Leisure Employment Services Ltd v HM Revenue & Customs

The Court of Appeal upheld the Employment Appeal Tribunal and dismissed the employer's appeal. The key legal principle is that compulsory charges imposed as a pre-condition of occupying employer-provided living accommodation are "in respect of the provision of living accommodation" for the purposes of regulation 31(1)(i) of the National Minimum Wage Regulations 1999 and must be taken into account when calculating whether the national minimum wage has been paid. The court also held that a compulsory employee payment which enables the employer to discharge its own supplier liabilities is a deduction or payment "for [the employer's] own use and benefit" under regulations 32(1)(b) and 34(1)(c), and so must be subtracted from total remuneration when checking compliance with the minimum wage rules. The employers' contractual attempt to recharacterise liabilities (including by clause 6.20 and supporting supplier letters) was ineffective to alter the legal reality that the employer remained liable to the utility suppliers.

Background and parties: LES (a Bourne Leisure subsidiary) provided seasonal workers with the option of on-site accommodation and charged £6 per fortnight for heat and light. The Revenue, responsible for enforcing the National Minimum Wage regime, issued enforcement notices. LES appealed through the Employment Tribunal and Employment Appeal Tribunal to the Court of Appeal.

Nature of the claim: The court was asked to determine whether the compulsory £6 charge should be treated as part of the accommodation deduction (and thus counted against the maximum permitted accommodation offset under regulation 36) or otherwise be excluded from remuneration because it was not for the employer's use and benefit.

Issues framed:

• Whether a compulsory charge for heat and light is "in respect of the provision of living accommodation" under regulation 31(1)(i).
• Whether the £6 payments were for the employer's "use and benefit" such that they must be subtracted under regulations 32(1)(b) and 34(1)(c).
• Whether contractual drafting (clause 6.20) or supplier letters could recharacterise the legal liability so as to avoid these consequences.

Court's reasoning: The court analysed the structure of the Regulations and emphasised the statutory design to provide clear, administrable rules protecting vulnerable workers. On the first issue the court held that payments imposed as a pre-condition to occupying employer-provided accommodation fall within regulation 31(1)(i) because the regulation looks to charges "in respect of" provision of accommodation, not narrowly to items intrinsic to the physical structure. On the second issue the court accepted the EAT's finding that LES, not the workers, was the debtor to the utility suppliers; therefore the £6 payments assisted LES in discharging its liabilities and were for its use and benefit, caught by regulations 32(1)(b) and 34(1)(c). The contractual attempt to make the employee directly liable was ineffective because suppliers had not agreed to such liabilities and legal assignment did not exist.

Procedural posture: Appeal to the Court of Appeal from the Employment Appeal Tribunal (Elias J), which had affirmed the Employment Tribunal's determination that the £6 charge breached the minimum wage rules.

Appeal dismissed. The Court of Appeal agreed with the Employment Appeal Tribunal that a compulsory charge for heat and light required as a condition of occupying employer-provided accommodation is a charge "in respect of the provision of living accommodation" under regulation 31(1)(i) and must be accounted for when assessing minimum wage compliance. The court also held that the £6 payments were for the employer's use and benefit because the employer remained liable to the utility suppliers, and contractual attempts to recharacterise that liability were ineffective.

Appeal to the Court of Appeal from the Employment Appeal Tribunal (Elias J) on an appeal from an Employment Tribunal chairman; EAT reference EAT/0106/06/MAA. The EAT had affirmed the Employment Tribunal's determination that the employer's arrangements breached the National Minimum Wage Regulations 1999.