The claimant was made redundant and his redundancy money was reduced by the amount still owing on a loan made by the respondent to the claimant to buy a car. The claimant had until his dismissal agreed that regular payments be made out of his wages to pay back the loan. The claimant brought claims of unfair dismissal, which was rejected, and unlawful deductions from wages, which was upheld. The ET ruled, without giving Counsel for the claimant to research the point, that the loan agreement was an agreement regulated by the Consumer Credit Act 1974 and as such could not be enforced against the claimant.  The respondent appealed.

The EAT upheld the appeal. The Tribunal had found that the agreement was within the meaning of s8 of the CCA and it was not exempt, but these were matters outside its jurisdiction. Once it found that there was consent in writing to the deductions in advance of the first deduction, and, it must be said, in advance of the final deduction, which applied to it too, the Tribunal should not have gone any further. By Employment Rights Act 1996 section 13 could not give rise to a claim under section 23. Alternatively it was a deduction to recoup overpayment of wages. A loan is not wages.

_____________________

Appeal No. UKEAT/0562/11/LA

EMPLOYMENT APPEAL TRIBUNAL

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

At the Tribunal

On 24 September 2012

Before

HIS HONOUR JUDGE McMULLEN QC; MR M CLANCY; MR B M WARMAN

GUILDPRIME SPECIALISTS CONTRACTORS LTD (APPELLANT)

KNIGHT (RESPONDENT)

Transcript of Proceedings

JUDGMENT

For the Appellant
MR LACHLAN WILSON (of Counsel)

Instructed by:
Lyons Davidson Solicitors
5th Floor, St Bartholomew House
90-94 Fleet Street
London
EC4Y 1DH

For the Respondents
MR C D KNIGHT (The Respondent in Person)

UNLAWFUL DEDUCTION FROM WAGES

At the hearing of the Claimant's claim of unauthorised deductions, taken from his payments when he was made redundant in order to repay his car loan, the Employment Tribunal raised with the employer's counsel the provisions of the Consumer Credit Act 1974. It then ruled upon it without giving counsel the time she sought to research the point. The point itself had no merit as the Employment Tribunal has no jurisdiction over such agreements, that being exclusively in the County Court. The Tribunal ought to have found that the loan agreement was made in writing and so by Employment Rights Act 1996 section 13 could not give rise to a claim under section 23. Alternatively it was a deduction to recoup overpayment of wages. A loan is not wages.

1. This case is about unlawful deductions from salary. It is the Judgment of the court to which all members appointed by statute for their diverse specialist experience have contributed. We say this because the scheme in place here is one that is very familiar to the lay members of this Tribunal. It is to do with the advancement of money to an employee so that they may more tax effectively and more sympathetically have available to them a benefit, in this case, a car, but it might be an annual season ticket. We will refer to the parties as the Claimant and the Respondent.

1. It is an appeal by the Respondent in those proceedings against the Judgment of an Employment Tribunal chaired by Employment Judge Ferris at East London hearing centre and sent to the parties on 19 July 2011. The Claimant represents himself. The Respondent was represented by different counsel at the hearing, and today Mr Lachlan Wilson appears in her place. The Claimant contended that he was unfairly dismissed and that there were unlawful deductions from wages. The Tribunal dismissed the former, which was to do with the redundancy, and there is no appeal. The major focus of the case was upon that. The secondary issue was an unlawful deduction said to have been made in respect of payments due under an agreement for a loan. The decision in respect of the claim for unauthorised deductions was to uphold the Claimant's case, and the Respondent appeals against that aspect.

1. The essential issues were set out by the Employment Tribunal, and the relevant provisions of the statute, which in part were set out and which include the following relevant to the issue on appeal: by section 13(1) 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."

1. Section 14 deals with excepted deductions and provides as follows:

"(1) Section 13 does not apply to a deduction from a worker's wages made by his employer where the purpose of the deduction is the reimbursement of the employer in respect of—

(a) an overpayment of wages […]

made (for any reason) by the employer to the worker."

1. There is then an excepted deduction in respect of payments to a third party (see section 14(4)), which does not apply here. The right to complain is given by section 23, and there is a definition of wages, which is as follows:

"(1) In this Part 'wages', in relation to a worker, means any sums payable to the worker in connection with his employment, including—

[…] but excluding any payments within subsection (2).

(2) Those payments are—

(a) any payment by way of an advance under an agreement for a loan or by way of an advance of wages (but without prejudice to the application of section 13 to any deduction made from the worker's wages in respect of any such advance)."

1. Invoked by the Employment Tribunal in this case are provisions of the Consumer Credit Act 1974 (CCA), and relevant to our determination of this issue is section 141, which provides for what is described as "Judicial Control" in the heading, and it says this:

"141 Jurisdiction and parties

(1) In England and Wales, the county court shall have jurisdiction to hear and determine—

(a) any action by the creditor or owner to enforce a regulated agreement or any security relating to it;

(b) any action to enforce any linked transaction against the debtor or hirer or his relative;

and such an action shall not be brought in any other court. […]

142 Power to declare rights of parties

(1) Where under any provision of this Act a thing can be done by a creditor or owner on an enforcement order only, and either—

(a) the court dismisses (except on technical grounds only) an application for an enforcement order, or

(b) where no such application has been made or such an application has been dismissed on technical grounds only, an interested party applies to the court for a declaration under this subsection,

the court may if it thinks just make a declaration that the creditor or owner is not entitled to do that thing, and thereafter no application for an enforcement order in respect of it shall be entertained."

1. The procedural aspects of this case are regulated by the Employment Tribunals (Constitution and Rules of Procedure) Regulations 2004, which give the Tribunal wide powers of case management and include powers to order an adjournment in appropriate cases.

1. The business is shop fitting; it employs eight people. It suffered a downturn. The Respondent decided to dismiss the Claimant. He had been employed by the Respondent in April 2008. An offer had been made to him on 5 March 2008, and he signed further terms and a contract on 10 July 2008. On 24 May 2010 his employment was terminated, and from the payments that were due to him in his final wage packet was made a deduction of £4,147.15, which is said by the Respondent to be to pay off the loan that he was made. The Claimant had complained about the way in which his redundancy was handled; the Tribunal rejected that claim, and it is taken no further. The Tribunal noted, with pleasure, that almost immediately after his dismissal he found alternative work, although it was not as well paid.

1. The Tribunal then turned to the claim for unlawful deductions, and this included the resolution of one dispute: the Claimant said he had never signed a contract of employment, but the Tribunal found he had. Mr Knight sought to raise that again before us, but we pointed out that there was no issue before us in the appeal since it was not raised by him in the Respondent's answer. Although he maintains that he did not sign the agreement, the finding of fact by the Tribunal was that he did. We think what he is referring to is the absence of a hire purchase agreement, which will be relevant in a moment.

1. The relevant documents are these. First, the offer letter contained this on 5 March 2008:

"Your starting salary will be £45,000 to be paid monthly and will be paid via BBM directly into your Bank Account. As this is a management position you will not be paid additionally for any overtime worked. A fuel card will also be provided for travelling to and from work. The company will set up a loan for the purchase of a vehicle up to a maximum of £15,000 all cost associated with this loan will be deducted from your salary on a monthly basis the terms of which will be discussed and agreed.

Your salary will be reviewed on an annual basis dependent on performance."

1. This document contains his signature. We do not understand there to have ever been any dispute about that. The probation period started on 7 April 2008, and on 10 July 2008 the Respondent put to the Claimant a written statement of employment particulars; it is headed as follows:

"This written statement […] meets the requirements of section 1 of the Employment Rights Act 1996 and it supersedes any earlier written or oral arrangement between you and [the Respondent]."

1. Relevant to this is a passage dealing with notice, and there is the following:

"Other deductions

[…]

* an overpayment of, or advancement on, wages, bonus, commission or expenses, whether made by mistake or otherwise […]

* any loans […].

If the Company accidentally overpays you in respect of wages, bonus, commission or expenses in a particular pay period, you must immediately notify your line manager. Failure to notify the Company in these circumstances may lead to disciplinary action under the Company's disciplinary procedure.

If, on the termination of your employment, your final payment of wages is not sufficient to meet your debt due to the Company, you agree that you will repay the outstanding balance to the Company within one calendar month of the date of termination of your employment, such payment to be made as agreed with the Company."

1. The central issue for the Tribunal was whether or not there was an unlawful deduction. The Tribunal found that what had been agreed was an agreement regulated by the CCA, it was not in proper form and so could not be enforced. The Tribunal refused an application by counsel then appearing for an adjournment to look up the point that was being put to her by the Tribunal under the CCA but was given only the lunchbreak to research, and she could not deal with it. The Tribunal found that the arrangement for the loan set out in the above document was one to which the CCA applied and could not be enforced against the Claimant.

1. We will take the central arguments on both sides and deal with them as they appear. The first ground relates to the procedure. Mr Wilson contends that there was an ambush by the Employment Judge of the Respondent by the introduction of the CCA. This is resisted by Mr Knight, who says that the point was clearly made by him in his claim form and they should have been expecting it. It is true that Mr Knight does raise it in his claim form as being an unauthorised deduction, but there is no reference to the Act. What he identifies is an arrangement between the Respondent and Ing Lease for the provision of a car, which he contends in his claim form he never saw and he never signed for. That is correct too, but the applicability of the Act in the Employment Tribunal was a new point. Mr Wilson says that there was unfairness in the way in which this was dealt with. With time, he has found no authority under the 1996 Act or its predecessor, the Wages Act 1986, where there is an intersection with the CCA. It is a novel point. There is no case dealing with this that we have been shown, and so there is substance in his criticism of the way in which the Tribunal required counsel then instructed to deal with this point, which, as it turned out, was fatal to her case.

1. So, on this basis alone, we would be minded to send the matter back to the Employment Tribunal so that there could be a proper hearing before the three person Tribunal of the CCA point. What, then, are the points that would have been raised, for it would be an empty gesture to send it back if there were no substance in it?

1. We have considered the substance of the argument, and it could not be simpler. The contention is that this was an agreement made in writing between the parties authorising a deduction for the payment of the loan. The car chosen by the Claimant was a Hyundai, and it cost about £13,000. Each month, pursuant to the agreement between the Respondent and Ing, a payment was made more or less corresponding to the deduction that was made from the Claimant's wages, but we are dealing with a deduction as between an employer and an employee under the ERA and not a consumer credit agreement.

1. The single point Mr Wilson makes is by reference to section 13. These documents indicate that the Claimant had specifically agreed in writing that he consented to the making of a deduction, and he suffered this deduction, as the Tribunal put it, without issue for all of his career with the Respondent. That is a complete answer – written consent to the deduction. In other words, by the time the employment came to an end, he had paid off about two thirds of the loan without any complaint. Mr Wilson says it is inconsistent of the Claimant to complain, and so the Claimant has to explain why it is that those were not unauthorised deductions but the last was; he has not done so. We consider the shock of being made redundant made his income dry up, and although he actually left with some money in his hand – £488 – it was after the deduction of the sum for the loan.

1. In our judgment, Mr Wilson is correct on his simple point of construction. Given that there was consent in writing under the passages we have cited from the letter of offer and the terms of engagement, this case should not have gone any further.

1. Let us say there is a dispute about the agreement between the Respondent and Ing. Mr Wilson points out the Judgment of the EAT, Wood P and members, in Sunderland Polytechnic v Evans [1993] ICR 392. It is sufficient simply to note in the headnote that as a matter of construction the words "any deduction" in the predecessor to the ERA should not be read as meaning any lawful deduction; for that, the court accepted in full the arguments addressed to it by Mr Patrick Elias QC, as he then was, and the headnote is a faithful reflection of the finding based upon the submissions of leading counsel. And so, if there were an issue about the lawfulness of the agreement, it would not matter when there is a signature in place.

1. However, a further route to the same solution is found in the CCA itself. It is plain that the diagnosis of an agreement under the Act, its interpretation and its enforcement are 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. It has no jurisdiction to make determinations under the CCA. This Tribunal did just that: it found that this was an agreement within the meaning of section 8 of the 1974 Act and it was not exempt. Those are matters outside its jurisdiction. Once it found that there was consent in writing to the deductions in advance of the first deduction, and, it must be said, in advance of the final deduction, which applied to it too, the Tribunal should not have gone any further. It would have been simple for the Tribunal to have allowed counsel then instructed for the Respondent the opportunity to research this abstruse point, and had she done so she would have been able to persuade the Tribunal against the Judgment that it made, because, in our view, it is a simple case.

1. The Tribunal deprived itself of argument from counsel upon it, which argument has been properly made to us and which we accept. As a matter of law, the Tribunal had no jurisdiction to determine the issue under the 1974 Act. The issue was to be determined under Part II of the Employment Rights Act 1996. In the light of the documents we have seen, there can be no argument that the agreement here is not either of a loan or of the recoupment of an overpayment of wages, in either case agreed in writing, and not an agreement regulated by the CCA. A loan is not wages.

1. For those reasons, the Employment Tribunal was wrong. We are asked to determine the matter ourselves today without any remission, since both parties want an end of it; and so we will dismiss the Claimant's claim of unauthorised deductions and set aside the Judgment of the Employment Tribunal on that point, otherwise it stands.