Appeal No.	 EAT/1227/98

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
	On 3 March 1999

Before
THE HONOURABLE MR JUSTICE MORISON (PRESIDENT)
MR J C SHRIGLEY
LORD  DAVIES OF COITY  CBE

GATEWAY PROFESSIONAL SERVICES (NUN-ROYD) LTD	APPELLANT

MISS R FOSTER	RESPONDENT

Transcript of Proceedings

JUDGMENT

PRELIMINARY HEARING

Revised

	APPEARANCES

For the Appellant	MR R MACKENZIE
(Director)
Gateway Professional Services (Nun-Royd) Ltd
663A Spring Bank West
Kingston Upon Hull
East Yorkshire  HU3 6LE	

	MR JUSTICE MORISON (PRESIDENT):	This is a preliminary hearing the purpose of which is to identify what if any are arguable points of law in an appeal which Mr Mackenzie himself and on behalf of Gateway Professional Services (Nun-Royd) Limited trading as Gateway Professional Services wish to make against a decision of an Industrial Tribunal held at Hull on 27 April 1998.

	This was a claim for sex discrimination.  That claim was dismissed for lack of jurisdiction, but there was also a complaint of unlawful deductions from the Applicant’s wages amounting to £208.87 which the Appellants were ordered to repay to their former employee Miss Foster, who was aged 16 at the time when she was employed.

	The position is somewhat complex and in order to understand the order of the Employment Appeal Tribunal, it is necessary in this judgment to set out some of the background.

	The Applicant presented her complaint on 12 December 1997 which was received by the Employment Tribunal on 18 December 1997 claiming amongst other things, unlawful deduction from wages.  It was her contention and I read from her IT1, “that I have only received £126.67 which was for July 1997, I did not receive any pay for August, I did not receive any pay up to the 15 September 1997.  I believe I am entitled to £166.91 and £81.81 respectively for these periods which are figures net of tax.  I also wish to claim a sum to reflect a reasonable period of notice.  I submit that a month is a reasonable period of notice as that is the period that I would be required to give to terminate my part of the contract.  I also seek damages for discriminatory conduct and in particular for injury to feeling.”

	In their IT3, the former employers dealt with the complaint of discrimination which this appeal is not concerned with, then turned secondly to the complaint relating to outstanding wages, and what was said was this:

“The second complaint ..... is resisted because the Applicant has been paid all that is properly due to her: being the £126.67 which she acknowledges (which was paid for July but, in fact, was an overpayment due to the application of an incorrect tax code) and a further payment of £144.46p which she failed to acknowledge.  This later payment represented the payment due for August and September reduced by a correction of the previous over-payment and, as allowed by the contract of employment, by the liquidated damages (also as provided (or by the contract) due from the Applicant in respect of her unauthorised absence during what should have been her period of notice.”

	The Industrial Tribunal turned its attention to the unauthorised deduction from wages and found as a fact that the Applicant’s wages was £50 per week gross, so that during the nine weeks that she was employed by the Respondents she should have received £450 gross.  In fact she received £241.13 which I take to be the total of the amount which she says she had received in June, together with the amount of £144.46 which the employers paid to her as stated in their IT3.  The last payment of wages was paid into her bank account by the second Respondent on 16 December, but did not come to her knowledge until several days after that, and therefore the Tribunal concluded, that there was a shortfall of £208.87.  They then concluded that during her period of employment, the Applicant never received an itemised payslip, she did not know now much of any tax or national insurance was being deducted from her wages, there was no evidence that she was liable to tax.  She certainly should not have been on the wage of £50 per week which she was receiving, and apart from “Mr Mackenzie’s oral evidence which we find unreliable on this point there is no evidence that tax was in fact deducted from her wages.  She still has not received her P45 which Mr Mackenzie accepts is an omission on the second Respondent's part.”

	They then turned to the question of deductions for her unauthorised absence and they concluded that the clauses in the contract which provided that she should make payment to her employers in the event that she left her employment without giving proper notice were unlawful, in that they were penal and therefore could not be enforced against her.

	If they had not reached that conclusion, they would have been required to have tried the issue raised by the Applicant in her IT1 that she left because of the behaviour of her employers towards her during the course of her employment.  If she was constructively dismissed as she appears to allege then plainly the clauses in the contract requiring her to pay liquidated damages would not have been enforceable, but because of the Tribunal’s conclusion on the issue as to whether this was penal, they did not need to consider that alternative point.

	In support of his appeal, what Mr Mackenzie says to us is that the learned Chairman anxious properly to look after the interests of a young unrepresented Applicant, overstepped the mark so that effectively the hearing was unfair and prejudicial to the interest of the Respondent company, and essentially what he complains about, is that the Industrial Tribunal appeared to have ignored the fact that the claimant, herself was asserting that tax was to be deducted from her wages.  We have been told by Mr Mackenzie that although deducting tax on a wage of £50 per week might appear improbable, that stemmed from the fact that the Applicant herself had another job and may have been applying her tax allowances so as to reduce her tax liabilities in relation to that other employment.

	At all events, he says that he went prepared to deal with the case that he thought he had to meet at the Industrial Tribunal, which was that she was entitled to be paid net of tax and had not come prepared to prove to the Industrial Tribunal that tax was to be deducted. Accordingly, he did not have with him documents such as his payroll figures, or documents evidencing what he tells us was confirmation from the Inland Revenue that the way that the tax deductions were being made was correct. Thus he says, he was taken by surprise and it was unfair of the Industrial Tribunal to make an award in the Applicant’s favour on a basis which she did not appear to be relying on in her IT1, which plainly had been prepared on her behalf.

	As to the question of penalty, he respectively submitted that the learned Chairman had erred in law in concluding that the liquidated damages were penal. He submitted that there was no reference in the decision to the test which has to be applied, as to whether this was a genuine pre-estimate of damages which would flow from the alleged breach of contract, and the Tribunal should not of its own motion have taken the penalty point.

	It is obvious from this recitation of the facts that the amount of money involved in this particular dispute is very small, but it is obviously a matter which troubles the employer and no doubt troubles the employee as well. We consider it to be arguable that the way in which the Tribunal have dealt with the liability of tax may be an error of law, having regard to the pleaded case of the Applicant, and subject to a condition which I will deal with in due course, we would be prepared to allow that point to go ahead for a full hearing. However, it appears to us not to be sensibly argued that the Industrial Tribunal has erred in law in relation to the liquidated damages point.

	The question of whether a contractual provision is penal, is a question which the Tribunal itself will deal with if the parties themselves do not address that issue. The reason for that stems from the nature of the Court’s attitude to penalty clauses, they are offensive to the concept of public policy. It is the responsibility of the Court of its own motion, to consider whether such a provision is unlawfully penal.

	It is true that the learned Chairman has not referred specifically to authority in arriving at his conclusion that the liquidated damages clause was indeed penal, but he would have had in mind the general principle which I have shortly outlined (and which Mr Mackenzie urged on us today) since that is part of the basic knowledge of every legally qualified chairperson. He was not obliged to recite the test, we think. He was entitled to arrive at his conclusion as he did.

	Furthermore, it is a clause which in the experience of this Court is most unusual. It is undesirable, in our judgment, in general terms, that an employer should seek to have a liquidated damages clause in a contract of employment, particularly when dealing with youngsters who are employed by the organisation. The truth of the matter is that whether she caused any damage to the employers by the way she left, was obviously going to depend on all the circumstances. It would be a question in each case as to whether any attempt had been made to recruit a replacement which attempt would not have been undertaken had due notice been given.

	The fact that there was a fixed penalty clause, calculated in the way that it was is a good indication as it seems to us that this was not a genuine pre-estimate of the damage which would be sustained, since it was an invariable amount which became payable regardless of the circumstances of the leaving and the recruitment of a replacement.

	Therefore we are of the view that the attack on the Tribunal’s decision in relation to the liquidated damages deductions is not an arguable point of law fit for hearing before another panel of the EAT.

	That being so, it seems to us, on the figures as we understand them to have been presented by Mr Mackenzie, that a sum of at least £105 is now due and owing to the Applicant, the Respondent to this appeal. The figure is £105.36. Whether the Respondent is correct in his contention that the Tribunal have erred in law in relation to the tax matter, is a separate matter and will amount to a figure of £103.51. Accordingly, the appeal will only be concerned with the smaller amount of money, that is £103.51.

	The condition to which I have referred is as follows, I will discuss with Mr Mackenzie in a moment the precise time, but broadly speaking, if the appeal is to go ahead, it is a pre-condition that Mr Mackenzie provided the Employment Appeal Tribunal within 14 days an affidavit dealing with the tax position of the Applicant and the way in which her wages were subjected to tax and confirmation from the revenue, which we were told exists, that the way tax was deducted from her wages was done in accordance with the tax system. This will give Mr Mackenzie the opportunity to deal with the matters which he says took him by surprise at the Industrial Tribunal.

	The second condition is that he makes payment to the Applicant of the sum of £105.36 within 14 days from today. If those two conditions are fulfilled, then the appeal will go ahead for a full hearing; if not, then the appeal will be dismissed. It seems to us that the interest of justice require a quick resolution to the dispute between the parties and that the justice of the case requires the imposition of these two conditions which will, we hope, when fulfilled, probably bring this dispute to an amicable resolution without the need for a further hearing in the Employment Appeal Tribunal.