Evans v The Malley Organisation (trading as First Business Support)

Under section 221 of the Employment Rights Act 1996, remuneration varies with the amount of work done only where it varies with the quantity of work performed. Success achieved through work is a different concept. Commission linked to successful sales therefore does not, merely because it varies, bring remuneration within the 12-week averaging calculation in section 221(3).

Section 221(4) identifies commission and similar payments that may be included after the statutory category has been determined. It does not place every commission-based remuneration package within section 221(3). Where a contract specifies a salary and no evidence supports a wider entitlement during suspension, an employment tribunal may calculate suspension pay by reference to that salary.

A sales representative received a basic salary and commission earned upon successful sales, although commission normally became payable about nine months later. He claimed that his statutory holiday pay and his pay during an 11-day suspension should have reflected average earnings rather than basic salary.

The Employment Tribunal rejected both claims. The Employment Appeal Tribunal reversed the holiday-pay decision and remitted the suspension-pay issue for further evidence. The employer appealed. The central questions were whether the remuneration fell within section 221(2) or section 221(3) of the Employment Rights Act 1996, and whether the suspension-pay issue should have been remitted.

1. Appeal allowed unanimously. Pill LJ delivered the leading judgment. Judge LJ and Hale LJ agreed that the holiday-pay and suspension-pay issues should both be decided in the employer’s favour. The order of the Employment Tribunal was reinstated.

2. The employee’s remuneration did not vary with the amount of work done for the purposes of section 221 of the Employment Rights Act 1996. The quantity of work performed was not determined by the number of contracts obtained. Unsuccessful efforts to obtain a contract were work just as successful efforts were. The result achieved by work was conceptually distinct from the amount of work done. Hale LJ added that “amount” ordinarily referred to quantity, rather than quality or results.

3. Section 221(4) did not override the distinction between sections 221(2) and 221(3). The tribunal must first decide whether remuneration varies with the amount of work done. Section 221(4) then permits commission, bonuses and similar payments to be included where that condition is satisfied. It does not place every remuneration package containing commission within section 221(3). The delayed commission in this case related mainly to success achieved months earlier, which also demonstrated the artificiality of applying the statutory 12-week average.

4. Regulations 13 and 16 of the Working Time Regulations 1998 did not displace that construction. Regulation 35 prevented contractual exclusion of the statutory rights, but the contract fell within section 221(2). Pill LJ, with Judge LJ agreeing, considered that Regulation 14 raised a distinct claim which had not been made before the Employment Tribunal. Hale LJ would not have excluded a possible Regulation 14 claim solely on that basis, but this disagreement did not affect the disposition.

5. The Employment Tribunal was entitled to reject the suspension-pay claim. The contract specified a salary, and there was no evidence of custom, practice or another basis for entitlement to average earnings during suspension. Remission would improperly permit evidence which could and should have been produced at the original hearing. Hale LJ added that an implied term required material showing that an objective bystander would understand both parties to accept it.

6. The respondent was ordered to pay 90% of the employer’s costs of the appeal. No order was made for costs below.

• Court of Appeal: In [2002] EWCA Civ 1834, allowed the employer’s appeal unanimously and reinstated the Employment Tribunal’s order.
• Employment Appeal Tribunal: Reversed the Employment Tribunal’s determination of the holiday-pay issue and remitted the suspension-pay issue for evidence about the meaning of suspension with pay.
• Employment Tribunal: Held that there had been no unauthorised deduction from wages, rejected the claims concerning holiday pay and suspension pay, and found that the employee had resigned and had not been unfairly dismissed.