Annabel's (Berkeley Square) Ltd & Ors v HM Revenue & Customs

Payments from a tronc do not count towards the national minimum wage where the employer has transferred service-charge money to an independently acting troncmaster and has lost legal and beneficial ownership and control of the fund.

The decisive question under National Minimum Wage Regulations 1999, regulation 30(a), is whether the money paid to the worker was paid by the employer. A broad assessment of the money’s original source or the transaction’s commercial purpose cannot replace precise legal analysis of ownership and the identity of the payer at the point of payment.

Three private members’ clubs and restaurants operated tronc schemes under which discretionary service charges received by the employers were transferred to troncmaster accounts and distributed to participating employees. The employers’ basic wages were below the national minimum wage.

HMRC issued enforcement notices under the National Minimum Wage Act 1998. The employment tribunal allowed the employers’ appeals, but the Employment Appeal Tribunal, in UKEAT/0562/07/RN, reversed that decision. The issue before the Court of Appeal was whether payments made from the tronc were money payments paid by the employer for regulation 30(a), the payroll issue under regulation 31(1)(e) not being pursued.

1. Disposition. The employers’ appeal was dismissed. Rimer LJ gave the principal judgment. Sullivan LJ agreed with both judgments, and Mummery LJ concurred in Rimer LJ’s reasoning. The decision was unanimous.
2. Statutory approach. Regulation 30(a) requires a precise legal analysis of whether the relevant money payment was paid by the employer. The court rejected a broad-brush approach based only on the fact that the service charges originally belonged to the employers. A realistic analysis must respect the legal structure and commercial substance of the arrangement.
3. Ownership and control. The employers initially owned the service-charge money. Once equivalent sums were paid into accounts operated exclusively by the troncmasters, the employers ceased to have legal or beneficial title to, or control of, those sums. The troncmaster alone determined their distribution and held them on trust for participating employees. The employers’ ability to receive grievances or discipline a troncmaster for maladministration did not amount to ownership or control. A remote resulting trust if distribution became impossible did not preserve any relevant beneficial interest for the employers.
4. Identity of the payer. The troncmaster determined the payments, made the required PAYE deductions and actually paid the employees. The money paid was therefore part of a fund beneficially owned by the employees, not the employers’ money. The position was materially analogous to Wrottesley v Regent Street Florida Restaurant [1951] 2 KB 277. Nerva and Others v R. L. & G. Ltd [1997] ICR 11 supported the conclusion that the money initially became the employers’ property, but the present arrangement differed because the employers did not retain ownership until the final payment.
5. Consequences. The legitimacy of the tronc arrangements and their National Insurance advantages did not make the distributions employer-paid remuneration for national minimum wage purposes. The Employment Appeal Tribunal had correctly allowed HMRC’s appeal. The payroll issue was not determined.

• Court of Appeal (Civil Division): on 7 May 2009 dismissed the employers’ appeal and upheld the Employment Appeal Tribunal’s decision.
• Employment Appeal Tribunal: in UKEAT/0562/07/RN, Wilkie J allowed HMRC’s appeal and reversed the employment tribunal’s decision.
• London Central employment tribunal: on 20 September 2007 allowed the employers’ appeals against HMRC’s enforcement notices and rescinded the notices.