United Kingdom Employment Appeal Tribunal

Appeal No. UKEAT/0331/12/GE

EMPLOYMENT APPEAL TRIBUNAL

FLEETBANK HOUSE, 2-6 SALISBURY SQUARE, LONDON EC4Y 8JX

At the Tribunal

On 11 July 2013

Before

THE HONOURABLE MR JUSTICE LANGSTAFF (PRESIDENT)

MRS L S TINSLEY

MR B WARMAN

MR R CZARNECKI APPELLANT

CHOICE TEXTILES LTD RESPONDENT

Transcript of Proceedings

JUDGMENT

APPEARANCES

SUMMARY

UNLAWFUL DEDUCTION FROM WAGES

CONTRACT OF EMPLOYMENT – Implied term/variation/construction of term

An Employment Tribunal took the view that a contract of employment provided for overtime only to be paid at the discretion of the employer, and that therefore the Claimant could not complain after dismissal that he should have been paid for hours he worked beyond the maximum of his normal working week.  Held that it was wrong to construe the contract as providing no obligation to pay at least the normal hourly rate, and in any event it would be a breach of contract not to consider the exercise of the discretion to pay at an enhanced rate.  If that breach had been established, the ET would have to assess the damages on the basis that the employer would have taken a decision in good faith which was rational, and not capricious, whether and how to exercise the discretion.  This depended upon a factual conclusion as to whether the Claimant had in fact worked the hours he claimed, as to which the ET failed to make any proper determination.  The matter was remitted to the ET for re‑determination in accordance with the Judgment and Order.

A separate appeal, in respect of non‑payment of meal allowances, was dismissed since there was no evidence before the Tribunal to support the claim (even though it was raised in the ET1 and noted by the Employment Judge as one of the issues in the case), and the ET’s decision to reject the claim was thus plainly and obviously right.

THE HONOURABLE MR JUSTICE LANGSTAFF (PRESIDENT)

1.            The Claimant, who appeals, was an HGV driver who was dismissed after just a year for repeated acts of rudeness to customers and to his managers.  Unfair dismissal was conceded but an Employment Tribunal at Watford (Employment Judge Herbert and members) decided for reasons given on 18 January 2012 that compensation was totally extinguished by contributory fault and awarded nothing.  There is no appeal in respect of that finding, the evidence and submissions on which dominated the hearing before the Tribunal.  In addition, the Tribunal rejected claims for holiday pay, meals allowance and arrears of pay consisting of overtime worked but not paid for.  The two latter decisions are those which give rise to appeal here, both on the basis of an error of approach by the Employment Tribunal and inadequate reasoning.

2.            The Employment Tribunal in a central paragraph of its reasoning, the first numbered paragraph 21, said this:

3.            Before us there is disagreement as to that which the Tribunal was saying in paragraph 21.  Mr Carr, in clear, well‑focused submissions, argues that in the last sentence the Judge in concluding that there was no entitlement to overtime pay was making an implied finding of fact that he had not worked more than the 52 hours per week which would trigger any such entitlement whether or not discretionary.  Mr Elesinnla, though we did not call upon him in respect of the overtime pay appeal, ran his case (see his skeleton argument) on behalf of the Claimant on the basis that the Judge here was expressing a view as to the law which was that where a contract provides for a discretion there is no entitlement to its exercise such that if the discretion is not exercised there is no legal right to complain.  That proposition, it is common ground, would be erroneous.

4.            A number of recent Court of Appeal decisions relate to the exercise of a discretion provided for by contract.  Broadly they may be divided into cases in which no discretion has been exercised because the exercise has not been considered, and those cases in which there has been an exercise of the discretion which is then challenged.

5.            In the employment sphere, an example of the first is the case of Cantor Fitzgerald International v Horkulak [2005] ICR 402.  The claimant there resigned before the expiry of his fixed term contract.  He did so because of a breach of contract by the respondent employer.  The contract provided for a discretionary bonus.  The question before the court was the way in which the damages should be assessed bearing in mind that such a bonus was discretionary.  The court concluded that he was entitled to a bona fide and rational exercise by the employer of its discretion to decide whether and, if so, how much to pay him.  The court could not decide for itself what award it would have made but had to ask what the actual employer, acting reasonably, fairly and not capriciously, would have given.

6.            The analysis put simply seems to be this.  If the contract of employment entitles the employee at least to consideration of the exercise of a discretion, it would be a breach of that contract not to consider its exercise.  If there is a breach then the employee is entitled to be put into the position in which he would have been if the contract had been fully and properly performed.  In such a situation the employer would have given proper consideration to the exercise of the discretion.  The task in assessing compensation for the breach therefore, is to ask what that employer, acting neither irrationally nor perversely would have decided to pay the employee.

7.            An example of that happening with the principle implicit in the paragraph was cited by Mr Elesinnla in his skeleton argument is the case of Driver v Air India Limited [2011] EWCA Civ 830.  This case concerned two contracts relating to the employment of a manager of catering services for the airline.  At paragraph 111:

“Under the second contract, overtime above 48 hours was in Air India’s discretion.  However, there is no evidence that Air India ever purported to exercise its discretion, at any rate other than in terms of Mr Thulasidas’ decision, which, strictly speaking, preceded the second contract.  Therefore, the court’s task is to put itself in the shoes of the decision maker and to consider what decision, acting rationally and not arbitrarily or perversely, it would have reached (Socimer).  […]” 

8.            The reference to Socimer is a reference not to an employment case but to a commercial one, that of Socimer International Bank Limited v Standard Bank London Limited [2008] EWCA Civ 116.  There was an extensive review in that case by Rix LJ of the existing authorities relating to a contractual power to make decisions.  He noted that the question of what was to happen if the contractual discretion ought to have been exercised, but was not, was answered by Cantor Fitzgerald International v Horkulak.  We do not need in the present context to consider a case in which there is a challenge to the exercise of a discretion.  If we had to do so we would have had regard to the principles set out in Commerzbank Ag v Keen [2006] EWCA Civ 1536.

9.            Accordingly, these propositions can be stated.  First the starting point is the contract of employment.  If it provides in certain circumstances for the exercise of a discretion by the employer then, second, the question is whether the contract properly construed requires the employer at least to consider exercising the discretion.  This will be the usual case.  Third, where a discretion is said to be exercisable only upon some prior facts having been established as, for instance, where a bonus is payable if certain sales targets are achieved, there can be no question factually of any award becoming payable unless those factual preconditions are satisfied.  In such a case a Tribunal will wish to inquire whether they have been.  Fourth, if the discretion has been exercised, then the exercise may be reviewed but on the basis of the principles set out in Commerzbank v Keen.  Fifth, if the discretion has not been exercised, then assuming that the factual preconditions are satisfied the matter is to be approached by the court putting itself into the position of the employer as it did in Horkulak and in Driver.

10.         Here therefore the starting point is the contract of employment.  Under the heading of remuneration at paragraph 11.2 the contract provided for:

11.         In paragraph 12 headed “Hours of Work” it said:

12.         Clause 15 headed “Additional Hours” read:

13.         Mr Carr submits that the words in paragraph 12.1 in the last sentence are not limited only to payment of an enhanced rate being discretionary, whilst the payment of overtime at normal rate is to be paid where the hours are in excess of 52.  He argues that even if hours exceed 52 the question of whether any payment at all, whether including an enhanced rate or otherwise, is entirely discretionary.  He recognises that that might be in tension with clause 15. 

14.         We cannot construe the contract of employment as he would suggest.  We reconcile the provisions which are not, in our view, inconsistent.  The statement, which constitutes the details form, shows that pay is given to an employee on an annual salaried basis.  The purpose of specifying normal hours of work up to 52 hours per week is to demonstrate that that salary covers those hours during the course of any working year.  That the hours are not to be calculated weekly but are to be remunerated by the annual salary on an average basis is demonstrated by 12.1 where the employer has the entitlement to ask the employee to make his time up to the usual hours.  Hours worked over the 52 would be in excess of normal hours of work, and ordinarily in the employment context would be expected to be paid for since they are beyond the express expectation of the parties, and beyond the number of hours for which they have agreed a particular salary will be payable.  That is made absolutely clear by clause 15.  There is an entitlement to receive payment for additional hours expressed there, however “at your normal rate of pay”.  What is discretionary is, by virtue of 12.1, the payment for those additional hours at an enhanced as opposed to a normal rate of pay.  Thus, in respect of hours, our view of this contract is that if it is shown to an Employment Tribunal that an employee has worked beyond the 52 hours averaged across the working year, he is entitled to be paid the ordinary rate for the job for those additional hours and he may, at the discretion of the employer, be entitled to an enhanced rate for those hours.  In that situation, given the law as we have set it out, the employee would expect and would, in our view, be contractually entitled to, consideration by the employer whether to enhance the rate or not.  That consideration would have to be neither irrational nor capricious and represent a genuine consideration in the light of all the relevant circumstances at the time.

15.         It follows that if what the Employment Tribunal was saying in its decision at paragraph 21 about the claim for overtime was that the claim was dismissed because the payment was discretionary and, hence, there was no right to complain about non-payment, it would be an error of law.  Mr Carr submits that there was no error of law here because what the Tribunal meant to say and was saying in context was that on the evidence before it the Claimant had simply not established that he had worked more than the trigger 52 hours per week.  That is to be implied from the last sentence and the words “there was no entitlement to overtime pay”.  But we cannot accept that that is what this Tribunal was saying, even making all the allowances that have to be made when viewing a Tribunal Judgment and bearing in mind that the question of overtime payment occupied very much a minor part of the Tribunal deliberations. 

16.         The reason we cannot accept it is that we have to see the last sentence of paragraph 21 in context as well as on its face.  The context is that the Judge in one and the same paragraph rejects a claim for meal allowances as being a “discretionary award which is unenforceable”.  He is equating being “discretionary” with there being no enforcement by payment of compensation.  He said in respect of that that being a discretionary award non-payment could not amount to a breach of contract.  It was only then that the Tribunal turned to its decision in respect of overtime pay.  Here in the second last paragraph the Tribunal said that the Claimant was entitled “only to a discretionary payment” if he worked over the 52 hours per week.  This, for the reasons we have already given, was an error of law because it misconstrued the contract.  He was entitled not to a discretionary payment but to one as of right given our interpretation of clauses 12 and 15.  What was discretionary was the enhanced rate, if any.

17.         The central point however is that the Judge then moved from the penultimate sentence in which he was taking the same approach to overtime as he had done to meal allowances to say that there was no entitlement to overtime pay “set out in the contract of employment”.  Mr Carr realistically accepted that those last seven words gave the Respondent some difficulties.  The conclusion is not expressed as one of fact.  It is related to the meaning of the contract.  As such, as we have indicated, it is wrong.

18.         Accordingly, so far as the overtime payment is concerned, the Tribunal did not determine what was in dispute before it which is whether the Claimant had worked more than 52 hours per week.  It was right to say that the evidence was, to an extent, uncertain.  The Claimant had given three different estimates of the extent of his overtime working: on one occasion 60 to 70 hours per week, on another an additional 14 hours per week over the 52, in his witness statement before the hearing 20 hours in addition to the 52.  The employer had produced evidence in answer which relied upon documents, both original and derived.  But, try as we might, we can see in this Judgment no resolution of the factual issues.  Since upon the proper construction of the contract the question of whether the Claimant was entitled to be paid at normal rate for additional hours depended entirely upon whether he had worked those additional hours, and no finding was made, we are in no position here to say that the decision to which the Judge came was inevitably right even if reached in error of law as we have accepted.

19.         We turn to the question of the meal allowances.  The Claimant in his ET1 claimed that he should have been paid a meal allowance for each of the weeks he worked.  As the Tribunal observed, he was paid for some but not for all weeks.  The Tribunal identified at the outset that the non-payment of meal allowances was one of the issues before it.  That crucially depended upon evidence that the meal allowance was due and payable.  The third proposition at paragraph 9 above comes into play.  There was no such evidence given by the Claimant in his witness statement though the Employment Tribunal’s notes of evidence were obtained.  There is no suggestion within those that any evidence was given or any cross‑examination made in respect of the meal allowances.

20.         On the evidence before it, therefore, the Tribunal could only have come to one conclusion: that was that the claim had not been established.  In effect, therefore, whatever the argument might be otherwise about the exercise of a discretion, the claim for meal allowances could not succeed.  The appeal in respect of that must, therefore, be dismissed.  Mr Elesinnla, realistically for his part, accepted that the ground was not his strongest and that he was in some difficulty in arguing that the claim should not be dismissed.

21.         For the reasons we have given the appeal in respect of the conclusion of the Tribunal as to overtime payments is allowed.  We are unable to exercise our own powers because we are not confident that we have all the facts before us which would enable us to say whether the trigger point of an average of more than 52 hours per week for the payment of overtime pay had been reached.  Both counsel invite us to remit the issue of overtime payments to the Tribunal and both accept that it should be to the same Tribunal, which in the context has obvious savings in terms of time and cost.

22.         The scope of the remission is to consider, only upon such evidence as either party wishes to put before the Tribunal, first, whether the Claimant has worked in excess of 52 hours per week taken as an average; second, if so, to what extent the Tribunal can be satisfied that he has worked in excess of the 52 hours; third, if he has, whether the discretion to pay an enhanced rate was considered; if it was, whether the decision was rational and not capricious.  If it was not considered, the Tribunal must, in those circumstances, put itself into the shoes of the employer and ask what the employer would have decided to do by way of exercising that discretion whether to make an enhanced payment or not.

23.         We shall say nothing about the prospects of success for either party in the argument before the Tribunal, but would very firmly suggest that the parties conciliate their differences since to do so is likely to produce the speediest and more economic resolution of the arguments between them.  Finally, it remains for us to thank both counsel for the focused, economic and realistic way in which they have presented their respective submissions.