United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	Mr Rixon (Representative)
For the Respondent	Neither present nor represented


 


SUMMARY

Contract of employment – Incorporation into contract / Apprenticeship

Modern apprenticeship agreement. Incorporation of term as to minimum pay rate. Breach. Affirmation of contract – waiver. Novation.


 


HIS HONOUR JUDGE PETER CLARK

1. The parties in this matter are Miss Lamb, Claimant, and Mrs Wilson trading as Reds, the Respondent. We shall so describe them. We have before us an appeal by the Respondent against the judgement of a Chairman, Ms R A Rogerson, sitting alone at Newcastle-Upon-Tyne Employment Tribunal on 6 December 2006. By that judgement, registered on 22 January 2007, the Chairman upheld the Claimant's claim for unauthorised deductions from wages and awarded her compensation of £4,970 together with a 25% (inaudible) pursuant to section 31 of the Employment Act 2002, being £1,202.58 less VAT and National Insurance, and an award of £261.80 net, by way of damages for breach of contract, two weeks pay in lieu of notice. A grand total of £6,474.30.
2. Since the Claimant originally claimed £955 only, that award represents a stunning triumph for the Claimant, who appeared in person below. But is it sustainable in law? Mr Rixon, appearing on behalf of the Respondent, as he did below, says not. The Claimant, who does not appear and is not represented, but relies on written submissions in this appeal, asks us to uphold the Chairman's award. It is our task to determine who is right.

The facts

3. The Claimant, born on 25 November 1987, and we surmise then a school leaver aged 16 years, wished to train as a hairdresser. The Respondent, who operated a hairdressing salon in Billingham Cleveland, under the style Reds, wished to take on a trainee. She selected the Claimant from a list of young women interested in a training contract under a Modern Apprenticeship Agreement, MAA. It was common ground between the parties and the Chairman found that on 1 June 2004, the Claimant, the Respondent and a training provider, SACS, entered into a tripartite or MAA.
4. The terms of the MAA, the Chairman found, was that it was for a two-year period. The Claimant was to be paid a wage of £40 per week (set as a minimum by the Learning Skills Council, LSC). It seems that she worked a 40-hour week. It was further agreed between the three parties that the Claimant would attend one day's training per fortnight at SACS and the Respondent was to provide training on the job to enable her to obtain the skills necessary to qualify as a hairdresser. It also appears, although not strictly material to our considerations that the Claimant additionally received £15 to £20 per week in tips from customers of the salon. She commenced work for the Respondent on 5 July 2004.
5. In the second year of her apprenticeship, the Claimant received a total weekly wage, excluding tips, of £65, made up as to £55 wages and £10 travel expenses. In about late July 2005, both the Claimant and Respondent received an undated letter from SACS. It read as follows:

"Dear Salon Manager

Changes to Learner wages

The Learning Skills Council (LSC) have informed all training providers in a letter dated 27th June 2005, that from the 1st August 2005 all employed learners wages must be at least £80 per week (this wage includes travel payments).

We apologise for the very short notice, but having received the instruction we wanted to seek clarification about the full implications before sending out this letter. The minimum wage is £3 per hour for 16 to 17 year olds not in training.

This is the first rise in Learner wages for a number of years, and we hope the result will be continued growing professionalism with the industry, making it more attractive to the new generation of hairdressers entering this age.

Trainees with your salon, which this applies to, are:

Should you require any further information, please do not hesitate to contact me at the address below."

6. Thereafter the Respondent received a draft contract of employment from SACS in the following material terms: the heading is Midas World Training, a SACS group company; then contract of employment; it gives details of the learner, Miss Lamb, and the placement details, Reds; and then at paragraph 3: declaration,

"This confirms that the above named parties have entered into a training contract. Whereby ……………………………………………. will pay a minimum wage of £80 per week. (All apprentices above the age of 19 are entitled to the National Minimum Wage after their first year of apprenticeship).

If either partners of the contract is unhappy with the terms or placement, a week's notice should be provided for termination."

7. The copy we have seen was signed by Miss Lamb, but not by Mrs Wilson nor indeed by Midas World Training, also known as SACS. The Respondent said in evidence that she had received the draft contract but refused to sign it because she could not afford to pay the Claimant £80 per week. She told both the Claimant and her tutor this at a review meeting. SACS sent the contract to the Respondent on at least two further occasions, but she adamantly refused to sign it. Nevertheless, the Claimant continued to work for the Respondent, she continued to receive a wage of £65 per week including travel expenses, the Chairman found, until the employment ended on 16 August 2006. She also continued her training.
8. In so finding, the Chairman rejected the Respondent's evidence that the Claimant's pay was increased to £70 per week when the Respondent moved to new premises on 1 February 2006. Payment, it seems, during the employment was by cash, no itemised pay statements were produced.
9. The Claimant's training ended on 5 July 2006 having completed the framework of NVQ Level 2 hairdressing, that was confirmed by a letter from SACS to the Respondent dated 4 August 2006. Having completed her two-year's training, the Claimant was offered two days work a week for £20 by the Respondent. She declined that offer. Finally she left the employment on 19 August 2006 having been told by the Respondent that she would receive two-week's pay in lieu of notice. No pay in lieu arrived despite reminders by the Claimant. The Respondent claimed that she had sent a cheque for £140 to the Claimant in August, but accepted that it had not been cashed. We infer that the Chairman rejected the Respondent's evidence on this aspect.
10. Eventually, the Claimant sent a grievance letter to the Respondent dated 29 August 2006, it read:

"Dear Mrs Wilson

I was in your employment during my modern apprenticeship doing ladies hairstyling from July 2004 until 19 August 2006. During this time I received £45 per week for the first year and then £65 in my second year, as you were fully aware as from the 1st August 2005 you had to pay me no less than £80 per week as you were notified in writing from Saks Training of Excellence College, which you have certainly ignored as I was still only receiving £65 per week.

This is the reason I am drafting this letter to give you the opportunity to repay £795 back monies and £160 two weeks wages owed to me which I have not yet received. Let me state you only have 28 days to make this payment or a matter will certainly proceed onto the tribunal courts."

11. The Chairman found that the Respondent received that letter but did not reply. She said she did not do so because the letter was unsigned and she thought "it was a practical joke. It was a ridiculous amount of money claimed." Subsequently the Respondent took on a new trainee; she paid her £80 per week because the College would not allow trainees to be paid less than that amount.

The claim

12. By her claim form ET1, lodged on 16 October 2006, the Claimant described her job with the Respondent as "Apprenticeship (Modern) in ladies hairstyling." She stated her hours of work to be 42.5 hours per week and her weekly pay £65. Her claim for £955 was made up as to 53 weeks, from 1 August 2005, being the difference between her actual pay, of £65 per week, and the amount to which she claimed to be entitled, £80, together with two week's notice money, £160. By her response, the Respondent contended that she paid the Claimant £70 per week, £80 minimum including tips, for the reasons there given she denied owing any monies to the Claimant.

The Tribunal decision.

13. It was the Respondent's case in closing, advanced by Mr Rixon, that the national minimum wage did not apply to this MAA. The minimum wage of £80 per week from 1 August 2005 was no more than a recommendation by the LSC; it did not have either statutory or contractual force. Even if there was a breach of contract by the Respondent, the Claimant affirmed the contract by continuing in the employment for over a year receiving on her case £65 per week and on the Respondent's £70 per week. The Claimant made no submissions.
14. The Chairman reached the following conclusions, applying the law to the facts as found:

(1) By regulation 12(3)(b) of the National Minimum Wage Regulations 1999, the requirement on employers to pay the MMW did not apply to this MAA,

(2) However, the direction from the LSC that from 1 August 2005 the minimum weekly wage should be £80 had, if not statutory authority for such increase, contractual force in that the MAA was subject to the rates set by the LSC,

(3) By refusing to sign the new form of contract provided by SACS, the Respondent was unilaterally imposing new terms and conditions outside the MAA. That the Claimant continued to work at the pre-1st August 2005 rate of £65 per week did not amount to "her acquiescence to a variation in the contract" but rather her acceptance that the old contract had come to an end and a new one was entered in to. That was supported by the fact that the training contract was a tripartite agreement and SACS did not agree to a rate less than £80 per week. In these circumstances the MAA came to an end of 1 August 2005 and the Claimant and the Respondent, but not the inferred SACS, entered into a new separate contract, which was not an MAA, but was a contract of employment to which the NMW applied.

(4) Consequently the Claimant was entitled to claim unauthorised deductions from wages, not in the amount claimed, £15 per week from 1 August 2005, but at the NMW rate, namely £3 per hour from 1 August to 25 November 2005 and thereafter at the rate of £4.25 per hour.

(5) Not only was the Claimant entitled to succeed as to those higher rates of pay in her wages act claim, but further, she had raised a grievance with which the Respondent had failed to deal with, and thus the wages act award was uplifted by 25% under section 31 of the 2002 Act.

The appeal

15. In this appeal Mr Rixon takes a number of points. He submits that the Chairman was wrong in law. First, in finding that the MAA had been terminated. Secondly, in finding that a new contract of employment had been created. Thirdly, in finding that the NMW applied to the contract not being a claim made by the Claimant. Fourthly, in failing to give the parties an opportunity to deal with the applicability of the NMW or section 31 of the 2002 Act, particularly where the grievance letter did not deal with the complaint of failure to pay the NMW. He has developed those points both in a written skeleton argument and orally at this hearing.
16. The Claimant, unsurprisingly, has not sought to engage with the legal issues raised in this appeal. She asserts, and we accept based on the Chairman's findings of fact, that she told the truth at the Employment Tribunal. She contends that she received £15 per week less than the stipulated apprenticeship wages and points out that the Respondent would not sign the new SACS produced contract nor did she send a cheque for two weeks pay in lieu of notice. Finally, she agrees with the Chairman's response, dated 21 March 2007, following a direction given on paper by Elias J, President, at the paper Sift stage, as to the opportunity given to the parties at the hearing to deal with both the application of the NMW and the section 31 uplift.

Analysis

17. It seems to us that the following questions of law arise in this appeal. (1) was the LSC minimum wage, as directed from time to time, incorporated as a term of the oral tripartite MAA entered into by the Claimant, Respondent and SACS on 1 June 2004; incorporation. (2) was the Respondent in breach of the MAA in refusing to pay to the Claimant a weekly wage of at least £80 from the 1st August 2005; breach. (3) if so, did the Claimant affirm the MAA by continuing to work for the Respondent for just over a year at the continuing lower rate of £65 per week; affirmation. (4) did the Claimant and Respondent enter into a new contract of employment after the 1st August 2005 being other than a MAA; the new contract. (5) if so, did the NMW apply to the new contract. (6) did the Claimant raise a relevant grievance in relation to the NMW claim, did she ever raise an NMW claim and if not does it matter, is section 31 of the 2002 Act engaged. (7) was the Respondent given a proper opportunity to deal with the NMW and section 31 points; fair hearing.
18. Our answers to those questions are as follows.
19. (1) Incorporation. We know that it was common ground between the parties that on 1 June 2004 the Claimant, Respondent and SACS entered into an oral tripartite MAA. The Chairman proceeded on that basis. Historically, apprenticeship agreements were normally entered into by deed. At any rate, the old cases required an apprenticeship agreement to be in writing. However, more recently in Edmunds v Lawson QC [2000] ICR 567 579C the Court of Appeal accepted that an oral contract of apprenticeship is valid in law, albeit unenforceable unless and until acted upon. Here the parties did act upon the MAA entered into on 1 June 2004. Consequently, the agreed basis on which the case proceeded was not only agreed but also correct in law, as most recently explained by the Court of Appeal in Flett v Matheson [2006] IRLR 277.
20. The only basis on which the claim, as presented by the Claimant, could succeed was first to show that the LSC's recommended minimum wage was incorporated as a term of the oral agreement. The Chairman found, reasons paragraph 2.4, that at the outset the Claimant was to be paid a wage of £40 per week, set as a minimum by the LSC. Plainly, the minimum wage rate, as then set by the LSC, was incorporated into the MAA and the Respondent complied with that term of the agreement.
21. The question is whether any increase in the rate recommended by the LSC automatically then became a contractual requirement or whether it was necessary for all parties to agree such an increase. This question has frequently arisen in cases where the terms of a collective agreement between employer or employer's organisation and trade unions, not themselves enforceable directly between employer and employee, are incorporated into the individual contracts of employment. Plainly, a term as to rates of pay, as here, is capable of incorporation, compare Alexander v Standard Telephones (No2) [1991] IRLR 286.
22. In the present case there was no express term as to incorporation. Can a term be implied that he parties to the MAA will be bound by the LSC minimum rate from time to time, as opposed to the rate in force at the time when the MAA was entered into? As we read paragraph 6 of the Chairman's reasons, she found that such term failed to be implied. As we read the grounds of appeal in this case, as accepted by Mr Rixon in oral submissions, there is no formal challenge to that finding. Accordingly we shall not interfere with it on appeal.
23. (2) Breach. It follows that by refusing to increase the Claimant's wages to £80 from 1 August 2005, in accordance with the rate now set by the LSC, the Respondent was in breach of the MAA.
24. (3) Affirmation. The Claimant, nevertheless, continued to work for the Respondent at the previous rate of £65 per week until the termination of her employment on 19 August 2006. In so doing, did she affirm the contract and waive the Respondent's breach by conduct? The Chairman held, reasons paragraph 7, that,

"The fact that the Claimant continued for a further 11 months after this [the imposition of new terms and conditions by the Respondent] was not in my view her acquiescence to a variation in the contract but rather her acceptance that the old contract had come to an end and a new one was entered into."

We shall come to the new contract shortly, but first the question of acquiescence by the Claimant.

25. It is right to say that, before the Chairman, Mr Rixon argued that if there was a breach by the Respondent the Claimant had nevertheless affirmed the contract. We return to the facts. By their undated letter of July 2005 SACS indicated clearly to both Claimant and Respondent that LSC required a minimum wage of at least £80 per week. That was followed by a draft contract incorporating that minimum wage. The Respondent flatly refused to pay it, as the Claimant well knew. She would not sign the new contract. On our analysis thus far, that amounted to a breach by the Respondent. What was the effect of the Claimant continuing to work at the old rate of £65 per week for the next year?
26. In our judgement it is clear that the Respondent's breach did not bring the MAA to an end, see Rigby v Ferodo Ltd [1988] ICR 29. However, there is no finding by the Chairman that the Claimant continued to work under protest, compare Burdett-Coutts v Hertfordshire County Council [1984] IRLR 91. We bear in mind the natural reluctance of the courts to find that an employee has accepted a unilateral variation by the employer to a contract adverse to him by acquiescence, particularly when the variation has no immediate practical effect on his working life, see for example Jones v Associated Tunnelling Co. Ltd [1981] IRLR 477, Aparau v Iceland Frozen Foods plc (No1) (1996) IRLR 119.
27. However, on our analysis, the Respondent was not here seeking to unilaterally vary the contract but to refuse to perform a material term as to pay the incorporated term as to the LSC minimum wage. Of course, had that term not been implied then there would be no breach in any event by the Respondent. In these circumstances we are driven to conclude that the Claimant did waive the breach by acquiescence and affirm the contract. It is of interest to note that applying the well-known test for constructive dismissal to be found in Western Excavating (E.C.C.) Ltd v Sharp [1978] IRLR 27, the employee, faced with a repudiatory breach by the employer, must not delay too long in terminating the contract in response to the employer's breach, otherwise he may be deemed to have waived the breached and agree to vary the contract.
28. Applying that principle to the present case, the Claimant did not leave the Respondent's employment, she continued for a year or so knowing of the breach which effected her weekly wage. She did not, on the findings of fact, protest; no doubt, she wished to complete her two-year training. But in our judgement, the circumstances point ineluctably to an affirmation by her of the MAA notwithstanding the Respondent's breach.
29. (4) The new contract. In a sense, our analysis thus far renders the Chairman's finding of a new contract of employment unsustainable. The MAA continued in so far as the Respondent was in breach, the Claimant waived the breach and affirmed the contract. However, we go further in concluding that there was no new contract as the Chairman found. On this basis in order to find as to the Chairman, in paragraph 8 of her reasons, that the Claimant had entered into a new contract which was not an MAA, excluding the provisions of the NMW, a novation(?) had to take place. That required the consent, expressed or implied, of all three parties to the original tripartite MAA to its discharge or rescission.
30. On the facts, (a) the Claimant never asserted that the original MAA was discharged. Throughout she has contended that it continued to apply and that she was entitled to a wage of £80 per week under that agreement on 1 August 2005. She never claimed that the MAA was discharged and a new contract, to which the NMW applied, replaced it, (b) the Respondent never agreed to enter into a new contract to which the NMW applied, (c) SACS never agreed to being discharged from the original MAA. On the contrary, they continued to provide training for the Claimant under that agreement, so that on 4 August 2006, they were able to write to the Respondent that the Claimant had completed the NVQ Level 2 training course.
31. (5). It follows that in the absence of a new contract as found by the Chairman, the MAA continued in effect until its termination in August 2006. The NMW did not apply by virtue of the exclusion to which the Chairman referred in regulation 12(3)(b) of the 1999 Regulations.
32. (6). The Claimant did not raise a grievance in relation to the NMW claim. She did raise a grievance in relation to the breach of the MAA, but we have found that that claim fails. Consequently no uplift falls to be made to a relevant award for the purpose of section 31 of the 2002 Act.
33. (7). It follows that the Respondent's complaint, through Mr Rixon, that she was not given the opportunity to deal with the NMW and section 31 points is rendered moot.

Conclusion

34. It follows that we shall allow the appeal. The Chairman's award is set aside save that the Claimant is entitled, as Mr Rixon accepts, to two weeks pay in lieu of notice in the gross sum of £130, that is two weeks pay at £65 per week. That payment should be paid gross by the Respondent and the Claimant is obliged to account to the Inland Revenue for any tax and national payments due.