Revenue and Customs Comrs v Lorne Stewart plc

For the exception in regulation 33(a) of the National Minimum Wage Regulations 1999, an “other event” must have a relationship to conduct for which the worker is responsible. It need not be misconduct.

A worker’s voluntary resignation may therefore be such an event. A deduction which the worker is contractually liable to repay on resignation may be disregarded when calculating minimum-wage remuneration. An event imposed on the worker, such as redundancy dismissal, does not qualify merely because the contract provides for repayment.

Lorne Stewart paid for employees’ training under agreements requiring repayment of some or all course costs if the employee left within two years. The agreements authorised deduction of the repayment from final salary.

Several employees, including Ms Brade, voluntarily resigned within that period. The deductions made their final payments prima facie lower than the national minimum wage. HMRC issued a Notice of Underpayment.

The Employment Tribunal allowed Lorne Stewart’s appeal, holding that the deductions fell within regulation 33(a) of the National Minimum Wage Regulations 1999. HMRC appealed. The central issue was whether voluntary resignation was an “other event” for which the worker was contractually liable within that provision.

1. Appeal dismissed. Regulation 33(a) excepts a deduction from the operation of regulation 32(1)(b) where it is in respect of the worker’s conduct, or another event, for which the worker is contractually liable.

2. The words “any other event” are not broad enough to cover every contractual liability. They require a discrete event and, consistently with Revenue and Customs Commissioners v Leisure Employment Services Ltd [2006] ICR 1094, must have a relationship to conduct by the worker.

3. The requisite relationship is responsibility, not misconduct. Although conduct giving rise to contractual liability will commonly be misconduct, an “other event” need not be akin to misconduct. A voluntary resignation is an event for which the worker is responsible. Damage to property for which the worker is responsible may also qualify.

4. Conversely, an event imposed on the worker, such as dismissal for redundancy, does not qualify. Nor would a request for an occupational-health referral, where the worker could not be regarded as responsible for the ill-health prompting it.

5. Ms Brade and the other relevant workers voluntarily resigned before the agreed two-year period expired. Their contractual repayment liability therefore arose in respect of an “other event” within regulation 33(a). Lorne Stewart could deduct the course repayments without infringing the national-minimum-wage legislation. The Tribunal’s decision stood.

• Employment Appeal Tribunal: HMRC’s appeal was dismissed on 13 November 2014.
• Employment Tribunal: Employment Judge Heal, by a decision sent to the parties on 4 April 2014, allowed Lorne Stewart’s appeal against HMRC’s Notice of Underpayment.