Summary
A sum withheld from wages at source is a deduction, not a payment, for the purposes of the national minimum wage calculation. The exception in regulation 12(2)(e) of the National Minimum Wage Regulations 2015 applies only to payments and cannot be extended to voluntary deductions by analogy with tax legislation.
A deduction is for the employer's use and benefit where the employer may use the money generally and thereby receives the consideration for its goods or services, even if the worker also benefits. The exceptions for worker conduct or another event, and for loans, are narrowly construed.
Factual background
HMRC served notices of underpayment on a football club after the club deducted weekly instalments from certain employees’ wages for season tickets obtained for family members. The deductions took the employees’ cash pay below the national minimum wage.
The Employment Tribunal rescinded the notices. It held that the arrangement fell within an exception in regulation 12 of the National Minimum Wage Regulations 2015. HMRC appealed on points of law. The club also advanced a cross-appeal and additional grounds for upholding the Tribunal’s result.
The central issue was whether the wage reductions were deductions which reduced remuneration, or fell within an exception to that consequence.
Held
Appeal allowed; cross-appeal dismissed. The Tribunal’s decision was quashed and replaced with a decision that the notices of underpayment stand.
The arrangements involved deductions, not payments. Under the ordinary meaning and structure of the National Minimum Wage Regulations 2015, money withheld at source from wages is a deduction. Regulation 12(2)(e) expressly excepts only payments for goods or services. Its language was unambiguous, leaving no basis to treat a voluntary deduction as a payment by applying tax legislation. Such an interpretation would undermine the statutory purpose of securing a minimum level of cash remuneration.
The deductions were for the club’s use and benefit under regulation 12(1). The sums were available for its general use and secured the price of the season tickets. It was immaterial that employees and their family members also benefited, and there was no obligation to account for the money to a third party.
Regulation 12(2)(a) requires conduct amounting to misconduct, or a particular event involving voluntary conduct for which the worker is responsible. That conduct or event must trigger, under an existing contractual provision, the worker’s liability or the employer’s right to deduct. A contract creating an ongoing obligation to pay is not itself such an event. Although the Tribunal erred in finding no contractual commitment, it correctly held that the exception did not apply.
The instalment arrangement was not a loan or an advance of wages within regulation 12(2)(b). The exception concerns a cash advance to be recouped, not an instalment purchase of a season ticket or a supposed loan of the ticket itself.
A subsequent direction made under section 19A(2) of the National Minimum Wage Act 1998, concerning financial penalties in specified future enforcement cases, neither amended the substantive legislation nor affected its judicial interpretation.
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Appellate history
- Employment Appeal Tribunal: HMRC’s appeal was allowed. The Tribunal’s decision was quashed and the notices of underpayment were reinstated.
- Employment Tribunal: The club’s appeal against HMRC’s notices of underpayment was allowed and the notices were rescinded.
Key cases cited
13 authorities cited.
- RFC 2012 Plc (in liquidation) v Advocate General for Scotland [2017] UKSC 45
- Garforth v Newsmith Stainless Ltd [1979] 1 WLR 409
- Royal Mencap Society v Tomlinson-Blake [2018] EWCA Civ 1641
- Secretary of State for Work & Pensions v Morina & Anor [2007] EWCA Civ 749
- Leisure Employment Services Ltd v HM Revenue & Customs [2007] EWCA Civ 92
- Morelle Ltd v Wakeling [1955] 2 QB 379
- Wolfe v North Middlesex University Hospital NHS Trust [2015] UKEAT 0065_14_0904
- Revenue and Customs Comrs v Lorne Stewart plc [2014] UKEAT 0250_14_1311
- Lock and Another v British Gas Trading Ltd (No 2) [2016] IRLR 316
- Revenue and Customs Comrs v Leisure Employment Services Ltd [2006] ICR 1094
- Bass Leisure Limited v Thomas [1994] IRLR 104
- R v National Insurance Comr, Ex parte Hudson (Hudson, Ex parte, Hudson v Secretary of State for Social Services, Jones v Secretary of State for Social Services) [1972] AC 944
- Lake v Lake [1955] P 336
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Cases citing this case
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