Daler-Rowney Ltd v Revenue and Customs Comrs

An exemption from the national minimum wage for work experience forming part of a higher education course was properly construed as referring to a course undertaken in the United Kingdom. Although that construction indirectly disadvantaged non-UK students in access to employment, it pursued a legitimate social-policy aim: preventing abuse of the minimum-wage scheme and protecting its effective operation. The restriction was a proportionate means of achieving that aim. The employer had to prove, for each worker, that the statutory conditions of the exemption were satisfied, including that the work actually done was part of the course. A student’s status alone did not establish those matters.

HM Revenue and Customs served Daler-Rowney with a notice of underpayment requiring payment of £53,685.40 in arrears of national minimum wage to 26 students and a £5,000 penalty. The Employment Tribunal dismissed the employer’s appeal.

The Tribunal held that regulation 12(8) of the National Minimum Wage Regulations 1999 applied only where the higher education course was undertaken in the United Kingdom. It accepted that the restriction indirectly discriminated against non-UK students but held that the discrimination was justified. The employer appealed on domestic construction, justification, European Union law, evidential burden and procedural grounds.

1. Appeal dismissed. The Employment Judge was entitled to construe “higher education course” in regulation 12(8) of the National Minimum Wage Regulations 1999 as referring to a course undertaken in the United Kingdom. The statutory context, including the former regulation 12(9), regulation 12(9B) and the specific treatment of European programmes in regulation 13, supported that conclusion.
2. The restriction was indirectly discriminatory because it gave UK students more favourable access to work-experience employment. It was nevertheless justified. The legitimate aim was to prevent loopholes and abuse which could expose workers to exploitation and enable businesses to undercut competitors, thereby undermining the national minimum wage scheme.
3. The proportionality assessment required consideration of whether the restriction was appropriate and necessary, including the availability of workable alternatives. The Employment Judge was entitled to consider the difficulty of assessing foreign institutions and course equivalence, together with HMRC’s resources and the administrative costs of alternative schemes. The conclusion that no workable lesser measure was available was an evaluative conclusion open to him.
4. The proposed arguments based specifically on article 45(3) TFEU and article 3 of Regulation 492/2011 were new points requiring further factual investigation. Applying Glennie v Independent Magazines (UK) Ltd and the related authorities, there were no exceptional circumstances justifying their introduction on appeal. In any event, the appeal concerning Regulation 492/2011 failed for lack of evidence.
5. The burden of proving the exemption lay on the employer. Sections 19 and 28(1) of the National Minimum Wage Act 1998 required the employer to establish, on the balance of probabilities, that the work actually performed was required as part of the course, occurred before the course ended, and was part of that course. The words “as part of that course” were not redundant. Mere student status or speculative inference from attendance at a higher education institution was insufficient.
6. Even if the regulatory definition were invalid, the general entitlement to the national minimum wage would remain the default position, subject to proof of the exemption in individual cases. The proceedings concerned the validity of the notice, not a general public-law challenge to the regulation.

• Employment Appeal Tribunal: Employment Judge Barrowclough dismissed Daler-Rowney’s appeal against the notice of underpayment and penalty. The Employment Appeal Tribunal dismissed the further appeal on all grounds.