Vavavoom Hairdressing Ltd v The Commissioners for HM Revenue and Customs: 2401267/2017
JUDGMENT
[1]The appellant’s appeal succeeds in part, under s.19C(6)(b) of the National Minimum Wage Act 1998, and the notice of underpayment issued on 2 December 2016 in the form in which it was served is to be rectified.[2]The tribunal rectifies the notice of underpayment by providing that the pay reference period specified on page 3 of the notice at column (e) in respect of each worker is varied to read “01/08/2016 to 28/08/2016”.[3]The tribunal does not make any further rectification at this stage, but proposes also to rectify columns (f), (g) (i) and (j) , in respect of each worker referred to, with consequential rectification of the penalty charge due set out on pages 1 and 3 of the notice.[4]The parties are to consider agreement of the terms of any rectified notice, or other compromise of the appeal, but, in default, shall notify the tribunal in writing by 2 Ooctober 2017 as to whether any further hearing is required. If so, the parties shall state what is to be determined, and whether they wish to have a further oral hearing, call any further evidence,[5]If a further hearing is required, the tribunal shall further determine the terms of the rectified notice of underpayment.REASONS
Disposal.
[1]The respondent is HM Revenue and Customs, which has responsibility for enforcing the National Minimum Wage (“NMW”) legislation. It does so, among other ways, by issuing notices of underpayment to employers whom it alleges have contravened the NMW legislation, which have the effect of requiring the employer to pay , where appropriate, arrears of pay to the affected workers, and also to pay financial penalties, calculated by reference to the amount of the alleged deficiency in the amounts paid to the affected workers. Appeal against such notices lies to the employment tribunal. The relevant statutory framework is set out in the Annex to this judgment.[2]The Notice of Underpayment which is the subject of this appeal was issued on 2 December 2016 to the appellant, a company which conducts a hairdressing business at one salon, 11b Water Lane, Wilmslow . The Notice requires a penalty to be paid to HMRC of £1,843.20 This is calculated by reference to alleged underpayments of the NMW to two workers, Christina Colledge, and Elaine Jones in respect of the period from 8 August 2016 to 20 August 2016 of , respectively, £345.60 and £576.00 . That makes a total alleged underpayment of £921.60, and the penalty is calculated at 200% of that figure.[3]Paul Dawson, managing director of the appellant, who has appeared for it in this appeal, submitted a notice of appeal dated 21 December 2016. In box 5 of the appeal from he ticked boxes 1, 2 and 3, indicating that the appellant was contending that: the decision to serve the Notice was incorrect because no arrears were owed to any worker named in the Notice. the requirement imposed by the Notice to pay arrears to a specific worker was incorrect because: the amount specified in the Notice as due to the worker is incorrect no arrears were owed to the worker in respect of any reference period specified in the Notice the requirement imposed by the Notice to pay a penalty was incorrect because: the amount of the penalty has been incorrectly calculated.[4]Paul Dawson attached full grounds of appeal to the notice of appeal, running to some 6 pages, with attachments.[5]Other than to acknowledge the appeal, on 15 February 2017, and provide the tribunal with a copy of the Notice, the respondent did not respond to the appeal . There is no requirement that it should do so.[6]The appeal was heard at Manchester (originally it was to have been Liverpool) on 28 April 2017. Paul Dawson appeared for the appellant, gave evidence himself and adduced a witness statement from Janis Williams, the receptionist and salon manager, but she did not give live evidence. The respondent , represented by Mr Redpath of counsel, called Karen McAllister (nee Orr) , a Compliance Officer , to give evidence. There was a Bundle of documents. Judgment was reserved.[7]During deliberations, however, the Employment Judge sought further information from appellant as to what payments were actually made to the relevant workers in the August 2016 payroll, and in respect of what hours worked.[8]The appellant replied by letter of 11 July 2017, with attachments. Unfortunately the appellant did not confine itself to providing that information, but made quite lengthy further submissions, and attached further documents, which had not been included in the Bundle, and which, the Employment Judge understands, had not been previously disclosed to the respondent. They are: Attachment 1 This is a summary of payroll for all employees dated 7 September 2016 Attachment 2 Extract from the appellant’s bank statements for 9 September 2016 Attachment 3(i) Payslip for Christina Colledge – 9 September 2016 Attachment 3(ii) Pay calculation for Christina Colledge : 1 August to 27 August 2016 Attachment 4(i) Payslip for Elaine Jones – 9 September 2016 Attachment 4(ii) Pay calculation for Elaine Jones: 1 August to 27 August 2016 Attachments 5(i) and 5(ii) are receipts for online submissions Attachment 6[9]The respondent was invited to comment upon those, and did so by letter of 20 July 2017, in essence, objecting to the appellant advancing anything further. No specific comment was made upon the attachments, and the information contained therein. The appellant responded further by letter of 21 July 2017, apologising for being inexperienced in these matters, (which is accepted, and the appellant should not be concerned about this), and making the point that all the necessary information for the relevant pay reference periods had been supplied. The Employment Judge accordingly resumed his deliberations. In doing so, he has concluded that whilst there are arguably new matters that the appellant has sought to introduce at a late stage in the appeal, these are not directly relevant to the major issues of principle raised by the appeal, upon which the tribunal can, and will , give its ruling. The effect of that ruling can then be considered, and , if a further hearing is required, appropriate directions can be given. Preamble.[10]There is very little guidance in the legislation, or anywhere else as how an employment tribunal is to approach appeals of this nature. Unlike other appeals, such as those against Health and Safety Prohibition and Improvement Notices, there are no provisions in the 2013 employment tribunal rules of procedure which are specifically applicable to appeals against Notices of Underpayment, and one falls back on reg. 13 of the Employment Tribunals (Constitution and Rules of Procedure) Regulations 2013, which provides that Schedule 1 (which contains the 2013 rules of procedure) applies to “all proceedings before a Tribunal” , except where separate rules of procedure made under the provisions of any enactment apply. No such rules[11]That immediately throws up some issues, as those rules are primarily of application to claims made by employees or workers against their employers, and hence provide procedures for starting and responding to claims, preparation of documentary and witness evidence, and , ultimately for a final hearing, at which the rules as to the burden , and standard of proof , and all other procedural and legal issues have been long established , or are ascertainable from the primary legislation creating the rights that claimants before the tribunal are seeking to enforce.[12]Those provisions, however, sit somewhat uneasily with an appeal of this nature. They could, the tribunal supposes , have been adapted, and a preliminary hearing held, with some case management attempted , by analogy with the more usual tribunal claim processes, but this has not occurred. Fortunately, the parties have prepared along very similar lines to those utilised in the more usual tribunal claims, and have produced witness statements, and documents for use in thishearing.
[13]Probably the most glaring lacuna in the procedure is the absence of any requirement for the respondent to serve or file any form of response to the appeal. Again, fortunately Mr Redpath had prepared a Position Statement for use in this hearing, which helpfully sets out the respondent’s case.[14]The purpose of this preamble is to explain how this tribunal has approached its task, and why. Tribunals are primarily fact – finding bodies. Nothing in the legislation suggests that the tribunal should carry out some form of purely legal review of the Notice in question, and limit itself to a judicial review - like enquiry, where no facts can be challenged. The tribunal will consider precisely what its approach should be in due course, but given the express applicability of the tribunal’s own rules of procedure, and its primarily fact – finding role in all proceedings before it, the tribunal considers that finding the relevant facts is its initial and primary role.Findings of Fact.
[15]Having heard the evidence , and considered the documents, and the submissions of both parties, the tribunal finds the following relevant (for many aspects of the evidence are not relevant to the issues in the appeal, such as the complaint that the appellant has made about the role and conduct of the Compliance officer) facts:15.1 The appellant carries on a hairdressing business in Wilmslow. It employs some 5 people, most of them women. Paul Dawson is the Managing Director, and his partner Elsa Brennon is the Operations Director.15.2 In April 2016 Karen McAllister, as she now is, then Karen Orr, a National Minimum Wage Compliance Officer, opened a National Minimum Wage Review into the appellant. In the course of that review she interviewed Paul Dawson by[16]Those, then, are the salient facts. There was no real conflict on the evidence, which is largely well documented, though the tribunal has discovered that some information as to what Christina Colledge and Elaine Jones were actually paid in late August or early September is not actually in the Bundle. It has since been supplied as part of the attachments to the appellant’s letter of 11 July 2017. The submissions.[17]The parties made submissions. Those from the respondent were largely based upon Mr Redpath’s Position Statement, and he orally expanded upon them. He contended that the two weeks in hand arrangement did not satisfy reg.12(2)(b) of the regulations, there was no element of repaying a loan, it was simply a means of taking pay off the workers on account of future holiday entitlement. It did not fit within that regulation. He contended that the PRP of two weeks was the correct PRP, as this was severable form the normal four week pay period, and this was a period for which the pay was totally withheld.[18]In relation to issues as to the interplay between the NMW legislation, and the Working Time Regulations , there was none. They were separate pieces of legislation, and must be read that way.[19]For the appellant, Mr Dawson, not being a lawyer, firstly expressed how he had only during the hearing heard the respondent’s legal basis for its contentions that the NMW had not been paid in respect of the PRP. The two weeks in hand arrangement was to benefit employees, who could start work with potentially more holiday than they would accrue until they had been working for some time. In relation to reg.12(2)(b), and how it might apply, he explained that the reality was that the employees were being given an advance of their wages, in the sense of the wages[20]He referred to Mr Redpath’s Position Statement, and para. 23 where reference is made to holiday pay not being counted towards the NMW, under reg. 35. If this was so, the workers may have been overpaid.[21]His main contention was that the respondent had used the wrong PRP., though he contended that the correct PRP should be a three week period from 8 August 2016 to 27 August 2016. He pointed out that when the appellant was asked for information about all the workers (page 91 of the Bundle) , the request related only to a two week period. No mention was made of dates, or of what the PRP was said to be. He referred to reg.32, and how only hours when the workers were at work were to be counted. He had provided evidence of when the salon had actually been open.[22]It is also right to observe that in the appellant’s response to the tribunal dated 11 July 2017, in addition to reiterating and possibly expanding upon arguments that had been ventilated in the hearing, and in the evidence as to the practice of the “two weeks in hand” provision, and the correct PRP, the appellant has added a further additional factor in support of its argument that if any sum is found to be due, the amount by which the workers in question were underpaid the NMW is to be further reduced by the deduction of, not only the time that they received hairdressing services that they received, and were hence not working, but also the value of these services. Neither of these potential factors for reduction of the ultimate calculation of whether the workers had been underpaid the NMW, or , if so, by how much, had been referred to in argument, or, more importantly, the evidence, before the tribunal. The tribunal has determined, however, that it can decide some important issues of principle without making final findings upon this later material, and will proceed to do so.[23]Finally, to the extent that they may not have been mentioned , the tribunal has considered all the written points made by both parties in their documents, and each side’s submissions and arguments (plus any that could have been advanced by the unrepresented appellant) have been considered, as will be apparent from the ensuing discussion and findings.The law.
[24]The relevant statutory provisions are contained in the Annexe to this judgment. As indicated in the initial discussion above, there is no real guidance as to the approach that a tribunal should take when determining an appeal against a Notice of Underpayment. Given the wording of the grounds of appeal in ss.19C(4),(5) and (6) it must be the case that the tribunal is entitled, and indeed required, to determine for itself whether any sum was in fact due to a worker, on a particular specified day, or in respect of a particular reference period , or whether the amount of any penalty has been incorrectly calculated.[25]To clarify, whilst s.19C provides the right of appeal against a Notice in three specified circumstances, only two of them apply here. The appellant appeals, firstly, under s.19C(1)(a) against the decision to serve the Notice at all. S.19C(4) therefore applies, which provides that the sole ground for making such an appeal has to be that no such payment was actually due to any worker on a day specified in the Notice.[26]The appellant, however, does not, or rather cannot, appeal under s.19C(1)(b), as this only applies to any requirement in the Notice to pay any sum to a worker. The Notice under appeal in this instance did not impose any such requirement, as the amount stated to be due to worker was nil. The grounds of appeal applicable to an appeal on this basis, which are set out in s.19C(5), therefore, have no application.[27]The provisions of s.19C(1)(c), however, are engaged, as the Notice does impose a requirement to pay a financial penalty. The grounds for such an appeal contained in s.19C(6) therefore apply, but, of those, s.19C(6)(b) is the only relevant ground , as s.19C(6)(a) relates only to an appeal based on service of a Notice in breach of directions made by the Secretary of State, which is not relied upon here.[28]Thus, the enquiry for the tribunal in relation to an appeal under s.19C(1)(a) is whether, on a date specified in the Notice under appeal, any sum was actually due to any worker specified in the Notice, with reference to the relevant pay reference period. The enquiry for the tribunal in relation to an appeal under s.19C(1)(c) is whether the amount of the financial penalty has been incorrectly calculated.[29]Finally , different disposals follow from the different types of appeal. Under s.19C(7), if a tribunal allows an appeal under s.19C(1)(a) , i.e that the Notice should not have been served, it must rescind the Notice. Those are clear mandatory words. If, however a tribunal allows an appeal under s.19C(1)(c) , it must rectify the Notice, which then takes effect in rectified form. In other words, if the tribunal finds that the amount of the financial penalty imposed in the Notice was incorrect, but that some financial penalty was in fact due, it must (again, mandatory language) rectify the Notice , which then takes effect to impose the corrected financial penalty.[30]From all this it is clear that the tribunal must, for the purposes of either type of appeal , i.e s.19C(1)(a) or s.19C(1)(c), determine , in relation to the former, whether any sum was in fact due to any worker on the relevant day, and in relation to the latter, whether the amount of any financial penalty has been correctly calculated. This may often involve determination of the same issues for the purposes of each type of appeal, for the amount of the financial penalty is itself dependent upon what, if any, sum is alleged to have been due to the worker, but this may not always be the case. Findings. i)The s.19C(1)(a) appeal.[31]The first issue therefore is was any sum due under section 17 to any worker to whom the notice relates on the day specified under section 19(4)(a) of the Act in[32]The starting point has to be the Notice, and what it states. The Notice is at pages 1 to 3 of the Bundle , with the crucial details being set out on page 3. This is in tabular form. It sets out in boxes, lettered (a) to (j), the relevant information required by s.19(4) to be contained in a Notice of Underpayment, though it does not conveniently follow the lettering of that sub-section as there are 10 boxes on the Notice, but only 5 in the subsection. S.19 makes reference to amounts due to a worker under s.17, and to pay reference periods. It is therefore to s.17 that one must look in order to determine whether a worker has or has not been paid the NMW at any given time.[33]The respondent’s case is that the Notice correctly asserts that the two workers were not paid the NMW in relation to the relevant pay reference period. That period for both workers is stated in the Notice to be 8 August to 20 August 2016, and in each case the amount of the underpayment is the amount of pay that would have been payable at the NMW hourly rate of £7.20 for each worker, for the hours they worked. As they were actually paid nothing for this period of 13 days , the amount of the underpayment is the whole of the payment they should have received.[34]The appellant’s case is that no sums at all were payable to these workers because this was the first two weeks of their employment with the appellant, and the appellant applies a policy in the employment of these workers (as all their other workers) that they are not paid for the first two weeks’ work, but rather this pay is “banked” against future holiday entitlement. This enables workers who have only short service, and hence only limited accrual of holiday until their service builds up, to take extra holiday to which they would not be entitled much earlier in their service. This is put forward as some form of advance, falling within reg.12 of the 2015 Regulations, which disregards, for the purposes of determining whether the NMW has been paid, certain deductions made by an employer from payments otherwise due to a worker.[35]The respondent disputes this, and contends that this policy cannot have this effect, and cannot justify such total deductions so as to fall within the “permitted”, as it were, deductions under reg.12.[36]In support of this argument it is argued that this is not the type of repayment of an advance that is envisaged by the regulations at all. It is a withholding of monies earned for future release as holiday pay.[37]The appellant has, it is claimed, been advised that this is permissible, and that this policy and the payments made, or rather, withheld, under it do not have the effect of the workers not being paid the NMW.[38]The tribunal cannot agree. The respondent’s arguments are correct. A worker cannot contract out of the NMW (see s.49 of the Act). A major principle of the NMW legislation is that a worker who has provided labour should be paid at the rate of the[39]Whilst appreciating that the appellant may have relied upon advice, and acted at all times with transparency and good faith, for what it believed was the benefit of both its workers and the business, as a matter of law the policy of working two weeks in hand in return for advantageous holiday arrangements cannot fall within reg. 12 , or any other exception. This cannot be characterised as the type of arrangement covered by reg.12(2)(b) as being “deductions or payments on account of an advance under an agreement for a loan or an advance of wages”. There has been no “advance of wages”, quite the opposite. What there will be, of course, is payment of holiday pay if a worker seeks paid holiday to which they would not be entitled , when they will be paid for that holiday, from funds provided from the withholding of the initial two weeks of employment.[40]That is not an advance of wages by the employer. In fact it is the reverse. The employee is advancing to the employer a portion of her wages, out of which the employer then repays her by paying her for holiday that would otherwise be unpaid. The tribunal cannot see that this is the type of payment that falls under reg.12(2)(b), and if that were the only issue, it would find that the workers in question were not paid the NMW (at the time, for they have since been paid) for the first two weeks of their employments with the appellant.[41]Thus whilst there may be issues as to the correct pay reference period (to be discussed below) the tribunal cannot see how it can be the case that no sum was due to either worker on any of the relevant dates and in respect of the specified pay reference period. An appeal under s.19C(1)(a) can only succeed if there is no sum due, and any error in calculation of any such sum , even if established, does not entitle the appellant to succeed on this ground , unless no sum was actually due to a worker.[42]A further argument has been advanced (albeit, perhaps only in correspondence after the hearing, but the respondent has been afforded the opportunity to comment upon it) that payments made after the relevant pay reference period can and should be taken into account. The basis for this assertion is, however, somewhat dependent upon what the correct pay reference period is, and it is to that issue that the tribunal now turns. The pay reference period.[43]The process for determining whether the national minimum wage has been paid is set out in NMWR SI 2015/621 reg 7. The aim is to calculate the worker's average hourly rate of pay over a given reference period and then compare that with[44]The worker's pay has to be calculated by reference to the 'pay reference period'. This concept is central to the calculation and is defined as being a maximum of one month or, in the case of a worker who is paid wages by reference to a period shorter than a month, that period (NMWR SI 2015/621 reg 6). This means that in the case of a worker who is paid weekly the pay reference period is one week. Where a worker is paid every three months the pay reference period will be one month. Special provisions apply in circumstances in which the relevant contract terminates inside the pay reference period (NMWR SI 2015/621 reg 9(1)(d)).[45]The question that arises in this appeal is whether the respondent (or indeed the appellant, for the tribunal is not sure that it too has correctly applied this concept) has utilised the correct pay reference period, and, if not, what the consequences are for the appeal.[46]The term “pay reference period” is a term of art, and derives from reg.6 of the 2015 regulations. It is at the heart of all calculations of whether or not a worker has been paid the NMW. It effectively creates an averaging of the worker’s pay over the relevant pay reference period for the purposes of assessing whether the worker’s pay over the whole of the period fell below the NMW. Clearly, the shorter the period in question, the less scope there is higher “overpayments” compensating for any alleged underpayments so as to bring the average of the payments made to the worker over the NMW threshold for the relevant period. Thus what is the correct pay reference period is a crucial issue. In this case, for instance, where the workers were not paid at all for the first two weeks, any pay reference period of two weeks or less is going to produce a failure to pay the NMW. If, however, hypothetically, those workers were then paid at double the NMW for the next two weeks, if they had a four week pay reference period, their pay, averaged out over those four weeks would not fall below the NMW.[47]The issue here is that the pay reference period specified in the Notice, in respect of both workers, is 8 August 2016 to 20 August 2016. That is a period of 13 days. This brings into question precisely what reg.6 of the 2015 regulations means. It is a short and simply worded provision: 6 Pay reference period A “pay reference period” is a month, or in the case of a worker who is paid wages by reference to a period shorter than a month, that period. Clearly, the default position is a month, but the real issue is what do the words “is paid by reference to a period shorter that a month” mean ? The conventional wisdom is that this relates the pay reference period to the frequency with which the employee[48]But is it right to so link PRPs to frequency of payment of wages? If it is, it would seem that a worker (provided his paydays do not change) will have one PRP for the whole of his employment. The applicable PRP will not change, regardless of when his employment starts in relation to a payday. The workers in this case had four weekly pay periods (see page 20 of the Bundle). On that basis it may be thought that the relevant PRP for each of them would be a 4 week period. A worker starting employment part way through his or her PRP causes no problems, as they will not have worked any hours in the part that pre-dates the commencement of their employment, so the averaging that then takes place over the balance of the period of the PRP when they are employed will be perfectly possible, and likely to produce a calculation that the NMW has been paid for that period. That such a conclusion is correct, and that a worker will have the same PRP regardless of when he starts employment is rather reinforced by the specific provisions in reg.9(1)(d) which deal with the position where a worker ceases employment part – way through a PRP. If, in those circumstances his PRP would simply change to reflect the curtailment of any relevant PRP, such a provision would not be necessary. The tribunal’s conclusion therefore is that the relevant PRP for any worker at any given time is to be ascertained by reference to the frequency of his or her paydays (subject to the maximum of a month), and when, at any point within any potentially relevant PRP a worker actually commences employment has no bearing on the relevant PRP.[49]The respondent, however, in this Notice has taken a 13 day PRP. It has done so it seems, on the basis that the appellant did not pay any wages at all for the first two weeks (or rather 13 days), and it is this period which has been taken as the PRP. The actual payroll date given by the appellant is 27 August 2016, and hence the relevant PRP it contends is 1 August 2016 to 27 August 2016. It is unclear why the start of that period is said to be 1 August, unless the July payroll date was 31 July, which was a Sunday. Be that as it may, the principle here is whether, in taking the 13 day period from 8 to 20 August 2016 as the relevant PRP the respondent was correct.[50]The tribunal’s view is that the respondent was not correct in doing so. In focussing upon the period for which the workers were not paid the respondent lost sight of the fact that the relevant PRP ended on the payroll date of 27 August 2016, and the whole of the period from 1 (or 8) August 2016 to 27 August 2016 should have been taken into account. Reg. 6 cannot be read as entitling the respondent to take this shorter, rather arbitrary, period as the PRP. When the appellant ran its payroll on 27 August 2016 and paid the two workers accordingly, it was paying them wages “by reference to” the period preceding that payroll date, i.e the preceding 4 weeks, for 19 days of which the workers had been employed, and had carried out work, but for the first 13 days of which they were not paid, because of the appellant’s holiday pay arrangement.[51]There is no logic to the respondent’s position. Once employed for two months, doubtless it would be acknowledged that the relevant PRP for each worker would be the four week period which was the frequency with which the workers were paid. The approach of taking an initial 13 day period begs the question of what would be the next PRP ? The one selected by the respondent ends on 20 August 2016. There is no basis for it doing so. Would the next PRP then be 21 August or 27 August 2016, and then, there would be a four week PRP until the next payday in September? Further, given the provisions in reg 9 , to be considered below, that payments in the PRP immediately following one PRP can be taken into account, if paid “as respect” a previous PRP, this only applies to a second PRP that immediately follows the first. If the respondent is correct, in this instance, there could be two, short, and different PRPs before the next one, with the possibility that this sequence could be broken by an intervening, but shorter period. That cannot be right, and the PRP set out in the Notice is wrong.[52]The requirements of a notice of underpayment, of course, are set out in s.19 of the Act. They are, it would seem, mandatory, as s.19(4) states what such a notice must specify. At s.19(4)(b) that includes: “the pay reference period or periods in respect of which the employer is required to pay a sum to the worker as specified in subsection (2) above:” Of course, the actual sum that the appellant was required to pay either worker was in fact nil, and only the penalty was sought. The tribunal, however, does not consider that this affects the validity of the Notice, or the issue of what consequences should flow from the inclusion of an incorrect PRP.[53]On one view, it may be argued that the failure to specify a correct PRP renders the Notice a nullity, and of no effect, as if the respondent had put no dates at all in the relevant boxes on the third page of the Notice. The counter view, however, would be that the tribunal should not consider the defects fatal to the validity of the Notice, but should consider whether the Notice can stand, but with rectification.[54]That this latter view is the correct one is rather supported by the provisions of s.59C itself, which are the only provisions which govern appeals of this nature. The only ground for rescission of a notice is under s.19C(1)(a), on the sole ground that no sum at all was actually due to the worker at the relevant time. S.19C(1)(c), however, along with s.19C(1)(b), which is not applicable, but which contains analogous provisions, can be advanced on the grounds that the amount specified in the notice as either the sum to be paid to the worker, or by way of penalty, is incorrect. Further, s.19C(1)(c) appeals can be brought on the grounds that the amount of the financial penalty has been incorrectly calculated: “(whether because the notice is incorrect in some of the particulars which affect that calculation or for some other reason)”. The words “or for some other reason” are important, and reinforce the tribunal’s view that a defect in choice or specification of the relevant PRP cannot be fatal to the validity of a Notice of Underpayment. In such circumstances, the tribunal cannot[55]The tribunal considers therefore that the effect of the error in relation to the identification of the PRP is such that the tribunal cannot, for that reason alone, and should not, rescind the Notice. If, however, in fact no sum was due to the employees in question in relation to the pay reference period, the tribunal can, and indeed, must rescind the Notice. That therefore requires an analysis of whether any sum was in fact due to the employees in relation to the (correct) PRP. If it was, but it is a different sum to that upon which the penalty has been calculated, the tribunal may then consider whether on this basis the appeal succeeds on the basis of s.19C(1)(c).[56]In making this assessment, the tribunal has utilised information produced in the appellant’s letter of 11 July 2017 and its attachments. It has done so pace the respondent’s objections, but has done so on the basis that this information can be used as a hypothesis to see , were it to be admitted into evidence, on the appellant’s best case, as it were, if there would be any prospect of the appellant showing that no sum was due to any employees at all in respect of the PRP as contended for by the appellant, or found by then tribunal. From that information, the following calculations of whether there was any shortfall in the NMW can be made. a)Christina Colledge. Taking the information from attachments 3(i) and 3(ii) to the 11 July letter, and other evidence before the tribunal (for these documents do not take into account early closing) the following would be the appellant’s best case on a PRP of 1 to 27 August 2016: Hours worked: 08.08.16 to 27.08.16 72 hours less : early closure 6.15 hours hairdressing services 3.00 hours Total hours worked : 62.85 NMW entitlement for 62.85 hours @ £7.20 p/hour £452.52 Actual payment received in respect of period to 27.08.16 on 09.09.16 £172.80 Shortfall : £279.72 Further reduction for cost of hairdressing services £165.00 Minimum shortfall in payment of NMW £114.72[58]The upshot of these calculations , therefore, is that even if the appellant is entitled to findings that: a) the correct PRP is 1 to 27 August 2016;and b) only the hours actually worked , after deduction for early closing, and time spent receiving hairdressing services is also discounted; and c) credit can be claimed for the cost of hairdressing services re-charged to the employees there would still be a minimum shortfall in payment of the NMW over this PRP in respect of Christina Colledge of £114.72. Hence, s.19C(4) cannot be satisfied, and the appellant cannot successfully appeal the decision to serve the Notice under s.19C(1)(a) because if a sum was due to “any worker to whom the notice relates” the notice cannot be rescinded under s.19C(7). In other words, even if there was no such sum due to one of the two workers to whom the Notice relates, as there may not have been in the case of Elaine Jones, as there clearly was, on any view in relation to the PRP a sum due to Christina Colledge, no appeal under s.19C(1)(a) can succeed, and the tribunal cannot rescind the Notice.[59]The tribunal would add that it is of no consequence whether the correct PRP starts on 1 or 8 August 2016. As the calculation of the NMW is the result of an averaging process, and no work was done until 8 August 2016, the difference in start date has no effect on the calculations. The end date is far more important, and the tribunal is statisfied that this should be 28 August 2016.[60]Finally, and for completeness, again although this has been raised in the further submission of the appellant, given that it is unrepresented , and has put in issue in general terms the extent to which payments can and cannot be taken into account in any given PRP, the tribunal will address the contention made by the appellant that a payment made in the next PRP to Christina Colledge in respect of holiday that she took in the next PRP can be attributed to the previous PRP . The documents produced , as Attachments 8(i) and (ii) do suggest (though it is appreciated that the respondent has not had an opportunity to comment or cross – examine upon them) that Christina Colledge was paid in the next PRP for 96 hours of work at £7.20 per hour , of which 24 hours was holiday pay, making the hours actually worked 72.[61]The appellant, relies upon reg.9(1)(b) , which provides: “(1) The following payments and amounts, except as provided in regulation 10, are to be treated as payments by the employer to the worker as respects the pay reference period—(a) payments paid by the employer to the worker in the pay reference period (other than payments required to be included in an earlier pay reference period in accordance with sub-paragraphs (b) or (c));(b) payments paid by the employer to the worker in the following pay reference period as respects the pay reference period (whether as respects work or not);”[62]The appellant’s argument is that because Christina Colledge took and was paid for three days holiday (72 hours) in the following PRP, the payment she received in relation to this leave, to which she would not have been entitled, but for the special arrangement made whereby she “banked” her first two weeks’ pay against her future holiday entitlement, is to be treated, under this regulation , as being paid “as respects to” (the curious and non – grammatical wording of the provisions) the previous PRP when she worked, but was not paid for the first two weeks of her employment.[63]This is an interesting argument, but one which the tribunal considers is wrong. Clearly, reg. 9 provides that in some circumstances payments made in the ensuing PRP can be treated as having been made in respect of work done in the previous PRP. The examples commonly cited are bonuses or other payments earned in the first PRP, but not paid until the next one. That is not the case here. The payments made to Christina Colledge in the second PRP were of holiday pay. She took, and the appellant agreed to pay for, paid holiday. That is was , as it were “funded” by the withholding of the first two weeks’ pay, does not, in the tribunal’s view make the payment made in the second PRP a payment in respect of the first. It is a payment of[64]This is a different ground of appeal , which does not require a finding that no sum was due to a worker, and thus opens up the possibility that if the financial penalty has been incorrectly calculated, the tribunal should rectify the Notice to correct that error. The tribunal has identified above how the respondent has, in its view, wrongly specified the PRP as being 8 to 20 August 2016. The correct PRP is 1 (or 8) August to 27 August 2016.[65]There is an additional aspect to this ground, however, in that the appellant contends that the respondent has also erred in its calculation because the hours actually worked by the workers were less than have been taken into account by the respondent. Paul Dawson has given evidence to this effect, and para. 14 of his witness statement sets out the correct calculation of hours actually worked by the workers. Whilst the respondent did not accept this, and no other evidence has been led abut it, the tribunal has no reason to doubt the honesty of Paul Dawson, or the accuracy of his information, and will accept it. It also accepts that in the case of Elaine Jones her hourly rate was £8.50, as is confirmed by her Employment Contract Key data document (page 20 of the Bundle).[66]The appellant seeks also, belatedly , to reduce the amount by which the workers in question were underpaid the NMW by the deduction of not only the hours[67]The question now is whether the tribunal can, and should take this further evidence and argument into account into account when determining how to rectify the Notice. The tribunal is satisfied that the appellant has made out the second limb of its appeal under s.19(1)(c), that the amount of the financial penalty has been incorrectly calculated, on the basis of the evidence and arguments already before it, because the amounts by which the workers were underpaid the NMW, upon which the penalty is based, were incorrectly calculated.[68]That finding requires the tribunal, however, not to rescind the Notice, but to rectify it. That involves the tribunal carrying out its own calculation of the amounts by which, in accordance with the correct PRP, for the hours actually worked, and at the appropriate rate, each worker was underpaid the NMW. As will be apparent , there are a number of ways in which this could be approached. At one extreme , working on the basis of what it considers the correct PRP to be, the tribunal could calculate the shortfall, and hence the appropriate penalty , based on the evidence before it, and discount the additional evidence. That would, in essence , have the result of not permitting the appellant to have taken into account both the time and the cost of the hairdressing treatments received by each employee. At the other, these could be taken into account, and would further reduce the shortfall, probably to a very small amount.[69]Those calculations have been carried out in para. 50 above, which represent the best case scenario for the appellant. On that basis, the shortfall would be £114.00, and the appropriate penalty therefore £228.00.[70]Alternatively, if the time and the cost of the hairdressing services are not taken into account, the shortfall increases, in each case, as follows: Christina Colledge. Hours worked 08.08.16 to 27.08.16 72 hours less : early closure 6.15 hours Total hours worked : 65.85 NMW entitlement for 65.85 hours £474.12 Actual payment received in respect of period to 27.08.16 on 09.09.16 £172.80 Shortfall : £301.32 Elaine Jones. Hours worked: 08.08.16 to 27.08.16 120 hours less : sick leave 8.00 hours early closure 13.06 hours Total hours worked : 98.94 NMW entitlement for 98.94 hours £712.36 Actual payment received in respect of period to 27.08.16 on 09.09.16 £612.00 Shortfall : £100.36 The total shortfall on that basis would be £401.68 The appropriate penalty would accordingly be 200% of £401.68, £803.36[71]To assist the parties, the tribunal has considered the following issues, and made the following determinations upon them: Issue 1: Are reductions in the pay paid to the appellant’s workers, in the form of non - payment of the first two weeks’ pay , in accordance with the appellant’s practice of withholding two weeks’ pay at the commencement of their workers’ employment on account of future annual leave entitlement, to be treated as reductions made in accordance with reg.12 (2)(b) of the National Minimum Wage Regulations 2015, so as not to be taken into account in determining whether a worker has been paid the national minimum wage in any relevant pay reference period? Finding: No. Issue 2: Is the pay reference period specified in the Notice of Underpayment dated 2 December 2016 in respect of each worker referred to therein, of 8 August 2016 to 20 August 2016 the correct pay reference period in accordance with the definition in reg.6 of the National Minimum Wage Regulations 2015? Finding: No. Issue 3: Is the effect of the previous finding that the Notice of Underpayment must be rescinded, or rectified? Finding: The Notice cannot be rescinded on this ground, but must be rectified. Issue 4: Was no sum due under section 17 of the National Minimum Wage Act 1998 to any worker to whom the notice relates on the day specified under section 19(4)(a) of the Act in relation to her in respect of any pay reference period specified under section 19(4)(b) of the Act in relation to her, so as to entitle or require the tribunal to rescind the Notice under s.19C(7) of the Act ? . Finding: Whether the pay reference period as specified in the Notice as served, or as rectified by the tribunal is applicable, there was at the material time a sum due to a worker to whom the Notice relates. Issue 5: Is the appellant entitled to rely upon payments made in respect of holiday pay paid, and in respect of holiday taken, in the pay reference period immediately following[72]The following issues have been raised by the appellant, but were not raised in the hearing, nor was evidence formally adduced in relation to them. The tribunal accordingly has made no findings upon them, but they are potentially relevant to the terms of any ultimate rectification of the notice of underpayment and determination of the appropriate financial penalty. Issue 6: Is the appellant entitled to seek to have taken into account in the calculation of whether the workers in question were paid the NMW during the PRP, as rectified, periods of time when, though present at work, they were not working, but were receiving hairdressing treatments? Issue 7: Is the appellant entitled to have taken into account in the assessment of whether the workers have been paid the NMW during the PRP, as rectified, sums deducted by the appellant from the wages due to the workers in respect of charges for the provision of hairdressing services , pursuant to reg.12(2)(e) of the National Minimum Wage Regulations 2015?Disposal.
[73]As indicated, the tribunal allows the appeal, but to the extent that the notice of underpayment is to be rectified. It is to be so in two respects. The first is the PRP, which the tribunal has found is incorrect, and must be amended to 1 August 2016 to 28 August 2016. As the current PRP and the financial penalty calculated upon it are based on total non – payment for 13 days, the amount of that penalty is also likely to be incorrect, and to require rectification. To what figure, however, is unclear, and may require a further hearing.70. If issues 6 and 7 are resolved in the appellant’s favour, the amount of the shortfall will be £114.00, and the penalty therefore £228.00. If neither are, the calculation set out above applies, and £803.36 would be the appropriate penalty. There are permutations in between, theoretically at least, if one issue was upheld but the other was not.71. As these issues, and the evidence giving rise to them, have not been adduced before the tribunal previously, the respondent is entitled to consider how to deal with them. Another hearing may be required, especially is there are any factual disputes.[1]By a reserved judgment sent to the parties on 8 September 2017 the tribunal held that the appellant’s appeal against the notice of underpayment issued on 2 December 2016 succeeds in part. Para. 2 of that judgment referred to the rectification of the pay reference period in column (e) , but at para.3 the tribunal expressly did not rectify the terms of columns (f) (g) and (j), or the consequential figure for the penalty charge. The tribunal invited the parties to consider comprising the appeal by agreeing upon a rectified penalty charge.[2]Following the judgment, the respondent write to the tribunal and the appellant on 28 September 2017 setting out a proposed revised schedule, under the terms of which the revised penalty charge would be £1739.20.[3]By letter of 1 October 2017 the appellant wrote to the tribunal and the respondent arguing that the respondent had not correctly applied the findings of the tribunal, and contending that the penalty charge should be further reduced.[4]As the parties were not in agreement, the tribunal wrote to them on 18 October 2017. In that letter the tribunal observed that the appellant’s contentions that the respondent had not applied the findings of the tribunal in relation to paragraphs (a) to (d) of the appellant’s letter. Further, the tribunal pointed out that the respondent’s proposed revised penalty exceeded the maximum that the tribunal’s judgment had found was payable, on any permutation of itsFindings.
[5]The tribunal accordingly informed the parties that it could rectify the notice to require payment of a penalty charge of more than £803.36, or less than £228.00, at least, not without a further hearing. The parties were encouraged to seek to reach an agreement.[6]Thereafter the appellant wrote to the tribunal on 5 November 2017, and the respondent on 6 November 2017. In the appellant’s letter, it accepted the tribunal’s judgment and the clarification thereof in relation to the minimum penalty charge that could be imposed, and did not seek to go behind that.[7]The respondent in its letter accepted the points made in the tribunal’s letter of 18 October 2017, and that it had erroneously calculated the penalty payable in the light of the findings of the tribunal. The respondent agreed to the penalty charge being rectified to the £803.36, the maximum it could be under the tribunal’s judgment.[8]That left two, related, issues between the parties, identified in the tribunal’s previous judgment as issues 6 and 7, and referred to in the first two bullet points in the appellant’s letter of 5 November 2017. These issues arise out of the alleged provision to the workers in question of hairdressing services, in respect of which there were two potential consequences for the assessment of whether they were paid the national minimum wage, and if not, by how much they were underpaid.[9]The issues are twofold, in that the first is whether the time that the workers were receiving such treatments is not, as the appellant contends , to be counted in the hours that the workers worked for the purposes of calculating whether they received the NMW. The second is whether sums deducted from the wages of the workers in question for these treatments are also to be considered allowance deductions which do not have the effect of reducing the workers’ pay for the purpose of the NMW legislation.[10]The appellant also seeks to be allowed to submit four items of further evidence in connection with these issues. The appellant has sought that these issues be determined by way of written representation, then via an oral hearing, and lastly by a full tribunal hearing. The tribunal does not understand the difference between the latter two.[11]The respondent’s response to these issues in its letter of 6 November 2017 is that whilst it is not uncommon for hairdressers to work on each other’s hair, if clients come in they are taken off this activity. A reduction in time for this purpose would not, therefore be appropriate. The respondent does not, however, expressly address the second issue as to the effect of any deduction from a worker’s wage in respect of such treatments. The respondent, however, is content to rely upon written representations. Discussion and Findings.[12]The tribunal has had to consider how to address these remaining issues. Should it hold a further hearing, and permit the appellant to advance further grounds of appeal, not included in the original grounds, or the evidence before the tribunal in the oral hearing, being only submitted in the course of the appellant’s letter to the tribunal of 11 July 2017? This was a response to the tribunal’s letter of 23 June 2017, which merely sought actual pay information for the two workers in question for specific periods in relation to the pay reference period which was at the heart of the issues to be determined by the tribunal.[13]The appellant has contended that this information was available to the respondent to put into the Bundle, and in its unfamiliarity as an unrepresented party, the appellant did not realise the consequences of the omission of this material upon its appeal.[14]That may be so, but, as observed in paras. 66 to 68 of the tribunal’s previous judgment., all this is new argument, and new evidence. Issues 6 and 7 never formed any basis of the appellant’s grounds of appeal until after the hearing in the letter of 11 July 2017. As it is, the tribunal has taken this material into account, even as it may be disputed, to ensure that there is no prospect of the appellant being to argue that no sum was payable at all, so as to entitle the tribunal to rescind the notice in totality. As the tribunal’s previous judgment demonstrates, even allowing the maximum effect as contended for by the appellant of these alleged further reducing factors, there would still have been underpayment, though in a modest amount, but sufficient to preclude rescission.[15]Thus, having regard to the overriding objective, and proportionality (the amount at stake is £575.36 (£803.36 - £228.00) , and the need for finality in litigation, and allowing for the appellant’s lack of legal knowledge or representation, the tribunal does not exercise its discretion to, in effect, allow amendment to the grounds of appeal, and allow the introduction of new evidence after the hearing had concluded, or to hold a further hearing, whether oral or in writing, and the appellant may not rely upon Issues 6 and 7 to further reduce the shortfall in NMW , and hence the penalty due under the rectified notice of underpayment. The tribunal accordingly confirms the rectification in the revised notice of underpayment to show the sum of £803 as the penalty charge due. Employment Judge Holmes