Scicluna v Zippy Stitch Ltd & Others

Where an employee agrees to defer payment of earned wages without waiving the entitlement, an implied contractual term may require the arrears to crystallise on termination. The resulting sum is an ascertainable payment for services previously rendered and may be recovered as an unlawful deduction from wages under Part II of the Employment Rights Act 1996.

This differs from damages for pay in lieu of notice following a wrongful dismissal. The latter arises as compensation for breach, rather than as payment of wages earned during employment.

The Claimant, a managing director employed by the Respondent companies, resigned and brought claims including unlawful deductions from wages and breach of contract for unpaid salary. The Employment Judge found that he had agreed to a daily salary and had deferred, but not waived, payment until the business could afford it.

The Employment Judge upheld the contractual claim for arrears but dismissed the wages claim on the basis that no identifiable sum had been payable on a particular occasion. The Claimant appealed that dismissal. The Respondents cross-appealed against the finding that arrears became payable on termination.

The central issue was whether deferred wages which became payable on termination could be recovered under Part II of the Employment Rights Act 1996.

1. Appeal allowed and cross-appeal dismissed. The Employment Judge’s findings established that the Claimant was contractually entitled to £100 net per day, had deferred payment only, and had not waived that entitlement.

2. The agreement to defer payment carried an implied term that the entitlement to accumulated wages crystallised when the employment terminated. The cross-appeal’s contention that salary was not due until the business could afford it, even after termination, was inconsistent with the Employment Judge’s finding that arrears were outstanding at termination.

3. The crystallised arrears were payment for services already rendered during employment. They were therefore an ascertainable sum properly payable on termination and recoverable by an unlawful-deduction claim under Part II of the Employment Rights Act 1996.

4. Delaney v Staples [1992] ICR 483 was distinguishable. Pay in lieu of notice following wrongful summary dismissal is damages arising from the breach. The arrears here were analogous instead to the holiday payment considered in HM Revenue & Customs v Stringer [2009] ICR 985.

5. Paragraph 2 of the Employment Judge’s judgment was varied to provide that the unlawful deduction complaint succeeded. The case was remitted to the Employment Judge for remedy, with no double recovery for the wages and contractual claims. The Respondents were ordered to pay appeal fees of £1,600; no further costs order was made.

• Employment Appeal Tribunal: Allowed the Claimant’s appeal, dismissed the Respondents’ cross-appeal, varied the Employment Judge’s judgment so that the unlawful deduction complaint succeeded, and remitted remedy.
• Employment Tribunal, London (South): Reserved judgment dated 9 December 2015. It upheld the contractual arrears-of-wages claim, subject to the jurisdictional limit under Article 10 of the Extension of Jurisdiction Order 1994, but dismissed the unlawful-deduction claim.