Claims for wages - Case Round-Up: April 2017

In this month's round-up, Mark Shulman, consultant solicitor with Keystone Law, looks at recent cases on unlawful deductions from wages.

Mark Shulman, Consultant Solicitor at Keystone Law

**WAGES Amount properly payable** Can an unlawful deductions claim be made in the ET if the relevant contractual provisions have to be interpreted to determine the amount properly payable? No, said the EAT in [Agarwal v Cardiff University & Anor ]()UKEAT/0210/16/RN.

*Background *The Claimant was a urological surgeon employed under a "clinical academic contract" performing lecturing duties at Cardiff University and clinical duties for the Cardiff and Vale University Local Health Board. Both posts were being paid for by the Cardiff University.

After a period of sickness absence, the Claimant returned to her lecturing duties but not to the clinical duties. The Health Board was not satisfied that the Claimant was fit to return to work her clinical sessions and was particularly concerned that her relationship with her clinical colleagues remained strained and that this might impact upon her clinical judgment. She was paid half her salary as a consequence and she brought a claim under s13 ERA 1996 alleging that she had suffered unauthorised deductions from her wages in respect of clinical sessions.

The ET considered as binding the decision of HHJ Peter Clark in the EAT case of [Somerset County Council v Chambers]() UKEAT/0417/12. In that case, the Claimant had claimed a higher rate of pay to which he would have been entitled had he been a full-time employee instead of the lower rate he was paid as a locum social worker. Chambers decided that "…… The ET had no jurisdiction to embark on an enquiry into what he ought to have been paid if he was to be regarded as an employee in the context of a WA claim, any more than it would be appropriate under a s.11/12 reference" (i.e. a claim for determination of statutory particulars).

The ET in Argawal dismissed the Claimant's claim on the basis that it did not have jurisdiction, holding that it was not possible to determine the Claimant's claim without having to engage in construction of her contract of employment. The ET's conclusion was that "…In this case…the tribunal is required to construe the terms of a complex interdependent employment relationship involving three parties and up to three contracts (claimant-university, claimant-health board and university-health board). It is a matter for the civil courts".

Right answer but wrong reasoning The EAT agreed with the ET's decision, but for different reasons. Counsel in the case had "rightly agreed" that if a Claimant's entitlement to wages depended upon the construction of the employment contract, the claim would fail - it would have to be brought as a contract claim in the civil courts and not as a deduction from wages claim under section 13 of ERA 1996. However, it was not the judgment in Chambers which was material to the issue of jurisdiction, but the Court of Appeal's decision in [Southern Cross Healthcare Co Ltd v Perkins]() [2011] ICR 285. In Chambers, the issue was as to the correct rate of pay and not one of construction of the contract. In Southern Cross the question before the Court was whether ETs have jurisdiction to construe contractual terms and conditions in a written statement of statutory particulars.

There was a difference between identifying the terms of a contract of employment and construing the statutory statement of terms. It was within the jurisdiction of the ET to identify the relevant terms of the contract. But "… the only forum with jurisdiction in relation to the construction issue was and is the ordinary civil court".

The EAT ruled that the Court of Appeal's decision in Southern Cross (that ETs have no jurisdiction to construe a statement of written particulars in a claim under section 11 of the ERA 1996), applied equally to the construction of a contract in a claim for unlawful deductions from wages under section 13 of the ERA 1996. This would include the question of whether there were any implied terms.

There was an issue in the present case for example as to whether there were any express or implied terms of the Claimant's contract setting out relevant pre-conditions on her ability to perform clinical duties (e.g. any contractual requirement that after a period of sickness absence the Claimant agreed to undertake an Occupational Health assessment).

On that basis, the need for decisions by the ET in the present case on the construction of the Claimant's contract (including whether it contained implied terms) meant that the ET did not have jurisdiction to determine the Claimant's claim under section 13 of the ERA 1996. Although Parliament had conferred a limited contractual jurisdiction on ETs under the Employment Tribunals Extension of Jurisdiction (England and Wales) Order 1994, other contract claims could only be pursued in the civil courts.

*Comment *As mentioned by the EAT, there is a separate jurisdiction for contract claims in the ET under the 1994 Order. The case immediately below was one in which the Claimant succeeded with both a wages claim and a breach of contract claim in the ET.

In [Scicluna v Zippy Stitch Ltd & Ors ]()UKEAT/0122/16/DA the Claimant was the MD of the Respondent. He deferred payment of his salary because of cashflow problems within the company. The Claimant resigned and brought claims of constructive unfair dismissal and wrongful dismissal, as well as claims for unlawful deductions from wages and breach of contract for arrears of wages.

His claims of unfair and wrongful dismissal were dismissed. The ET found that the Claimant had not waived his entitlement to salary; he had simply deferred payment in accordance with what was agreed. The ET then upheld his breach of contract claim in respect of arrears of wages (with damages to be assessed), but dismissed the wages claim on the basis that no identifiable sums were "properly payable" by the Respondent to the Claimant on any specific occasion by virtue of the agreement to defer pay.

On appeal, the EAT considered that the first question to consider was whether the balance of wages owed was recoverable by way of a wages claim. It was - the Claimant had not waived his entitlement to wages and there was an implied a term that his entitlement to arrears of pay would crystallise upon termination of the employment (and not be deferred unless and until such time as the company could afford to pay those wages). In HM Revenue & Customs v Stringer [2009] ICR 985, the House of Lords decided that a sum due on termination of employment in lieu of holiday under the WTR 1998 was to be treated as wages and therefore a failure to pay could be recovered as a wages claim under ERA 1996. As payment of the arrears of wages in the present case arose on termination (i.e. payment for services previously rendered), the Claimant's position was analogous to the pay in lieu of holiday claim under the WTR 1998 as in Stringer and therefore justiciable under ERA 1996.

Accordingly, the EJ had been wrong to conclude that no identifiable sums were properly payable on any specific occasion by virtue of the Claimant's agreement to defer payment of salary. The outstanding sums had become due on termination and in these circumstances the EAT allowed the Claimant's appeal, varying the EJ's Judgment so that the unlawful deduction of wages complaint succeeded.

The matter was remitted to the ET for a remedy hearing, bearing in mind that there should be no double recovery in respect of the wages claim and the breach of contract claim.

**Gross or net award *When calculating unlawful deductions from wages, should an ET award the gross or net amount of wages due? In [Walters T/A Rosewood v Barik ]()*UKEAT/0053/16/BA the EAT decided the gross amount was appropriate.

Background The Claimant had been employed by the Respondent for 7 years but had not been paid her salary. She won her claim for unlawful deductions in respect of the salary due. The ET stated that the Claimant was entitled to payment of £182,000 less tax and national insurance and then awarded the sum of £180,200.00 to be paid gross by the Respondent (after taking account of an unpaid loan of £1,800 to the Claimant).

On appeal the Respondent argued that the sum awarded to the Claimant should only have been  her net income after deduction of the tax and National Insurance that would have been payable over the various years – a net sum of £137,828. There was no dispute between the parties about that sum shown in the net calculation, but there was a dispute as to the principle of whether the ET should have ordered the gross or net sum.

Tax matters The EAT commented that the facts of this case in relation to tax were "very unusual". For somebody to be paid seven years' salary in arrears after they have ceased to be an employee no doubt raised unusual circumstances so far as HMRC was concerned. Taking that into account, the ET had been "eminently sensible" to deal with the matter in the way it had i.e. by ordering the sum of £180,200 was to be paid by way of a gross sum, although there may have been tax and National Insurance deducted before payment to the Claimant.

The EAT also thought that the sensible and obvious thing was for the Respondent to have made contact with HMRC and to find out how much he had to pay direct to the Claimant, how much he had to pay to HMRC and to pay those amounts, making sure they were properly accounted for so that everybody knew what the position was. However, he had not done that and the EAT considered that it remained for the Respondent to sort the matter out by liaising with HMRC and paying what was due.

Grossing up The EAT itself also raised the question of whether a grossing-up exercise needed to be done to take account of the £30,000 tax free element. However, the EAT's view was that this was not a compensation case which would fall into a different category. Salary was taxable, perhaps in different ways at different times and the right order was for a gross sum with a continuing obligation to deduct tax and account for it in accordance with whatever PAYE Regulations applied to the payment in question.

Costs Not only was the appeal dismissed, but the Respondent was also ordered to pay the sum of some £1,500 by way of costs on the basis that the appeal was "unnecessary".  As mentioned above, the EAT thought that the Respondent should have promptly contacted HMRC, got an indication of how much he needed to deduct from the gross payment ordered by the ET and proceeded to make the net payment to the Claimant and the balance to HMRC. He did not do that, the EAT assumed, because he did not want to pay the money - as reflected in the fact that he had not paid the Claimant for seven years' work.

*Comment Firstly, this case serves as a reminder that there is no upper limit on amounts that may be claimed in the ET by way of unlawful deductions from wages. The Judge (HHJ Shanks) said that "I am not clear in my mind how interest will be dealt with". However, it should be remembered that in a successful wages claim ETs may also award a sum that it "considers appropriate" to compensate the worker for "any financial loss sustained…which is attributable to the matter complained of" (s24(2) ERA 1996).*

Secondly, it seems very clear that neither the ET nor the EAT were minded to attempt to resolve what were likely to be complex tax issues, which were essentially matters for HMRC. However, it is not clear whether the judgment is intended to apply to all unlawful deductions claims, or whether it is limited in its application because of the potential complexity of the tax issues in the unusual circumstances of the particular case.

It seems likely that except perhaps where the tax issues are very straightforward or are agreed between the parties, the EAT's approach in relation to the net/gross issue is likely to be used more generally by ET's and therefore they will not become involved in determining tax issues or calculations in this type of claim.

____________________________________________________________________________ Mark Shulman is a Consultant Solicitor with Keystone Law and an accredited workplace and employment mediator. His blog on new employment legislation can be found here.

Published: 13/04/2017 09:57