London Borough Of Southwark v O'Brien [1996] UKEAT 1236_94_1804

EAT
London Borough Of Southwark v O'Brien
[1996] UKEAT 1236_94_1804 · 1996-04-18
MR JUSTICE MUMMERY (PRESIDENT) : This is an appeal against the decision of the Chairman of the Industrial Tribunal sitting alone at London (South) on 28 September 1994. In the extended reasons for the decision sent to the parties on 10 November 1994, he explained how he had reached the decision that the deduction of the payment of a mileage allowance to the Applicant, Mr O'Brien, by his employers, Southwark Borough Council, was an unlawful deduction, contrary to The Wages Act 1986 .The Southwark Borough Council appealed against that decision and served a Notice of Appeal on 20 December 1994. The appeal came on as a preliminary hearing on 8 June 1995. An order was made allowing the appeal to proceed to a full hearing, which has taken place today.A number of grounds of appeal are contained in the Notice of Appeal, but it was agreed between Counsel, Ms Lang, for Southwark Borough Council, and Miss Moor, for Mr O'Brien, that it was prudent to argue one of the grounds and obtain a decision on it before considering any of the other grounds. The reason for that agreement was that the one ground identified by them would, if decided in favour of the Appellant Council, mean that it would be unnecessary to consider and decide any of the other grounds.We had already formed that view. Accordingly, this judgment is given solely in relation to ground 6(c) of the Notice of Appeal, which deals with what we have called "the expenses point". In order to understand that ground it is necessary to examine the facts set out in the Industrial Tribunal Chairman's decision and in certain other documents.Mr O'Brien presented his complaint to the Industrial Tribunal on 16 December 1993. His complaint was that there had been unlawful deductions from his wages in the form of withholding of his entitlement to a car mileage allowance. He said he was a full-time Trade Union representative who had been employed by the Council since 1975. He was entitled to time off with pay to fulfil his duties as a Staff Side Secretary and Convenor Steward. His contract of employment had entitled him to a mileage allowance, which he had received since 1985, but since May 1992 the Council had refused to pay him mileage allowance when travelling between various offices and sites of the Council in order to carry out his trade union activities. He said that from each and every pay packet that he had received since May 1992, there had been an unlawful deduction from his pay of the amount of the mileage allowance to which he was entitled.The Council contested the claim on a number of grounds. We need not examine all of those for the reasons explained. One of the grounds was that he had no statutory or contractual entitlement to the payment. Another ground was that a car mileage allowance is not "wages" within the meaning of Section 7 of The Wages Act 1986 .The Council said that they would contend that the mileage allowance was a payment "in respect of expenses" incurred by Mr O'Brien, within the meaning of Section 7(2)(b) of the 1986 Act. That point has been argued as a preliminary point, because it does affect the jurisdiction of the Industrial Tribunal to consider Mr O'Brien's claim. If decided in favour of the Council, it would mean that there is no necessity to decide the other points discussed in the Tribunal Chairman's decision and canvassed in the Notice of Appeal.The facts found by the Chairman can be summarised as follows. Although Mr O'Brien was employed as a carpenter/joiner, within nine months or so of his engagement as an employee, he was elected as a Convenor of the Shop Stewards for the Building Department and has since been engaged full-time on trade union business. He has been in receipt of a mileage allowance since 1985. There is some dispute, which it is not necessary, for the purposes of this judgment, to examine, about exactly under what agreement he was entitled to the allowance.The present dispute arose out of the Council's decision in 1990 to adopt a new policy about mileage allowances. The result of the Council's decision was that Mr O'Brien was notified in April 1992 that the mileage allowance, which he had received in respect of his travelling on trade union business, would cease. Mr O'Brien never agreed to that. In fact, he has continued ever since to submit weekly claims for his mileage allowance. Although these are not documents referred to in the decision, we have seen (these were produced at our request) a sample of a claim for a mileage allowance for a week. This example was the week ending 25 September 1994. We have also seen a pay slip showing how various items of pay made to Mr O'Brien are dealt with.In the claim for mileage allowance there is set out, by reference to dates and times, details of the journeys in respect of which Mr O'Brien was making a claim; details of the start and finish of the mileometer readings and of the number of miles for which he makes a claim. At the end of the form he states the total number of miles for which he makes a claim; in that case 38.7 miles.We have also been shown a pay slip. It is a representative example, which deals with the items of pay in respect of a period ending on 25 September 1986. That shows a breakdown of various items starting with the gross rate of pay and finishing at the bottom with the car mile allowance, which is shown as a figure of £46.71. That is shown in another part of the pay slip as an item of non-taxable pay, as distinct from a much larger item of £225.50 as taxable pay.In order to understand the Chairman's decision, it is necessary next to refer to the conclusions and the statutory sections relevant to his conclusions. His overall conclusions are usefully summarised in the last sentence of the decision, where he says this:
"9 ... I am satisfied that there was a contract of employment, that that contract provided for the payment of a mileage allowance, that that mileage allowance was withdrawn without the consent of the Applicant, that that withdrawal constitutes a deduction, that the mileage allowance constituted wages because it was a benefit over and above expenses and that therefore the deduction is a deduction from contractual wages, contrary to the Wages Act 1986 ."
The relevant part of that summary is the statement that the mileage allowance "constituted wages, because it was a benefit over and above expenses".

(c) of the Notice of Appeal which says:

"...

(e) "

We are not concerned with Section 7(2)(b). Before we go to the passage in the extended reasons that deals with this point, we should refer to the other relevant sections of the 1986 Act. Section 1 contains a general restriction on deductions by employers and provides that:
"(1) An employer shall not make any deduction from any wages of any worker employed by him unless the deduction satisfies one of the following conditions, namely - (a) it is required or authorised to be made by virtue of any statutory provision or any relevant provision of the worker's contract;"
The rest of that section is not relevant. The restriction only applies to deductions from "wages". It does not apply to deductions from payments which are not wages. Section 7 defines "wages". Subsection (1) gives a wide general definition:
"7(1) In this Part `wages' in relation to a worker, means any sums payable to the worker by his employer in connection with his employment ..."
Then there are a list of six different kinds of payments expressly included. If the section had stopped at the end of those six payments, there would a strong case for saying that, payments made for mileage allowances were wages, because they are sums payable to the worker by his employer in connection with his employment. (There is an argument in this case as to whether payment is in connection with Mr O'Brien's employment, but we do not have to deal with that).The important point to note is that subsection (1) concludes:

" but excluding any payments falling within subsection (2) ."

Subsection (2) sets out five kinds of payments, which do not constitute wages for the purposes of the 1986 Act.

(b) :

"7(2) Those payments are - [those excluded payments] (b) any payment in respect of expenses incurred by the worker in carrying out his employment."
The issue between the parties on this question is simple. Ms Lang, for the Borough Council, says that the payments made to Mr O'Brien for mileage allowances are payments "in respect of expenses" incurred by him in carrying out his employment and are therefore not wages. The withholding of those payments after April 1992 cannot be a deduction made unlawful by the 1986 Act.Miss Moor, for Mr O'Brien, submits that the reasoning of the Chairman is correct in saying that the payments in respect of the mileage allowances are not payments in respect of expenses. We must note one other section relevant to the jurisdiction of the Industrial Tribunal.

(a) says:

"5(1) A worker may present a complaint to an industrial tribunal - (a) that his employer has made a deduction from his wages in contravention of section 1(1) ..."
It follows from the wording of that section that, if Ms Lang is right, the Industrial Tribunal had no jurisdiction to deal with this complaint, because it was not in respect of a deduction from wages. It also follows that, if she is right, no other court would have jurisdiction to determine this dispute under The Wages Act , because the general restriction section 1(1) is, as already noted, a restriction on deduction from any wages.How did the Chairman arrive at the decision that the payments made to Mr O'Brien, in respect of his claims for mileage allowances, were not payments "in respect of expenses" incurred by him? The essential reasoning in the 15 page decision is contained on pages 7 and 8. He said:
"6 ... It seems to me that the proper issue to consider in this connection is whether the payment of a mileage allowance is the payment of expenses or whether it is part of remuneration. There is no doubt that the amount of mileage allowance paid was extremely generous. [We are told, though the details do not appear on the decision, that the amount paid was between 50p and 70p a mile]. It is quite plain that the Revenue asserted a right to tax such amounts of mileage allowance which exceeded the Revenue's assessment of what were reasonable expenses. In other words, it seems to me quite clear that the Authority recognised that it was making an expenses plus payment in this instance. It follows, therefore, that at least part of the so-called mileage allowance was profit, and therefore undoubtedly remuneration. I have considered whether this should mean that the Applicant may make a claim in respect of that portion of the mileage allowance which exceeds the reasonable expenditure involved in covering that mileage. I am of the opinion that it would be absurd to attempt to make that distinction. The effect would be that if I decided there was an unlawful deduction I would be in a position where I had to order the Respondent to pay that part of the allowance which exceeded the Applicant's expenses, but not to pay that part which was genuine expenditure. That appears to me to be an absurd conclusion and, in my view, once part of the so-called expenses is properly to be treated as remuneration, the whole of the amount should be treated for the purpose of deduction under the Wages Act as remuneration."
Miss Moor submitted that that reasoning was correct. She said that the Chairman had made a finding of fact; that the payments that were made for mileage allowances could not possibly represent expenses incurred in carrying out the employment, because the payments were extremely generous. In so far as that is a finding about the size of the payment, as compared with the mileage undertaken, that was a finding of fact which cannot be challenged.She said that the Chairman was entitled to look behind the label attached to the payment. A payment is not expenses simply because it is called expenses. The Chairman was right to identify that the whole of the payment was remuneration, once it was established that the payment did not represent realistic travelling expenses. The Chairman had decided that the allowance could not be regarded as a payment of expenses and therefore did not fall within the exception.To sum up, her argument was that a payment cannot be said to be in respect of expenses, if there is a profit element in it. The profit element would not be a payment "in respect of expenses". The proper conclusion to reach from this is that it is impossible to regard the whole payment as an expense. Having regard to the purpose of the legislation, the Chairman had made the right decision in saying that the proper way to treat a payment of mixed expenses and profit, was to regard it all as wages. No payment falls within Section 7(2)(b) unless it is entirely in respect of expenses.We are unable to agree. In our view, there is an error of law in the decision of the Chairman on this point. The first one is that the Chairman has misdirected himself on the precise wording of the relevant legislation. He refers on page 7 of his decision to the question as, "whether the payment of a mileage allowance is the payment of expenses?". That wording of the issue ignores the fact that the statute provides that a payment is not wages, if it is " in respect of expenses" incurred by the worker. That indicates that a payment may fall within Section 7(2)(b), even though it is not possible to match exactly the payment made with the expenses incurred.There may be cases where the provisions are not used bona fide. We would agree with Miss Moor to this extent; that if a payment, which is clearly not in the nature of expenses, is labelled "expenses", it is open to the Tribunal to conclude that "expenses" is a misdescription of the payment made. But when asking, "Is the payment in respect of expenses incurred by the employee"?, it is not necessary for the payer to show that what he has paid is precisely a reimbursement of the sum expended by the worker. "In respect of" means "referring to" or "relating to" or concerning in a general way, whereas the expression used by the Chairman in his decision, "payment of expenses", would appear (wrongly, in our view), to equate the statutory provision with reimbursement of a precise amount.The second error is made by the Chairman when he reasons that, if there is an element in the payment which is not reimbursement of expenses, then it is necessary and proper to treat the whole of the payment as remuneration. That does not follow. He correctly says that it is not legally possible to attempt to apportion. But it does not follow, from the impossibility of apportioning, that the whole amount paid in respect of the mileage allowance be treated as remuneration .On that point, we are in agreement with the decision last year of this Tribunal, in the case of Barrie v Rochdale Metropolitan Borough Council , (case number EAT/224/94). In that case, after setting out the provisions in Section 1 and 7 and 5 of the 1986 Act, Morison J said this:
"It seems to us (1) Parliament has given a wide definition to wages, thus s.7(1) applies to all sums payable in connection with his employment. The further subparagraphs are simply specific examples of the general, as they are preceded by the words `in particular', whereas the exceptions in subsection (2) are specifically defined: [He refers to those set out in subsection (2)]. (2) Although Parliament has enabled Tribunals to order that part of the deduction only should be repaid, it seems to us important to note that a deduction can only be apportioned in circumstances where part was covered by the contract of employment or otherwise agreed to and part was not. [On that he refers to section 5(5) of the 1986 Act]. There is nothing in the Act which permits a Tribunal to say that a particular deduction was partly in respect of wages in s.7(1) and partly in respect of expenses in s.7(2). In our view, in this case, the Tribunal had to determine whether the deduction was either wholly within s.7(1) or wholly within s.7(2). Whilst there may be cases, although we cannot think of an example, where it may be possible to say effectively that there have been two deductions, one to wages and the other in relation to expenses, this is not such a case. Neither party has put forward a sensible method of splitting the sums involved in this case into wages and reimbursement of expenses. No evidence was provided to the Industrial Tribunal to suggest that there was any profit element in the allowances. No evidence was provided in the IT1s to suggest that there was a profit element in the allowances that were paid. ..."
Miss Moor relied on the last two sentences, as a point of distinction between the case of Barrie v Rochdale Metropolitan Borough Council and this case. She argued that in this case there was not only evidence of a profit element, there was a finding of fact by the Chairman that there was such a profit element in these payments.In our view, that is not a sufficient point of distinction for declining to follow the reasoning in the Barrie case, that, outside Section 5(5) of the 1986 Act, it is not possible to perform the kind of apportionment that would be necessary under Section 7 to distinguish between wages and expenses. We agree with Morison J, that, in a case such as this, a finding has to be made that the deduction is either wholly in respect of wages or wholly in respect of expenses.What it is in each case is a matter of fact and degree. Our conclusion in this case is that a payment of a mileage allowance does not cease to be "in respect of" expenses because it is found to be generous. The errors of law by the Chairman are to equate payments "in respect of" expenses with "payments of expenses" and to treat generous expenses wholly as remuneration. Both conclusions are, in our view, wrong as a matter of law.We therefore accept Ms Lang's submissions that the mileage allowance was a payment in respect of expenses and that the Chairman misdirected himself on the proper interpretation and application of Section 7(2)(b) of the 1986 Act. This appeal should be allowed. The result of this appeal being allowed, is that the Industrial Tribunal has no jurisdiction to entertain this claim.It is therefore unnecessary to decide any of the other interesting questions, canvassed in the decision and in the Skeleton Arguments. The claim is dismissed.There is one further matter of comment before leaving this case. We note that this decision was of the Chairman alone. We understand that that was with the agreement of the parties. We wish to say, perhaps with the benefit of hindsight, that it would have been preferable in this case for lay members to sit with the Chairman.We agree with Ms Lang's submission at the opening of her argument that the questions raised on this appeal are of some general importance, not only for the Southwark Borough Council, but also for local authorities and others who make payments in respect of expenses for travelling.It would have been helpful to the Chairman if he had had the benefit of the experience and understanding that lay members bring to industrial disputes in general and in particular, to cases where the ramifications of the decision run beyond the actual dispute. The experience of lay members can often highlight points relevant to the decision of the case. They are able to draw on their experience to illustrate the context and consequences of the decisions in practical terms.We hope that, in future, cases will not be put before a Chairman alone, simply because they are cases under The Wages Act and the parties agree to the Chairman sitting alone. Cases under The Wages Act , like cases under the Discrimination Acts and Employment Protection Act , can raise issues on which the benefit of lay members' experience is invaluable.For those reasons the appeal is allowed and Mr O'Brien's claim is dismissed.There is a final footnote to this decision. We wish to make it clear that, in allowing the appeal and dismissing Mr O'Brien's claim, we are not deciding that he has no rights in relation to the withdrawal of the mileage allowance; or that he has no claims which might be brought in other courts for other causes of action, (for example the Industrial Tribunal has no jurisdiction over claims for breach of contract, other than claims for wrongful dismissal allowed under a recent enlargement of their jurisdiction).If Mr O'Brien is advised that his rights have been infringed, for example, by a breach of contract, then he would be entitled to bring such proceedings in the County Court or in the High Court, depending on the amount of his claim and the nature of it. He could not bring those common law claims in the Industrial Tribunal.All that we are deciding in this case is that Mr O'Brien has no claim under The Wages Act . We are not deciding that he has no claim at all against Southwark Borough Council.