United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	MR TOM LINDEN QC (One of Her Majesty's Counsel) Instructed by: Messrs Mishcon de Reya Solicitors Summit House 12 Red Lion Square London WC1R 4QD
For the Respondent	MISS JANE MULCAHY (of Counsel) Instructed by: Messrs Hammonds Solicitors 7 Devonshire Square Cutlers Gardens London EC2M 4YH


 


SUMMARY

Unlawful Deductions from Wages

Whether contested deductions from bonus take the claim out of the ambit of Part II ERA.

Coors v Adcock et al considered.

Held: It did not.


 


HIS HONOUR JUDGE PETER CLARK

1. The issue in this appeal is whether the Employment Tribunal has jurisdiction to entertain the Claimant, Mr Mouradian's claim of unauthorised deductions from wages brought under Part II Employment Rights Act 1996 (ERA). A Chairman, Ms Sarah Leslie, sitting alone at a pre-hearing review (PHR) held at London Central on 10 September 2007 held that it did by a judgment with Reasons dated 1 October. Against that judgment the Respondent, Tradition Securities & Futures SA, now appeals. I shall describe the parties as they appeared below.

The Facts

2. In addition to the documentary evidence before her, the Chairman heard oral evidence from the Claimant and the Respondent's Director General, Mr Lionel Bec.
3. The Respondent, part of the Tradition Group of Companies, is a French company with offices in Paris and London. Tradition is a world-wide broker of financial and non-financial products.
4. The Claimant joined the Respondent on 20 October 1997. The reference to 2007 at paragraph 12 of the Reasons appears to be a typographical error. At all relevant times he was Head of the London Exchange Traded Options on the Fixed Income Desk. In September 2005 the Claimant and Respondent entered into a written contract of employment due to expire in 2009 (the Contract). Material to the present issue is the Claimant's participation in the Respondent's bonus scheme.
5. By Clause 5.2 of the contract the Claimant was entitled to a bonus in accordance with that clause in relation to the Desk, where he managed a team of brokers. The bonus was to be paid from a bonus pool equal to 60 per cent of net billed income after deductions of certain identified costs which did not include certain specified brokerage costs (the additional costs) attributable to his desk (Clause 5.2.1). The 60 per cent figure after deductions was to be divided as the Claimant deemed appropriate in consultation with the CEO whose reasonable decision will be final. Bonuses were paid twice a year; the bonus for the period 1 January to 30 June (H1) was payable in July; that for 1 July to 31 December (H2) was payable in January. The Respondent reserved a discretion to itself to pay the bonus as cash or a contribution to a retirement scheme (clause 5.2.4).
6. The Chairman found (Reasons paragraph 15) that by a deed of amendment dated 26 October 2006 Clause 5.2.4 was deleted from the contract and a new clause 5.2.4 substituted in its place. That new clause provided:

"5.2.4 The Company shall at its sole discretion, determine the form of any bonuses which maybe paid as cash or a contribution to a retirement scheme of which you are a member or contribution to an employee benefit trust on any terms the company decides are appropriate but to include a recommendation that the trustees hold the assets for the benefit of you and your family (an 'EBT Contribution'). If an EBT contribution is made, the Company, when calculating the EBT Contribution due, may calculate the contribution so that the cost to the Company of making the contribution is the same net cost, taking [into] account the deferral [or] denial of corporate tax relief, as if a cash bonus had been paid (with no account taken of the prospective value of any corporate tax deduction deferred)..."

She further found (paragraph 16):

"16 The variation to clause 5.2.4 enables the Respondent to determine not only whether the bonus award will be made in cash or to a pension scheme but also whether it will be paid into an Employee Benefit Trust. Further, the Respondent reserves the right to pay less into the retirement scheme or employee benefit trust if such payments would result in adverse tax consequences for the Respondent."

7. In respect of the 2006 H2 bonus period (July - December) the Chairman found:

(1) that the net income of the Claimant's desk for that period was £2,658,695. After all deductions the bonus pool of 60% was declared to be £1,429,060.

(2) within those deductions were the additional costs totalling £154,286. Without those additional costs the bonus pool would have been increased by £92,571.60 (i.e. 60 per cent of £154,286).

(3) prior to the bonus pool for the relevant period being declared the Claimant had apportioned the bonus in specific amounts to three members of his team and none to the other members, leaving a balance to him of £1,320,060.

(4) The Chairman found, accepting the Claimant's evidence, that

(a) the Claimant decided how much bonus each team member would receive; the balance of the pool was his (Reasons paragraph 26) and

(b) how his bonus was paid, i.e. in cash or into his Employee Benefit Trust (EBT), was entirely a matter for him (paragraph 28).

Part II ERA

8. As Mr Linden QC reminds me, the protection for workers under Part II ERA owes its origins to the Truck Acts 1831 to 1940, initially passed to ensure that Victorian artificers were paid in coin of the realm. That absolute requirement was softened by the Payment of Wages Act 1960 and the present provisions replaced the Wages Act 1986.
9. Section 13(1) ERA prohibits any deduction from wages unless required by statute or previously agreed by the worker in writing.
10. By s13(3) a deduction arises:

" 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 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."

11. Wages are defined by s27 as any sums payable to the worker in connection with his employment including, by s27(1)(a):

"any fee, bonus, commission, holiday pay or other emolument referable to his employment, whether payable under his contract or otherwise …"

12. By s23(1)(a) a worker may present a complaint to an Employment Tribunal that his employer has made a deduction from his wages in contravention of s13.
13. The legislative reach of Part II ERA has been the subject of consideration by the higher courts. Delaney v Staples went to the House of Lords on the question as to whether pay in lieu of notice constituted wages within the meaning of the then Wages Act 1986; [1992] ICR 483. Their Lordships held that it did not, commenting that the relevant Minister may care to activate the power contained in successive Acts of Parliament since the Industrial Relations Act 1971 to confer jurisdiction on industrial tribunals to hear breach of contract actions. That was done by the 1994 Extension of Jurisdiction Order. However, that Jurisdiction is circumscribed (a) by a limit of £25,000 per claim (not since raised) and (b) by the requirement that the employment must have been terminated before the claim may be brought. Since Mr Mouradian remained employed by the Respondent when he brought the present claim by a Form ET1 lodged on 16 May 2007 and his claim exceeds £25,000 he is unable to frame that claim in breach of contract under the 1994 Order. In short, the Respondent contends that this is in fact a claim for breach of contract and not one covered by Part II ERA. That is the issue before me.
14. As to the legislative reach of Part II ERA I can lay claim to a modest contribution to the jurisprudence, having twice been corrected by the Court of Appeal, first in New Century Cleaning Co Ltd v Church (2000) IRLR 27 (Sedley LJ dissenting) and more recently in Coors Brewers Ltd v Adcock (2007) ICR 983, a case in which Mr Linden appeared on behalf of the ultimately successful appellant employer.
15. The critical point which emerges from those cases, particularly Adcock, is that a claim under Part II is not appropriate where recovery of an unquantified sum is sought; that is a claim properly brought for breach of contract and where employment is continuing that must lie in the civil courts, not the Employment Tribunal.
16. Lord Browne-Wilkinson described Wages Act claims in the industrial tribunal as a summary procedure (Delaney 494C) and in the Court of Appeal in that case Nicholls LJ (as he then was) described the nature of a Wages Act claim in this way (1991) ICR 331, 340E:

"If on his "pay day", when an employee is due to be paid, a worker receives less wages than he should have done, the deficiency is to be regarded as a deduction for the purposes of the Act."

Earlier he said (340A):

"… a dispute, on whatever ground, as to the amount of wages properly payable cannot have the effect of taking the case outside s8(3) [Wages Act. now s13(3)ERA]. It is for the industrial tribunal to determine that dispute, as a necessary preliminary to discovering whether there has been an unauthorised deduction."

17. Thus the paradigm Part II claim is, as Wall LJ observed in Adcock (paragraph 46), by reference to the facts in Delaney,

"The employee complains that there has been an unlawful deduction from his wages. He has not been paid an identified sum. He makes a claim under Part II. The employer may have a number of defences. Those defences may raise issues of fact. Those issues will be for the tribunal to determine. But the underlying premise on which the case is brought is that the employee is owed a specific sum of money by way of wages which he asserts has not been paid to him."

The Chairman's decision

18. The Chairman plainly recognised, by reference to passages above cited from Nicholls and Wall LJJ (Reasons paragraphs 29-30) that the question was whether the Claimant's claim was for unquantified damages, in which case the action was one of breach of contract, or whether the claim fell within Part II, as explained in those passages. She found it was the latter, and in rejecting the Respondent's case found that the discretion to award an ascertainable bonus had already been exercised (see Farrell Matthews & Weir v Hansen (2005) ICR 509); payment was due in January and if the deductible charges had been overstated that additional fixed sum was payable to the Claimant.

The Appeal

19. In challenging the Chairman's ruling that the Employment Tribunal has jurisdiction to entertain this claim under Part II ERA Mr Linden takes essentially two points:

(1) that the additional bonus, representing the deducted additional costs, had not been declared by the Respondent nor agreed between the parties. Thus the claim is one for unquantified damages for breach of contract. It is not a sum payable under his contract or otherwise (ERA s27(1)(a)),

(2) that it is not in any event a sum payable on a single occasion (s13(3)) because it may, at the Respondent's discretion, be paid into the Claimant's EBT or a pension scheme, that is, by way of deferred payment.

20. I can deal shortly with the second proposition for which no authority is cited. I reject it. The requirement to pay wages in coin of the realm disappeared with the passing of the Payment of Wages Act 1960. A bonus falls within the definition of wages (s27(1)(a)). Provided the bonus is declared in cash terms, as here, it matters not in my view whether it is paid by way of bank transfer, into an EBT or pension scheme or in cash. I make no observations on the status of share options, which does not arise for consideration in this case. For present purposes I am satisfied that the claim here relates to 'wages'.
21. Mr Linden's primary submission is that a discretion resided in the Respondent to finally declare the bonus payable to the Claimant (cf Hansen). The total sum claimed by the Claimant had not been agreed between the parties. Hence the claim here is one of breach of contract for unliquidated damages. The provisions of Part II ERA circumscribe the extent to which contractual disputes may be resolved in such claims. They do not include the present claim. Hence the Employment Tribunal has no jurisdiction to entertain it.
22. Miss Mulcahy contends that this claim contains all the elements necessary for a claim under Part II ERA. The claim is quantified in a precise sum (agreed to represent the additional cost deducted by the Respondent), thus overcoming the lack of quantification in Adcock. Secondly, the Respondent had fully exercised its discretion to award the bonus distribution determined by the Claimant at his discretion. Thirdly, payment of the bonus was due at the end of January 2007. Failure to pay the complete bonus represented an unauthorised deduction from wages on the Claimant's case. Of course, it is open to the Respondent to argue that the Claimant had no legal entitlement to the amount claimed on the basis of agreement said to have been reached in terms of a letter from the Respondent's then solicitors dated 4 April 2006 permitting deduction of the additional costs (later formalized in a side letter dated 25 October 2007): however that is precisely the sort of issue which the Employment Tribunal is required to resolve at a merits hearing, as Nicholls LJ envisaged in Delaney v Staples and Wall LJ recognised in Adcock.
23. On this aspect of the case I prefer the submissions of Miss Mulcahy and am fortified in that conclusion by the provisions of s13(5) ERA, to which Mr Linden referred me. S13(1) renders unlawful a deduction from wages which is not authorised by a relevant provision of the worker's contract. Contrary to Mr Linden's submissions I am satisfied that, on the Chairman's findings of fact which he does not and cannot challenge in this appeal, everything necessary to declare the relevant bonus had been done. The real issue is whether the Claimant had authorized the deduction of the additional costs in accordance with the contract. On the basis of the original clause 5.2.1 he had not. It is the Respondent's case that such authority was signified by his agreement to the terms of the 4 April 2006 letter. His response is that such agreement did not take effect until the formal agreement contained in the 25 October 2007 document. Is that an issue which properly falls to be determined in the context of a Part II claim?
24. To answer that question I turn to s13(5) which provides:

" For the purposes of this section a relevant provision of a worker's contract having effect by virtue of a variation of the contract does not operate to authorise the making of a deduction on account of any conduct of the worker, or any other event occurring, before the variation took effect."

25. It is important to note that s13(5) is enacted for the purposes of s13. It therefore differs from the excepted deductions provided for in s14, where it is the cause of the deduction and not the lawfulness of the deduction which determines whether or not a case is taken out of the reach of s13. See Sunderland Polytechnic v Evans (1993) ICR 392.
26. Thus, it seems to me, where the real issue is whether a purported variation to the contract in writing authorizes the relevant deduction before it is made, that issue falls to be considered in the course of a Part II claim. Applying the dictum of Nicholls LJ in Delaney, it is for the employment tribunal to determine whether the relevant variation contended for by the Respondent was notified to the Claimant before the date of the alleged deduction (January 2007) as a necessary preliminary to deciding whether there had been an unauthorised deduction.
27. For these reasons I shall dismiss this appeal.