Appeal No. EAT/1250/01

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

At the Tribunal
On 20 March 2002

Before
HIS HONOUR JUDGE PETER CLARK
MR J HOUGHAM CBE
MR P R A JACQUES CBE

MISS R S HILL	APPELLANT

HOWARD CHAPELL	RESPONDENT

Transcript of Proceedings

JUDGMENT

Revised 29/5/02

APPEARANCES

For the Appellant	NO APPEARANCE OR REPRESENTATION BY 
OR ON BEHALF OF THE APPELLANT	
For the Respondent	NO APPEARANCE OR REPRESENTATION BY 
OR ON BEHALF OF THE 
RESPONDENT	

JUDGE PETER CLARK:
1.	This appeal raises a point on the interaction between the former Wages Act provisions, now contained in Part II of the Employment Rights Act 1996 (ERA) and the Working Time Regulations 1998 (the Regulations).

Background
2.	The history of the matter may be shortly stated.  The Appellant, Miss Hill, commenced employment with the Respondent, Mr Chapell, trading as Pride in IT, on 17 July 2000.  Her salary was £1,500 per month gross.  She resigned from the employment on 19 January 2001 because her December salary had not been paid.  On 9 February 2001 she commenced these proceedings in the Sheffield Employment Tribunal, complaining of unauthorised deductions from wages and breach of contract.  The Respondent resisted the claim and entered a counter-claim.

3.	The matter came before a Chairman Miss McWatt, sitting alone on 16 August 2001.  By a decision with extended reasons promulgated on 31 August (the original decision) the chairman found that the Respondent had failed to pay the Appellant’s wages for December and January and awarded the net sum of £1,296.73 for that period “calculated on the basis of 5 days overpaid holiday.”  The Respondent was to be liable for paying tax and National Insurance contributions on the gross pay entitlement.  An expenses claim by the Appellant was agreed between the parties.  The counter-claim was dismissed.

4.	Following promulgation of the decision the Appellant’s representative, Mr O’Neill of the Bassetlaw Citizens Advice Bureau, applied to the Chairman by letter dated 10 September for a review of the original decision.  It had been common ground at the hearing that the Appellant had been statutorily entitled to 20 days paid holiday per annum [regulation 13(1)]; she had been employed for 6 months; she had in fact taken 15 days paid holiday.  Pro rata she was entitled to 10 days paid leave.  The chairman gave credit to the Respondent for the extra 5 days paid holiday at the net rate, £235.78.

5.	In the review application it is said that in her oral decision the Chairman had indicated that the reduction in the wages claim for December and January was authorised under Part II ERA as an overpayment of wages (see section 14(1)(a)).

6.	Mr O’Neill complained that he had not been given the opportunity to address the Chairm-an on this aspect of the case.  Had he done so, he would have submitted that the reduction was not authorised on the grounds:

“(1) that the employer had granted Miss Hill’s request for holidays and was therefore required by the Working Time Regulations to pay her for them (she had taken 15 days’ holiday out of the statutory annual allowance of 20 days during the course of six months’ employment), (2) that what had occurred was payment, and not overpayment , and (3) that, in any event, no relevant agreement authorising recovery existed as specified in Working Time Regulation 14(4), namely “a relevant agreement may provide that, where the proportion of leave taken by a worker exceeds the proportion of the leave year that has expired, he shall compensate his employer, whether by a payment, by undertaking additional work or otherwise.”

The chairman considered that review application and rejected it under Rule 13(5) of the Employment Tribunal Rules of Procedure 2001 on the grounds that it had no reasonable prospect of success.  She gave her reasons for that conclusion in a review decision dated 28 September 2001, as follows:

“The payment to the applicant of 5 days pay in excess of holiday entitlement is an overpayment of wages which is an excepted deduction provided for in Section 14 of the Employment Rights Act 1996 and further is a payment for which the respondent is entitled to be reimbursed under common law principles.

The representation that because the respondent had granted the request for holidays meant that the applicant was entitled to payment is not accepted.  It is common industrial practice to grant holiday requests in anticipation that the employee will complete the requisite period of continuous service vis a vi holiday entitlement.

Further, the representation vis a vi the Working time Regulations, 14(4), is not accepted.

In this instance there was no relevant agreement in place.  Essentially these Regulations are concerned with health and safety issues evidenced by the provision for “undertaking additional work or otherwise” in lieu of reimbursing an overpayment.  The Chairman takes the view that this cannot override the employer’s common law right to be reimbursed and statutory right to make a deduction in respect of this overpayment.”

The Appeal
7.	Against the original decision the Appellant appealed by a Notice dated 8 October 2001.  The Respondent has taken no part in these proceedings.  By order of the Registrar dated 14 February 2002 he has been debarred from defending the appeal.  This appeal was listed at short notice.  The Appellants representative, Mr O’Neill has been unable to attend today but has submitted by facsimile a detailed skeleton argument together with certain extracts from an IDS handbook, which we have considered.  Having considered those submissions we have concluded that Mr O’Neill is correct and that the Chairman erred in law.  Our reasons are as follows:

	(1)	the Appellant was entitled to 20 days holiday per annum (Regulation 13(1)).  She took, by agreement with the Respondent, 15 days holiday during the 6 month period the commencement and termination of her employment.  She was paid for that leave in accordance with regulation 16(1).

	(2)	where a worker’s employment is terminated during the course of the leave year, as here, and at the date of termination she has taken more leave proportionately than she is entitled to in that leave year (regulation 14(1)), the position is governed by regulation 14(4), which provides:

“a relevant agreement may provide that, where the proportion of leave taken by the worker exceeds the proportion of the leave year which has expired, he shall compensate his employer, whether by payment by undertaking additional work or otherwise.”

	(3)	a “relevant agreement” is defined in regulation 2(1) as follows:

“relevant agreement,” in relation to a worker, means a workforce agreement which applies to him, any provision of a collective agreement …or any other agreement in writing which is legally enforceable as between the worker and his employer.”

It is common ground that no relevant agreement was entered into between the parties in this case.
	(4)	Section 13 ERA provides, so far as is material:

	“(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.”
	(3)	Where the total amount of wages paid on any occasion by an employer to a worker employed by him is less than the total amount of the wages properly payable by him to the worker on that occasion (after deductions), the amount of the deficiency shall be treated for the purposes of this Part as a deduction made by the employer from the worker’s wages on that occasion.”

Section 14 provides:

“(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”

	(5)	In our judgment the position is as follows.  The Appellant was entitled to and did receive wages for the 15 days holiday taken during her employment.  Credit for the extra 5 days holiday pay will only arise where there is express provision made in a relevant agreement.  In those circumstances an exception is made under section 13(1) ERA; the deduction of excess holiday pay from his/her final wage entitlement is authorised by a relevant provision of the workers contract and/or he has previously signified in writing his agreement or consent (by the relevant agreement) to the making of the deduction.  Section 14(1) ERA is immaterial whether or not there is a relevant agreement.  There is no “overpayment” of holiday pay.  The worker is entitled to paid holiday, up to 20 days per annum, under regulation 16(1).  It is only where there is a relevant agreement providing for credit to be given to the employer for excess holiday taken that regulation 14(4) permits the employer to recover the excess payment in accordance with section 13(1) ERA.

	(6)	We cannot accept that there is to be implied a term of the contract allowing for the deduction of excess holiday pay in circumstances where such an implied term is inconsistent with the statutory scheme of the regulations and Part II ERA.

	(7)	The result may seem inequitable.  Under regulation 14, a worker who has taken less than his proportionate entitlement to leave in the holiday year is entitled to pay in lieu of the “lost” holiday without more.  Regulation 14(2).  The employer cannot recover excess holiday pay absent a relevant agreement covering the position.  However this is nothing new; it is entirely consistent with the effect of section 13(1) ERA; see for example Potter v. Hunt Contracts Ltd [1992] ICR 337.

Conclusion
8.	It follows that we shall allow this appeal and increase the award made to the Appellant by £235, 38, being one weeks net pay.  When added to the Chairman’s award of £1,575.37 that makes a total net award in favour of the Appellant of £1,810.75, liability for tax and National Insurance on that sum remaining with the Respondent.