Case No 4106559/2024Venue Edinburgh by CVPHearing 13 November 2024
Between
Ms TS LeungClaimantMB Cafes LimitedRespondent
Before
Employment Judge SangsterDate 13 November 2024
JUDGMENT
[1]The claimant’s complaint under section 23 of the Employment Rights Act 1996 (ERA), succeeds. The respondent is ordered to pay to the claimant the gross sum of £395.89 which was unlawfully deducted from the claimant’s wages, contrary to s13 ERA.[2]The claimant’s remaining complaints do not succeed and are dismissed.[3]The respondent shall be at liberty to deduct from the gross sum of which payment is ordered at paragraph 1 above, prior to making payment to the claimant, such amounts of Income Tax and Employee National Insurance Contributions (if any) as it may be required by law to deduct from a payment of earnings of that amount made to the claimant, and if it does so, duly remits such sums so deducted to HM Revenue and Customs, and provides to the E.T. Z4 (WR) claimant written evidence of the fact and amount of such deductions and of the sums deducted having been remitted to HMRC, payment of the balance to the claimant shall satisfy the requirements of this judgment. Oral reasons were given at the hearing, in accordance with rule 62(2) of the Employment Tribunal Rules of Procedure 2013. Written reasons will not be provided, unless a written request for these is made by one of the parties within 14 days of the date this judgment is sent to the parties[1]The claimant submitted complaints that the respondent had made unauthorised deductions from her wages in relation to her hourly rate, her accrued holiday entitlement and a deduction from her final salary payment stated to be in respect of ‘Insufficient Resignation Notice’.[2]A hearing took place on 13 November 2024. The claimant and Mr Free gave evidence at the hearing, with reference to documents which had been lodged, in advance of the hearing, by the claimant.[3]An oral judgment, with reasons, was given at the conclusion of the hearing. A written judgment, dated 13 November 2024, confirmed the judgment but did not provide reasons, as reasons were given orally at the conclusion of the E.T. Z4 (WR) hearing. On 14 November 2024, the claimant requested written reasons for the judgment. Written reasons are provided below. Relevant Law Annual Leave[4]Under the Working Time Regulations 1998 (WTR) workers are entitled to 5.6 weeks’ annual leave. The right is made up of basic leave of 4 weeks and additional leave of 1.6 weeks. The maximum aggregate of the basic and additional entitlement is 28 days.[5]Annual leave must be taken in the holiday year in which it accrues (unless there is a relevant written agreement to the contrary or, in the case of basic leave, an exception applies). It may not be replaced by a payment in lieu except upon termination of employment.[6]Regulation 13 of the WTR was amended with effect from 1 January 2024. It now states: ‘(16) Paragraph (17) applies where, in any leave year, an employer fails to—(a) recognise a worker's right to annual leave under this regulation or to payment for that leave in accordance with regulation 16;(b) give the worker a reasonable opportunity to take the leave to which the worker is entitled under this regulation or encourage them to do so; or(c) inform the worker that any leave not taken by the end of the leave year, which cannot be carried forward, will be lost. (17) Where this paragraph applies and subject to paragraph (18), the worker is entitled to carry forward any leave to which the worker is entitled under this regulation which is untaken in that leave year or has been taken but not paid in accordance with regulation 16.’[7]Accordingly, basic leave entitlement carries over where one of the three conditions in Regulation 13, paragraph 16, exists.[8]There is no right to carry forward additional leave for any reason. Unauthorised Deductions from Wages[9]Section 13 of the Employment Rights Act 1996 (ERA) provides that an employer shall not make a deduction from a worker's wages unless:a. The deduction is required or authorised by statute or a provision in the worker's contract; orb. The worker has given their prior written consent to the deduction.[10]A deduction occurs where the total wages paid on any occasion by an employer to a worker is less than the amount of the wages properly payable on that occasion. Wages are properly payable where a worker has a contractual or legal entitlement to them (New Century Cleaning Co Limited v Church [2000] IRLR 27). Unpaid Wages[11]The first complaint the Tribunal considered was the claimant’s claim that she was entitled to a hourly rate of £12.02 from 1 April 2024, but was only paid £11.44 per hour, so there was an unauthorised deduction from her wages in respect of the difference, for each hour she worked.[12]The claimant was provided with a contract of employment on the commencement of her employment, which she signed on 3 April 2023 (the Contract of Employment). The claimant was initially paid £10.42 per hour, which was the applicable national minimum wage rate at that time and the rate stated in the Contract of Employment. That increased to £11 per hour from October 2023, when she was promoted the role of Assistant Manager. While the claimant assumed that, when the national minimum wage rate increased £11.44 on 1 April 2024, she would continue to receive a premium over and above that rate, there was no contractual or legal basis for that assumption. She had not been informed, either orally or in writing, that she would be entitled to a higher rate from 1 April 2024.[13]The claimant had no contractual or legal right to a payment in excess of £11.44 per hour. As she received the wages which were properly payable to her, her complaint of unauthorised deductions from wages in relation to this does not succeed and is dismissed. Holiday Pay[14]The Tribunal then considered the claimant’s complaint that the respondent had made unauthorised deductions from her wages regarding holiday pay.[15]The Contract of Employment stated, at section 8 entitled ‘Holidays’, as follows:a. That the respondent’s holiday year ran from 1 November to 31 October annually.b. ‘Any untaken annual leave entitlement shall not carry over to the next annual leave year, nor shall the Employee be entitled to any payment in lieu of such unexpired annual leave’c. ‘Holidays shall be requested in the manner described in the ‘House Rules and Policies’ issued as part of the Induction Pack’[16]The claimant understood the procedure for requesting annual leave and was given a reasonable opportunity to do so. In the holiday year to 31 October 2023, she took holidays in May and June 2023. In the holiday year commencing 1 November 2023, to the date her employment terminated, she took 4 weeks’ holiday: 3 weeks in January-February 2024 and a week in April 2024.[17]Section 6 of the Contract of Employment related to ‘Wages’ and stated that ‘no deductions shall be made from the wages except for…holidays taken in excess of entitlement at the termination of employment.’[18]The Tribunal determined this complaint by addressing the following questions, and reaching the following conclusions.a. What was the annual leave year? The Contract of Employment states that the holiday year ran from 1 November to 31 October annually.b. How much leave had accrued in the claimant’s final leave year? In her final leave year claimant accrued 3 weeks of holiday (1 November 2023-15 May 2024 = 197 days/ 365 days x 5.6 weeks).c. Were any days to be carried forward from previous years? The respondent set out the claimant’s annual leave entitlement in the Contract of Employment. The claimant was informed of the procedure for taking annual leave and exercised that right on in the holiday year to 31 October 2023, namely in May and June 2023. She was accordingly given a reasonable opportunity to take her annual leave. She was also informed, in the Contract of Employment, that any leave not taken by the end of the leave year, could not be carried forward, so would be lost. For these reasons, the Tribunal concluded that the exception set out in Regulation 13, paragraph 17, of the WTR did not apply. The claimant therefore, in accordance with the general position set out in the WTR and as stated in the Contract of Employment, was not able to carry forward any unused annual leave from one year to the next.d. How much paid leave had the claimant taken in the final leave year? The claimant took 4 weeks’ holiday in her final leave year, that was a week in excess of her pro rata entitlement for the year from 1 November 2023 to the termination of the claimant’s employment.[19]The claimant had accordingly taken more holidays than she was entitled to, in the holiday year from 1 November 2023 to the date her employment terminated. Clause 6(f)(6) of the Contract of Employment stated that deductions could be made from wages where holiday had been taken, in excess of entitlement, at the termination of employment. The respondent made a deduction from her wages in respect of the week’s holiday taken in excess of her pro rata entitlement for the year. The deduction was authorised by a provision of the claimant’s contract and was not therefore unlawful. The claimant’s complaint in relation to this does not therefore succeed and is dismissed. Insufficient Resignation Notice[20]The final complaint related to the sum of £395.89, which the claimant claimed was unlawfully deducted from her final salary.[21]The sum of £395.89 was deducted from her final salary, paid at the end of May 2024. This was stated to be in respect of ‘insufficient resignation notice’. In making this deduction, the respondent relied upon clause 14 of the Contract of Employment, which states that 2 weeks’ written notice of termination requires to be given by either party and ‘Should the employee give less than 2 weeks’ notice of termination without the agreement of the employer, then the employee may be liable to forfeit up to one week’s pay’.[22]A penalty clause is one which specifies a sum to be paid to the employer, in the event of a breach of contract. These are prohibited under common law.[23]The EAT, in the case of Cleave Link Limited v Bryla 2014 ICR 264 EAT held that a sum deducted under a penalty clause, contained in a written contract, cannot be a lawful deduction from wages.[24]The clause in the Contract of Employment, specifying that, if the claimant breached the contract by failing to give two weeks’ notice, she would forfeit a weeks’ pay, was a penalty clause. The deduction made in reliance on that was not therefore lawful and was accordingly an unauthorised deduction.[25]The Tribunal therefore order the respondent must pay to the claimant the gross sum of £395.89, which was unlawfully deducted from her wages, contrary to s13 ERA.