'may be preferable' to "regard the claim as one in contract", Mr Hardman submitted that that was not to say that the claim could not be presented under s.23 of the 1996 Act.
32. Mr Hardman also observed that the Claimant's claim had been presented by solicitors and that the opportunity to seek to amend the claim at the review hearing had been declined, all of which showed that the balance pointed to the claim being an unlawful deductions claim, presented as such, on legal advice. The Claimant had last worked in November 2004. It was, accordingly, plain that the claim was time-barred.

Submissions for the Claimant

33. Mr McNeill observed that it was conceded on behalf of the Respondents that a claim for non payment of the NMW can be advanced as a breach of contract claim. The Employment Appeal Tribunal's comments in Walton were supportive of that approach. That meant that there were two possible routes open to the Claimant.
34. Mr McNeill submitted that the Respondents had had fair notice that the claim was in fact a contractual one. They knew or were to be taken to know that a claim for payment of the NMW was being made. They knew or were to be taken to know that there were two routes whereby such a claim could be advanced. They knew or were to be taken to know that those two routes were either an unlawful deductions claim or one for breach of contract. They knew or were to be taken to know that an unlawful deductions claim would have to be made within three months. They knew or were to be taken to know that the Claimant could be advised that the contractual route was not time-barred and therefore the NMW remedy was still available to him. To add the words "breach of contract" to the NMW claim would have added nothing of substance. As the Chairman had said at the review hearing, it was substance that mattered, not form. He seemed, accordingly, to suggest that the fact that, when the claim was presented, an unlawful deductions claim was time-barred, meant that the claim could only be seen as being a contractual one.
35. Whilst, Mr McNeill accepted, paragraph 27 of the Tribunal's original judgment "would have been clearer if different language had been used", since the context was that the Claimant had argued that the claim was a breach of contract claim, it fell to be read as a finding that that was what the Claimant had advanced. The Chairman had, accordingly, made the requisite finding.
36. In short, if it was accepted, as the Respondents seemed to do, that it was competent to advance a claim for payment of the NMW as a breach of contract claim, then it was possible to avoid the time-bar in a "late" case by advancing it as a breach of contract claim. That was what the Claimant had done here.

Discussion
37. As will be evident from my discussion of the relevant law, I am satisfied that a claim in respect of a shortfall in wages as compared to the NMW can competently be advanced as either an unlawful deductions claim under s.13 of the 1996 Act or as a contractual claim at common law. Strictly, it seems wrong to refer to it as a claim for breach of contract since it is simply a claim for a contractual payment that is due but nothing seems to turn on that; the 1994 Order extends jurisdiction in respect of such a claim in the same way that it is extended in respect of a claim for damages for breach of contract. However, the two claims do appear to be different creatures, not only because of the differing time-bar and prescription implications. The practical outcome sought is, of course, payment of a sum of money which will be the same in each case. However, the context is, on the one hand, that of it being asserted that the employer has made an unlawful deduction from wages and on the other, that he is still due to pay that sum of money under the contract of employment.

37. I note also that in the case of a s.13 claim, a statutory defence is provided that could conceivably be relevant in a claim for the NMW. It is that it is defence to the claim that the Claimant has previously signified in writing his consent or agreement to the making of the deduction. It does not seem that such a defence would be available where the claim is made as a contractual one at common law given that the term implied by s.17 of the 1998 Act arises at the point of underpayment ( so a prior consent would have no effect). However, that is not to say that the usual common law rules of waiver or personal bar arising from actings after the underpayment but before the making of the contractual claim could not be prayed in aid if the facts and circumstances of a particular case supported them. Also, in the case of a claim for unlawful deductions, the Tribunal must make a declaration that the employer has made an unlawful deduction something which might be regarded as a mark of public condemnation and something which will not arise in the case of a contractual claim.
38. Further, there is the simple fact that if the claim is advanced under s.13, then a three month time-bar applies whereas if it is advanced as a contractual claim, it does not. It cannot, however, be advanced as a contractual claim prior to the termination of the contract of employment, unlike a s.13 claim which can be advanced during its currency.
39. I am, accordingly, satisfied that the Tribunal did require to identify whether the NMW claim in this case was being advanced as a claim under s.13 of the 1996 Act or as a contractual claim. It was wrong to dismiss it as being simply a matter of form not substance. The issue that required to be addressed was as I have termed it under the heading "The Issue" above but the issue that was in fact addressed was whether or not it was possible to advance the claim as one for breach of contract. The Chairman went no further, in his original judgment, than to find that the claim "could" be brought as a claim for breach of contract. That was not, however, enough. It was incumbent on him to determine what exactly was the nature of the claim that had been brought. Was it a claim for unlawful deductions under s.13 of the 1996 or was it a contractual claim? I cannot see that in the terms of his judgment he has answered that question. That being so, the review judgment does not help. I do not agree that it can be "implicit in the decision previously made that this case can now only be a breach of contract claim because it is accepted that an NMW claim brought as an unlawful deduction claim would have been out of time." With respect to the Chairman, his argument appears to be curiously circular and redolent of him having avoided the issue that he had to decide. In all the circumstances, I am satisfied that the Tribunal's decision was a perverse one and I agree that it is open to me to decide the issue now.
40. I agree that there was an onus on the Claimant to specify the nature of his complaint in respect of this matter. It seems to me that it is appropriate to ask what a reasonable Respondent would have understood was being advanced when he received the ET1's. Like the Claimant, the Respondents here were legally represented and can be taken to have known that a claim for the NMW could be presented under either of the heads discussed above. What can be seen from the ET1's is that the claim was clearly not being advanced as a breach of contract claim. It was being advanced separately from the Claimant's contractual claims. That is evident not only from the use the headings to which I have referred but from the narrative on the second ET1 which refers to the Claimant's breach of contract claim as having been submitted in the first ET1 i.e. what was submitted in the second ET1, which included the NMW claim, was not his breach of contract claim.
41. It accordingly seems plain to me that the reasonable Respondent would not have considered that what was being intimated to him was a breach of contract claim. Thus, in respect that a claim for the NMW was being submitted, he could approach it on the basis of seeing whether he had a three month time-bar defence open to him. To adopt the approach of the majority in the case of Chapman, on receipt of the ET1, the Respondents could assess the extent of their commitment, if any, from that point under reference to whether or not they had such a defence available to them which, in the event, they did have. That is in fact how the Respondents did approach matters in this case, it seems, since it was not until the hearing in October that they became aware that the Claimant was saying that the NMW claim was actually being advanced as a contractual one.
42. In all the circumstances, I am satisfied that the NMW claim advanced by the Claimant, clearly not being a contractual one, was one for unlawful deductions (that being the only other way in which the claim could be advanced). The Claimant last worked on 9 November 2004 so no NMW claim could possibly have arisen thereafter. It was not disputed that, that being so, if it was determined that the claim was not advanced as a contractual one, it was time-barred and I, accordingly, so hold.

Disposal


43. In the circumstances, I will dismiss that part of the Claimant's complaint in which he seeks to claim in respect of non-payment of the NMW and otherwise remit the case to the Employment Tribunal to proceed as accords.