Ms S Lewis and others v Secretary of State for Business and Trade: 2306307/2023 and others
JUDGMENT
[1]The claims under s.188 Employment Rights Act 1996, that the Secretary of State has made a payment which is less than the amount which should have been paid under s.182, are well founded and succeed for the following Claimants:a. Ms Sarah Lewis:b. Ms. Michelle Wilsonc. Ms. Yvonne Yeomand. Ms. Siobhan Edwardse. Ms. Jacquelyn Crippsf. Ms. Judy Rabbittsg. Ms. Hazel Schofieldh. Ms. Amy Goldsmithi. Ms. Bonita Brazierj. Ms. Donna Haughton[2]The Respondent ought to make the following payments under s.182 of the Employment Rights Act 1996 (credit has been given for payments already made by the Respondent):a. Ms Sarah Lewis: £238.99b. Ms. Michelle Wilson: £59.76c. Ms. Yvonne Yeoman: £257.32d. Ms. Siobhan Edwards: £239.02e. Ms. Jacquelyn Cripps: £23.06f. Ms. Judy Rabbitts: £40.25g. Ms. Hazel Schofield: £190.70h. Ms. Amy Goldsmith: £101.57i. Ms. Bonita Brazier: £356.99j. Ms. Donna Haughton: £152.37[3]The claim under s.188 Employment Rights Act 1996 brought by Ms Humphreys is not well founded and is dismissed.REASONS
[1]These claims relate to payments from the Secretary of State for Business and Trade (‘the Secretary of State’) following the insolvency of the Claimant’s former employer. Sections 182 to 187 ERA 1996 provide that the Secretary of State shall pay to employees out of the National Insurance Fund amounts in respect of certain debts owed to the employee by the employer.[2]The Claimants have each made claims to the Redundancy Payments Service and received a payment pursuant to Part XII ERA 1996. They bring claims under s.188 ERA 1996 as they assert that the amount paid is less than the amount which should have been paid.[3]The Claimants disputed the amounts paid in respect of notice pay and holiday pay. The dispute relating to holiday pay was withdrawn during this hearing and so I make no declaration or award in that respect.[4]For the dispute regarding notice pay there are a total of twelve Claimants. They allege that the payments made by the Secretary of State are wrong in three respects: i. The Secretary of State calculated earnings from new employment incorrectly (for Claimants Goldsmith, Haughton and Humphreys) ii. The Secretary of State incorrectly made deductions for ‘benefits you could have claimed during your notice period’ (for all Claimants bar Goldsmith, Haughton and Humphreys) iii. The Secretary of State incorrectly deducted national insurance (for Claimants Yeoman and Barber)[5]The issues for the tribunal can be simply stated: i. What is the amount that the Secretary of State ought to have paid by way of notice pay under s.182 ERA 1996 for each Claimant? ii. Has the Secretary of State paid less than that amount? Documents and evidence heard[6]I had a witness statement from Ms. Sarah Lewis and heard oral evidence from her. I was provided with a bundle containing 451 pages.[7]There was no attendance on behalf of the Secretary of State; they requested that the response to the ET1 stand as written submissions and I took that document into consideration when making my decision. Fact findings[8]These Claimants brought a claim against their former employer, Elliott House Limited, which were determined by EJ Dyal (I note in passing that the judgment spells the employer’s name incorrectly). A Rule 21 Judgment on liability was made on 9 September 2022 (corrected on 24 March 2023, although the correction is incorrectly dated 24 April 2023).[9]Following a hearing on 23-24 April 2023 EJ Dyal gave judgment on remedy against Elliott House Ltd. Unbeknown to the Judge and the Claimants, Elliott House had had a winding up petition presented on 1 December 2022 and an order was made winding up Elliott House on 15 March 2023.[10]The effect of the 15 March 2023 order was that an automatic stay was imposed on the proceedings under s.130(2) Insolvency Act 1986. The stay could not be lifted without an order of the court which made the winding up order. The consequence of this is that the remedy hearing on 23-24 April, and the judgment which followed the remedy hearing, are a nullity.[11]Notwithstanding that, there are certain facts contained in the remedy judgment which are not in dispute between the parties to this case, which are supported by the evidence I have been presented with, and which I recite below as factual findings I have made on the balance of probabilities. The Claimants were employed by Elliott House Limited, which ran a care home in the Herne Bay area. From around April 2020 onwards, Elliott House was struggling financially, or for other reasons failing to invest enough money into the running of the home for it to operate properly. That resulted in the home closing its doors on 19 November 2021.[12]Ms. Cripps (nee Gray) and Ms. Edwards were dismissed on 19 November 2021, when they were given a letter of dismissal citing redundancy as the reason. All other claimants were dismissed on 26 November 2021. This is based on the fact that the workplace had closed on 19 November 2021, nothing had been said about alternative work or what would happen to the Claimants’ employment, and this conduct solidified into unequivocal communication of dismissal on 26 November 2021 which was a week after the home had closed.[13]I find that there was a period of significant uncertainty at the time that the Claimants’ employment was terminated, such that it was not clear to them that their employment had ended. They were not told that their employment had finished, and their former employer had shortly before assured them that jobs were safe and new investment was coming in.[14]Following the home closing on 19 November 2021 the Claimants did not claim unemployment benefit (namely Job Seekers Allowance). In my judgment there were good reasons not to have claimed unemployment benefit at that time. Ms. Rabbitts was on maternity leave and not available for work. Ms. Cripps obtained a new job within her notice period of two weeks. For the remainder of the Claimants bar Ms. Edwards there was significant confusion as to whether and when their employment had terminated, along with a lack of documentation confirming the same, such that the failure to claim benefits was not unreasonable. Further, a number of the Claimants sought and obtained alternative employment within a relatively short period of time such that the failure to claim benefits was not unreasonable.[15]Between June and September 2023 the Claimants each made applications to the Redundancy Payments Service for payment of, amongst other things, notice pay which had not been paid by Elliott House.[16]They each received decisions from the Redundancy Payments Service. For some Claimants there was an error on the length of the notice period, owing to a TUPE transfer which had taken place during their employment and some misunderstanding as to the length of their continuous service. As such, three Claimants (Lewis, Yeoman, Haughton) had a second decision from the Redundancy Payments Service, with a revised notice period.[17]The decisions from the Redundancy Payments Service were dated between 18 August 2023 and 5 September 2023. They break down the payment, setting out the gross entitlement in respect of notice pay and then setting out a series of potential deductions on each decision letter. The potential deductions are: Money earned during notice period Benefits paid during notice period Benefits the individual could have claimed during the notice period Any gross amount previously paid[18]Where any of the potential deductions did not apply to a Claimant, they were still listed in the decision letter, but with a figure of nil next to the relevant potential deduction.[19]The amount was then subtotalled and followed by deductions for national insurance and tax before giving an amount of compensation to be paid over.[20]Having reviewed the decision letters for each of these Claimants and the factual circumstances following the termination of their employment, it appears to me that Secretary of State operated a policy of deducting an amount for ‘benefits you could have claimed during your notice period’ for any Claimant who was unemployed for more than seven days and who did not claim Jobseekers Allowance. That finding is largely consistent with the response entered by the Secretary of State which states that “a deduction in respect of notional benefit is made when the Claimant is entitled to claim unemployment benefits during the statutory notice period but fails to do so without good reason”. The response says that is consistent with the EAT case of Jobling, as, in the view of the Secretary of State, the Claimants are deliberately choosing not to draw a payment that is readily available.[21]What the Secretary of State has not explained, in the response or otherwise, is why it is said that the Claimants in this case have failed to claim the benefit without good reason. It appears to me that there has been no, or no adequate, investigation into the circumstances of the individual Claimants as to their reasons for not claiming benefits during the notice period. In reaching that finding I have relied on the examples of Ms. Rabbitts, who was on maternity leave at the time that notice was due to be paid. She explained in her application to the Secretary of State that she was on maternity leave and did not believe she was entitled to jobseekers allowance during the notice period. In my judgment that is a good reason not to have claimed unemployment benefits. Notwithstanding the Secretary of State being aware of these circumstances, Ms.Rabbitts had a deduction made for benefits she could have claimed during her notice period.[22]Further, Ms. Lewis explained concerns with the benefit deductions in an email dated 15 August 2023. The email set out that in her case, and the case of the other Claimants, there was significant confusion as to whether they had been dismissed and on what date they had been dismissed. The letter also stated that the Claimants had not known the date of dismissal until the hearing in March 2023. The email resulted in no change to the Secretary of State’s approach to making deductions for benefits which had not been claimed during the notice period. The fact that there was no change supports my conclusion that the Secretary of State operated a blanked policy of making deductions for these Claimants, without proper consideration of whether there was a good reason for them failing to claim unemployment benefits during their notice periods.[23]The Claimants lodged an ET1 on 17 November 2023 in relation to the deductions for notice pay.[24]As I state above, the challenges are threefold. The first is in relation to calculations from new employment. In this respect I make the following findings.[25]In the hearing it was explained to me that the earnings during the notice period were calculated as follows. The Claimants’ income for the pay periods which covered the notice period were added up. Where this included a period which was longer than the notice period (because, for example, the Claimant was paid monthly but the notice period expired partway through a month) then the income was apportioned according to the number of days in the pay period, and the number of those days for which the Claimant was entitled to notice from Elliot House.[26]By way of worked example, Ms. Yeoman had payslips from her new role which were for December 2021 and January 2022. She allowed for the full income for December 2021, and 21/31 of the income for January 2022, on the basis that the payslip covered 31 days and she was in her notice period for 21 of them.[27]I find that the earnings in new employment for the Claimants Yeoman, Goldsmith and Haughton were as set out in the schedules attached to the ET1. I make that finding after considering the wage slips provided for Goldsmith and Yeoman, the basis on which Yeoman, Goldsmith and Haughton have calculated their earnings as explained to me at this hearing, the Schedules of Loss provided in the bundle, the applications to the RPS, and in the absence of any explanation from the Secretary of State as to how he calculated the figures for earnings in new employment.[28]For Humphreys, during the course of submissions the Claimant’s representative accepted that the figures in the Secretary of State’s decision were correct. An amended schedule for Humphreys was presented during the hearing claiming no additional payment. I find that the earnings for Humphreys were as set out in the Secretary of State’s decision based on the evidence presented to me.The Law
[29]Part XII of the Employment Rights Act 1996 deals with insolvency of employers.[30]Section 182 provides that the Secretary of State shall pay out of the National Insurance Fund the amount which, in the opinion of the Secretary of State, the employee is entitled to receive subject to certain qualifying conditions.[31]The qualifying conditions are that: i) The employee has made an application to the Secretary of State in writing (s.182) ii) The employer is insolvent (ss.182 and 183) iii) The employee’s employment has terminated (s.182) iv) The debt is one to which Part XII applies (ss.184 and 185). Notice pay is included at s.184(1)(b).[32]Section 188 provides that an employee who has applied to the Secretary of State under s.182 may present a complaint to the Employment Tribunal that the payment made is less than the amount which should have been paid.[33]As to claims for notice pay, the liability of the employer, and that of the National Insurance Fund, is for unliquidated damages subject to the duty to mitigate (per Westwood v Secretary of State for Employment [1985] AC 20, [1985] ICR 209)[34]The duty to mitigate involves taking into account sums which the employee has actually recovered and also any sum which would have been recovered if reasonable steps to mitigate had been taken (per Secretary of State for Employment v Stewart [1996] IRLR 334).[35]There was a dispute as to the extent of the duty to mitigate and whether a failure to claim benefits (including unemployment benefits) could ever be a failure to comply with the duty to mitigate. I deal with that in my conclusions below. Analysis and Conclusion Deductions for earnings[36]As set out in the factual findings above, I find that the Secretary of State incorrectly calculated the earnings from new employment for Yeoman, Goldsmith and Haughton. The sums which ought to have been paid are set out in a table at the end of this judgment. Deductions for benefits which could have been claimed but which were not claimed[37]The Claimants accepted the following legal principles: i) A claim for wrongful dismissal (notice pay) is a claim in contract for unliquidated damages. It is subject to the duty to mitigate (per Westwood) ii) Sums actually received in mitigation, by way of new income, should be set off from the damages received iii) The Respondent bears the burden of proving that the Claimants have failed to take reasonable steps to mitigate their losses. The standard of proof is the balance of probabilities.[38]To the extent that it is necessary, I find that those principles are correctly stated.[39]The Claimant sought to advance their argument relating to the notional benefits deduction on the following three bases:a. Firstly, they criticise what appears to be a blanket policy of the SOS to make a deduction for notional benefits for all claimants who were out of work for more than 7 days.b. Secondly they argue that the duty to mitigate does not extend to a duty to claim available benefits, and that the case of Secretary of State for Employment v Stewart [1996] IRLR 334 is either distinguishable on its facts or was wrongly decided.c. Thirdly they argue that if the duty to mitigate includes taking reasonable steps to claim available benefits, then on the facts of this case the Respondent has not proved that the Claimants have failed to reasonably mitigate their losses.[40]I shall deal with each of these points in turn. i) Blanket policy[41]As set out in the factual findings above, I have found that the Secretary of State applied a blanket policy of making a deduction for any Claimant who was unemployed for more than seven days without claiming unemployment benefits, without considering their individual circumstances. I have given the example of Rabbitts. During the hearing I also had evidence from Lewis as to why applying for unemployment benefits may not have put her in any better financial position (as set out in her witness statement).[42]In my judgment, the application of a blanket policy has resulted in incorrect payments to the Claimants in this case. I reach that conclusion not because I conclude the policy itself is wrong (although I believe it is), but because for the reasons set out below the failure to claim unemployment benefits was not a failure to reasonably mitigate losses.[43]In my view, if the blanket policy is applied in other cases then it is likely to result in incorrect payments to other individuals, as it is unlikely to accurately reflect the duty to mitigate (which is about whether individuals have failed to take reasonable steps, which necessitates consideration of the facts in each individual case. The blanket policy does not appear to allow for this). Further, in light of what is said at paragraphs 7-9 of the EAT case of Stewart, I have doubts as to whether failure to claim unemployment benefits would ever be considered by a tribunal to be an unreasonable failure to mitigate.[44]Having said the above, I remind myself that my role is not to pass judgment on any policy which the Secretary of State applies. My role is to determine whether the payments to these individual Claimants is correct. As I say above, the application of the policy in this case has resulted in incorrect payments to these Claimants; the reason is that I have found that they did not unreasonably fail to mitigate their losses for the reasons set out below. ii) Whether the duty to mitigate can ever extend to a duty to claim available benefits[45]The Claimants submitted that the decision of the EAT in Stewart was wrong and/or could be distinguished on the following grounds: i) no enquiry made of Cs in circumstances where LoE claim as to whether C could have, but failed to, claim benefits (in terms of looking at whether that was unreasonable failure to mitigate). ii) Only one party made representations in the proceedings before the EAT. iii) The decision of the EAT effectively endorses unlawfulness, as it is based on the fact that the benefits office would go against the statutory position that individuals cannot claim unemployment benefits during their notice period.[46]Whilst I was content to hear the above submissions, in my view the position of the EAT is clear. Regardless of whether I think the decision in Stewart is right or wrong I am bound by it unless or until the EAT or a higher Court departs from it. It clearly states that mitigation may include taking steps to obtain unemployment benefit. What is reasonable will depend on the facts of the individual case. iii) Respondent has not proved that Claimants unreasonably failed to mitigate their losses in this case[47]I find that the Secretary of State has not proved that the Claimants’ failure to claim unemployment benefit amounted to an unreasonable failure to mitigate their losses during their notice period.[48]I have borne in mind that it is the Respondent’s burden to prove that the Claimants unreasonably failed to take a step, in this case seeking unemployment benefits. I find that the Secretary of State has not met that burden as: i) For the majority of employees (all bar Cripps and Edwards) it was unclear whether they had been dismissed or not. This was against the backdrop of being reassured shortly before the care home closed that their positions were secure, and that the position of the company was secure. It took those employees many months to clarify whether their employment had terminated, and the date of termination. ii) It was at best unclear to me whether the Claimants’ losses would have been reduced if they had claimed Jobseekers Allowance, or other benefits. The burden is on the Respondent to prove that the Claimants’ losses would have reduced had they claimed benefits. The Respondent provided no evidence in that respect. It seems clear to me that some of the Claimants would clearly not have been better off by claiming Jobseekers Allowance; in this regard I am thinking of Ms. Rabbitts, who was on maternity leave and so not actively seeking work, which is a requirement of Jobseekers Allowance. iii) As set out in Stewart, if an employee thought, either from his own understanding of the working of the benefits system or on any advice that he might have received in relation to the relevant Regulations, that a claim for unemployment benefit would not be successful, it seems it would be very hard to say that his view was unreasonable, or, consequently, that any failure to apply for benefit was unreasonable. The Respondent has not provided any information or evidence to suggest that unemployment benefit is payable during a notice period, or that the position as to availability of benefits during a notice period has changed since Stewart. iv) The job market in the Claimants’ sector of work buoyant and they could all reasonably have expected to obtain new employment within a relatively short period of time. Most did so. In those circumstances, not claiming unemployment benefit was not unreasonable.[49]For those reasons I find that the Secretary of State should not have made a deduction for notional benefits for any of the Claimants. The effect of that on the payments to each Claimant is set out in a table at the end of this judgment. Deductions in respect of national insurance[50]The Secretary of State made deductions for National Insurance for a number of Claimants, including Yeoman and Barber. The deductions are challenged by Yeoman and Barber on the basis that the sum to be paid to them did not exceed the weekly threshold for National Insurance at the time (which was £242 per week).[51]The Secretary of State seeks to explain the position in the response, which stand as written submissions, at paragraph 10-15. It appears from the response that the Secretary of State agrees that the relevant weekly threshold is £242 per week. On considering the way in which National Insurance has been deducted for other Claimants, and on considering the way that the calculations are set out by the Secretary of State, it appears that the threshold has been applied to the subtotal of the amount to be paid (i.e. the notice pay, less deductions for earnings in new employment and any failure to mitigate). For Yeoman and Barber that subtotal was below the threshold at which National Insurance would begin to be due once one divides the amount they were to receive by the length of their notice period in weeks.[52]On that basis I conclude that deductions for National Insurance should not have been made for Yeoman and Barber. The effect of that on the payments to each Claimant is set out in a table at the end of this judgment. Table to show calculations of payments due to each Claimant Ms. Sarah Lewis – Claim 2306308/2023 Notice pay (gross) £1,210.35 Less National Insurance £0.04 Less tax £242.07 Net sum due £968.24 Amount paid by Secretary -£729.15 Amount to be paid £238.99 Ms. Michelle Wilson – claim 2306309/2023 Notice pay (gross) £331.68 Less tax -£66.34 Net sum due £265.34 Amount paid by Secretary -£205.58 Amount to be paid £59.76 Ms. Yvonne Yeoman – claim 2306310/2023 Notice pay (gross) £2,470.96 Less sums earned in -£1,449.39 Less tax -£204.31 Net sum due £817.26 Amount paid by Secretary -£559.94 Amount to be paid £257.32 Ms. Siobhan Edwards – claim 2306310/2023 Notice pay (gross) £738.85 Less tax -£147.77 Net sum due £591.08 Amount paid by Secretary -£352.06 Amount to be paid £239.02 Ms. Jacquelyn Cripps – claim 2306312/2023 Notice pay (gross) £716.58 Less sums earned in -£166.28 Less National Insurance -£7.96 Less tax -£110.06 Net sum due £432.28 Amount paid by Secretary -£409.22 Amount to be paid £23.06 Ms. Judy Rabbitts – claim 2306313/2023 Notice pay (gross) £641.52 Less National Insurance -£18.90 Less tax -£128.30 Net sum due £494.31 Amount paid by Secretary -£454.06 Amount to be paid £40.25 Ms. Louise Barber – claim 2306314/2023 Notice pay (gross) £4,737 Less sums earned in -£2,249.40 Less tax -£497.52 Net sum due £1,990.08 Amount paid by Secretary -£1,799.38 Amount to be paid £190.70 Ms. Hazel Schofield – claim 2306315/2023 Notice pay (gross) £978.21 Less National Insurance -£30.27 Less tax -£195.64 Net sum due £752.30 Amount paid by Secretary -£650.73 Amount to be paid £101.57 Ms. Amy Goldsmith – claim 2306316/2023 Notice pay (gross) £861 Less sums earned in -£255.55 Less National Insurance -£14.57 Less tax -£121.09 Net sum due £469.79 Amount paid by Secretary -£112.80 Amount to be paid £356.99 Ms. Bonita Brazier – claim 2306317/2023 Notice pay (gross) £1528.88 Less National Insurance -£67.31 Less tax -£305.78 Net sum due £1,155.80 Amount paid by Secretary -£1003.43 Amount to be paid £152.37 Ms. Donna Haughton – claim 2306318/2023 Notice pay (gross) £1,133.93 Less sums earned in -£370.50 Less tax -£152.69 Sum due £610.74 Amount paid by Secretary -£352.98 Amount to be paid £257.76 Ms Amanda Humphreys – claim 2306319/2023 Notice pay (gross) £432.99 Less sums earned in -£257.14 Less tax -£35.17 Sum due £140.68 Amount paid by Secretary -£140.68 Amount to be paid £nil Employment Judge Curtis Date: 9 January 2025 Date: 17 January 2025 Multiple: 2300564 - Secretary of State for Business and Trade Case Number Claimant Respondent 2306307/2023 Ms Sarah Lewis Secretary of State for Business and Trade 42 ET Section Minster Drive PO Box 16684 Herne Bay Birmingham CT6 8UL B2 2EF 2306308/2023 Ms Sarah Lewis Secretary of State for Business and Trade 42 Minster Drive PO Box 16684 Herne Bay The Insolvency Service Employment CT6 8UL Tribunal Section 2306309/2023 Ms Michelle Wilson Secretary of State for Business and Trade 78 Station Road PO Box 16684 Whitstable The Insolvency Service Employment CT5 1LF Tribunal Section 2306310/2023 Ms Yvonne Yeoman Secretary of State for Business and Trade 6 Shore Close Herne PO Box 16684 Bay The Insolvency Service Employment CT6 8FH Tribunal Section 2306311/2023 Ms Siobhan Edwards Secretary of State for Business and Trade 32 Sea Street PO Box 16684 Herne Bay The Insolvency Service Employment CT6 8SP Tribunal Section 2306312/2023 Ms Jacquelyn Cripps Secretary of State for Business and Trade 5 Bridges Close PO Box 16684 St Nicholas at Wade The Insolvency Service Employment Birchington Tribunal Section CT7 0PX Birmingham 2306313/2023 Ms Jody Rabbitts Secretary of State for Business and Trade 46 Mayfield Road PO Box 16684 Herne Bay The Insolvency Service Employment CT6 6EL Tribunal Section 2306314/2023 Ms Louise Barber Secretary of State for Business and Trade Flat 5 PO Box 16684 67 St Mildred's Road The Insolvency Service Employment Westgate on Sea CT8 Tribunal Section 8RL Birmingham 2306315/2023 Ms Hazel Schofield Secretary of State for Business and Trade 23 Gilchrist Avenue Greenhill PO Box 16684 Herne Bay The Insolvency Service Employment CT6 7SG Tribunal Section 2306316/2023 Ms Amy Goldsmith Secretary of State for Business and Trade 63a West Dumpton Lane PO Box 16684 Ramsgate The Insolvency Service Employment CT11 7DF Tribunal Section 2306317/2023 Ms Bonita Brazier Secretary of State for Business and Trade 183 Talmead Road PO Box 16684 Herne Bay The Insolvency Service Employment CT6 6FE Tribunal Section 2306318/2023 Ms Donna Haughton Secretary of State for Business and Trade 26 Priestfields PO Box 16684 Herne Bay The Insolvency Service Employment CT6 6RH Tribunal Section 2306319/2023 Ms Amanda Humphreys Secretary of State for Business and Trade 17 The Pines PO Box 16684 Broadstairs The Insolvency Service Employment C10 2NL Tribunal Section