Mark Shulman, Consultant Solicitor at Keystone Law

UNLAWFUL DEDUCTIONS FROM WAGES

Statutory provisions
Under section 13 of the Employment Rights Act 1996:

"(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."

Job evaluations and underpayments?
Could Claimants claim unlawful deductions from wages as a result of allegedly wrong pay following a job evaluation? No said the EAT in [Kingston Upon Hull City Council v Schofield & Ors UKEAT/0616/11/DM]().

The Claimants disputed the grade at which their local government jobs had been evaluated. They lost their internal appeals and then took their claims to the ET alleging unlawful deduction from wages. They claimed that their jobs had been wrongly evaluated and that the difference in pay which resulted from the higher evaluation which they claim should have been given, was a wrongful deduction from pay. They wanted the ET to re-evaluate the jobs properly. The employer argued that the ET did not have jurisdiction to hear their claims because they were for damages, rather than sums which were ascertained or ascertainable.

The ET disagreed and ruled that the claims were for sums which were ascertainable by resolution of an issue of fact. The ET envisaged that the assessment of whether the claimants' jobs had been evaluated properly, would require the ET putting "itself in the place of the employer". The employer appealed.

The EAT allowed the appeal.

General principles
There was broad agreement between the parties as to the general principles applicable to claims for unlawful deductions from wages. There is a useful reminder that

* Claimants have to establish that their employer has not paid them wages to which they have a legal entitlement, whether payable under their contract or otherwise  (Coors Brewers Ltd v Adcock and others [2007] IRLR 440, New Century Cleaning Co. Ltd v Church [2000] IRLR 27 and Allsop v Christiani and Nielsen Ltd (In Administration); * the claim must be for a specific sum of money or a sum capable of quantification which has not been paid by the employer; * sums claimed by way of damages which are uncertain in amount do not fall within unlawful deductions under the Employment Rights Act 1996; * claims for damages brought by employees continuing in employment must be brought in the Courts as ETs have no jurisdiction to hear them; * claims brought by former employees for the recovery of damages can only be brought in an ET if they arise or are outstanding on the termination of their employment. The jurisdiction to hear such claims is conferred by the Employment Tribunals Extension of Jurisdiction (England and Wales) Order 1994.

In the Kingston case it was common ground that if the claims are for unquantified damages for breach of contract, then they did not fall within the ambit of Part II of the Employment Rights Act 1996 and so an ET has no jurisdiction to entertain them.

It was also uncontroversial that in order to determine what is "properly payable" to an employee, an ET may have to determine issues of fact.

Were the claims by the Claimants quantified or quantifiable?
Following New Century Cleaning Co. Ltd v Church [2000] IRLR 27, the EAT pointed out that in all subsequent cases in which the issue of whether a claim fell within the deduction from wages jurisdiction has arisen, the determining factor has been whether the employee could identify a specific ascertained or ascertainable sum of wages which was payable.

In Coors, the issue had been claims by employees of breaches by their employer of an obligation to put in place a share scheme with equivalent benefits to one they had enjoyed before the transfer of ownership of their employer. In the Court of Appeal, Chadwick LJ had stated that:

"It follows that it is impossible to hold that, if the employer company had met the requirement imposed on it by the claimants' employment history, the amount of the wages paid to any individual claimant on the relevant date for payment of benefits accrued …would have been greater than the amount of the wages actually paid to that claimant on that date. The most that can be said is that it might have been. And, accepting that it might have been, it is impossible to say by how much the amount of the wages actually paid was less than the amount that would have been properly payable."

The EAT in Kingston thought that it was clear from the Claimants' case that their claims were not quantified. The basis of their claims was that the Council should have awarded them a higher number of points under their Job Evaluation Scheme.

The EAT also considered that the value to be attributed to a job is a question of judgement, not an issue of fact. In contested equal value claims under equal pay legislation the parties' experts may differ on the value to be attributed to the same job although there is no dispute over the job content or evaluation criteria. Therefore, the ET had been wrong to decide that the resolution of a dispute about the value to be attributed to the Claimants' jobs was an issue of fact. Further, there was no jurisdiction for the ET to undertake the exercise of putting itself "in the place of the employer" and to conduct an evaluation as to the value of the jobs under the Council's job evaluation scheme.

Accordingly, the Claimants' claims were for damages, not for sums which were ascertained or ascertainable and so the ET had had no jurisdiction to determine the Claimants' claims.

Deductions and the Consumer Credit Act
Can a deduction from wages still be made even though the agreement to deductions potentially falls foul of the Consumer Credit Act 1974 ("CCA"). Yes, said the EAT in [Guildprime Specialist Contractors Ltd v Knight]() UKEAT/0562/11/LA.

In Guildprime a novel legal point arose when the Claimant was made redundant and his redundancy money was reduced by the amount still owing on a loan made by his employer to buy a car. Prior to his dismissal, the Claimant agreed that regular payments could be made out of his wages to pay back the loan.

The Claimant brought a claim of unfair dismissal (which was rejected) and a claim for unlawful deductions from wages (which was upheld). The ET ruled that the loan agreement was an agreement regulated by the CCA and as such could not be enforced against the Claimant because it had not been in the proper form.  The employer appealed.

The EAT upheld the appeal, noting that there was no previous case authority under the 1996 Act or its predecessor, the Wages Act 1986.

Key requirement for deductions
The documentation indicated that the Claimant had specifically agreed in writing that he consented to the making of deductions which had occurred and there had been no issue about such deductions for his entire career with the employer.

The EAT confirmed that it was plain that the diagnosis of an agreement under the Consumer Credit Act 1974, its interpretation and its enforcement were matters exclusively in the jurisdiction of the County Court. The matters within the jurisdiction of the Employment Tribunal are those given to it by statute and it had no jurisdiction to make determinations under the CCA. However, the ET had done just that. Such matters were outside its jurisdiction. Once it had found that there was consent in writing to the deductions in advance of the first deduction, the ET should not have gone any further.

Under section 27 of the Employment Rights Act 1996, the definition of wages refers to "any sums payable to the worker in connection with his employment", but excluding "any payment by way of an advance under an agreement for a loan or by way of an advance of wages".

On the evidence, the agreement with the Claimant was for a loan of wages. As a loan did not constitute "wages" for the purposes of unlawful deductions, the Claimant's claim was dismissed.

In [Qantas Cabin Crew (UK) Ltd v Lopez & Anor]() UKEAT/0106/12/SM, the EAT considered whether there had been unlawful deductions and whether certain payments were "in respect of expenses"(and thereby excluded from the definition of wages under section 27 of the Employment Rights Act 1996).

The Claimants worked on secondment from Qantas in Australia. There were two contracts in play, "the October contract" and "the November contract". There were two disputes: the first involved payment of allowances for food and accommodation (the Living Away From Home Allowance "LAFHA"), and the second involved relocation payments. Before the Claimants signed the November contract, they attended a tax briefing with accountants who explained that the November contract amended the October contract so that the LAFHA was to be made in a more tax efficient way. The November contract also contained information about the relocation payments, which were far higher than the ones mentioned in the October contract.

The Claimants raised grievances when their LAFHA was not paid on top of their basic salary, and when the lower relocation payments were made instead of the higher ones. They brought their claims to the ET, who ruled that the October contract applied and that LAFHA should have been paid on top of salary, but rejected the relocation payments claim because it was clear that the figures in the November contract were a mistake. Both Qantas and the Claimants appealed.

The EAT judgment includes some interesting arguments in relation to the construction of employment contracts, misrepresentation and the doctrine of non est factum (a rather unusual combination in employment law cases and worthwhile reading). The November contract was held by the EAT to be the true agreement between the parties and so the Claimants would not receive the LAFHA on top of their wages. Accordingly, there were no unlawful deductions.

Expenses or wages?
The conclusion that there were no unlawful deduction made it unnecessary for the EAT to decide the second ground of appeal (i.e. whether, if the Claimants had been underpaid in respect of the LAFHA, those payments consisted of wages or of expenses). But the EAT went on to deal with the matter as they had heard full argument on the point.

What are "expenses"?
The EAT's finding that the LAFHA term was about tax efficiency and the treatment of expenses for living away from home meant that the unlawful deductions regime in the Employment Rights Act 1996 did not apply. As the salary included an element of payment for the cost of living in London for a period of time, the LAFHA was in respect of expenses and not wages.

The EAT considered that the ET had wrongly distinguished Southwark London Borough v O'Brien [1996] IRLR 420. It was important to apply the guidance in that case when it was emphasised when a payment was "in respect of" expenses. Mummery P had said:

"…if a payment, which is clearly not in the nature of expenses, is labelled 'expenses', it is open to the tribunal to conclude that 'expenses' is a misdescription of the payment made. But when asking, 'Is the payment in respect of expenses incurred by the employee?', it is not necessary for the payer to show that what he has paid is precisely a reimbursement of the sum expended by the worker. 'In respect of' means 'referring to' or 'relating to' or concerning in a general way, whereas the expression used by the chairman in his decision, 'payment of expenses', would appear (wrongly, in our view) to equate the statutory provision with reimbursement of a precise amount."

In the Qantas case, the LAFHA payments were properly to be regarded as payments in respect of expenses since it was a requirement that the Claimants relocated to London where the cost of living was higher than in Australia. There was a direct link between those costs and the carrying out of their duties from the London base and the notional figures produced by Qantas were based upon those additional costs.

Therefore the ET had erred on this point because it did not have jurisdiction to determine that there had been unlawful deductions, given that the payments were for expenses.

Relocation payments
In terms of the relocation payments, the November contract had plainly included a mistake, as the Claimants knew and so the higher figures relied upon by the Claimants did not reflect the agreed contractual terms. It followed that the payments made to the Claimants were correct and there had been no underpayments. Accordingly, the claims had been correctly dismissed by the Employment Tribunal.

Separately, Qantas contended that in any event, the relocation payments were not "wages". The EAT disagreed. The relocation payments were treated quite differently from the LAFHA as the relocation amounts were taxable in full and undoubtedly formed part of the Claimants' wages. These payments were incentives to induce the Claimants to come to London and so were a modest form of golden hello. Accordingly, they were to be treated as "wages" and the ET's decision on this point was upheld.

Mark Shulman is a Consultant Solicitor with Keystone Law and an accredited workplace and employment mediator.