Leisure Employment Services Ltd v HM Revenue & Customs

Under the National Minimum Wage Regulations 1999, a compulsory charge imposed as a condition of occupying employer-provided accommodation is a charge in respect of that accommodation, even if described as payment for heat and light and even if the worker freely chose the accommodation. The statutory calculation is concerned with the specified deduction or payment, not the general value or fairness of the arrangement. Where the employer is legally liable to utility suppliers, sums collected from workers to meet that liability are for the employer’s own use and benefit. A contractual clause cannot artificially transfer liability without the supplier’s agreement. A payment for services is not exempt where, once accommodation is taken, payment is required under the employment-related accommodation agreement.

Leisure Employment Services Ltd employed seasonal staff and offered optional shared accommodation at its holiday resorts. Workers occupying the accommodation were charged £6 per fortnight for heat and light. The charge was either deducted from wages or, in one test case, paid back after the full wage had been paid.

The Employment Tribunal and, on appeal, Elias J in the Employment Appeal Tribunal considered whether the charge had to be included in calculating compliance with the national minimum wage. The issues were whether it was a charge in respect of living accommodation, whether it was for the employer’s own use and benefit, and whether the payment exception for goods or services applied. The central issue before the Court of Appeal was the proper application of the National Minimum Wage Regulations 1999.

1. Appeal dismissed unanimously. The Court agreed with Elias J that the £6 charge had to be taken into account when calculating whether the workers received the national minimum wage.
2. Under regulation 31(1)(i), the phrase in respect of the provision of living accommodation naturally includes a charge levied in connection with, and especially as a condition of access to, employer-provided accommodation. The charge remained within that provision although it was described as payment for heat and light, and although workers could choose whether to take the accommodation. The legislation adopted a clear rule rather than requiring an assessment of the value or reasonableness of the services. This avoided opportunities for abuse and protected the statutory minimum wage.
3. By the majority, Buxton and Smith LJJ: the deduction and the payment made to the employer were also for the employer’s own use and benefit under regulations 32(1)(b) and 34(1)(c). The utility suppliers’ contractual debtor was LES. Clause 6.20 of the accommodation agreement could not make the workers directly liable without the suppliers’ agreement, and contractual recitals could not compel the court to accept an artificial description of the parties’ legal relationship. The proper focus was the effect of the deduction or retention on the employer, not the general mutual benefit of the wider arrangement. The £6 reduced LES’s own liability and improved its overall financial position.
4. Wilson LJ agreed that regulation 31(1)(i) disposed of the appeal but dissented on the own-use-and-benefit issue. He considered that the sums were applied towards utilities supplied for the workers’ benefit and were not for LES’s own use or benefit. His dissent did not affect the unanimous outcome.
5. For completeness, the majority rejected the alternative reliance on regulation 35(e). Once a worker used the accommodation, the accommodation agreement required the worker to take the service and pay for it in connection with employment. The exception therefore did not apply. That conclusion was unnecessary to the result after the first issue had been decided.

1. Court of Appeal (Civil Division): In [2007] EWCA Civ 92, the appeal was dismissed unanimously.
2. Employment Appeal Tribunal: Elias J, as President, decided the appeal from the Employment Tribunal in EAT/0106/06/MAA. The Court of Appeal agreed with his conclusions.
3. Employment Tribunal: The Tribunal considered the treatment of the £6 charge under the minimum wage legislation and made findings about the accommodation arrangements and the parties’ utility liabilities.