Wages Act 1986: The Story So Far

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Note: The Act applies to any "worker". The definition of this term, and other qualifications and exclusions, are set out in box 1 (opposite).

What are "wages"?

"Wages" are defined in s.7(1) of the Act as any sums payable to a worker by his or her employer "in connection" with his or her employment, including:

Excluded payments

A number of payments are, however, expressly excluded from the above definition by s.7(2). These are:

Note: any monetary value attaching to any payment or benefit in kind furnished to a worker by the employer is not treated as wages, except in the case of any voucher, stamp or similar document which is:

(a)of a fixed value expressed in monetary terms, and

(b)capable of being exchanged (whether on its own or together with other vouchers, stamps or documents, and whether immediately or only after a time) for money, goods or services (or for any combination of two or more of those things). This would include, for example, luncheon vouchers.

Not limited to contractual payments

Notwithstanding these exclusions, the definition of "wages" is extremely broad and covers a range of contractual and non-contractual payments "connected" with a worker's employment.

For example, in Kent Management Services Ltd v Butterfield, the EAT upheld an industrial tribunal's decision that a commission and bonus scheme, which was expressly described as "discretionary", "ex gratia" and "non-contractual", constituted wages within s.7(1) and that the failure to pay such commission was an unlawful deduction under s.1(1).

The EAT noted that s.7(3) indicated that non-contractual bonuses were considered to be wages once they had in fact been paid. In the present case, the commission had been calculated but not paid. Nevertheless, the wording of the scheme in question raised the inference that commission which had been earned would normally be paid, except in extreme or unusual circumstances (for example, bankruptcy). It seemed to the EAT that this was clearly a sum payable "in connection" with the worker's employment, since it was within the reasonable contemplation of both parties that in ordinary circumstances it would be paid. Furthermore, s.7(1)(a) referred to payments or other emoluments which were to be regarded as wages "whether payable under [the worker's] contract or otherwise". That similarly indicated that "perhaps the payment need not be contractual but would normally be expected".

This decision should, however, be treated with some caution on the question of whether non-payment of such a sum can amount to a "deduction". The EAT made no reference to s.8(3) of the Act, which stipulates that a deficiency is to be treated as a deduction from wages only where the amount paid is less than the amount "properly payable" to the worker. It is at least arguable that the amount "properly payable" must be an amount which is payable under some legal obligation or duty (whether contractual or otherwise).

Payments in lieu are not wages

Many of the cases which have come before tribunals have involved workers who have been summarily dismissed, and who have claimed that their employers failed to make any payment in lieu of notice. After much debate, it is now established that such payments do not fall within the statutory definition of "wages".

In Delaney v Staples (t/a De Montfort Recruitment), Mrs Delaney brought a claim in respect of her employer's failure to pay her commission and accrued holiday pay on the termination of her employment. In addition, she claimed £82 in respect of the employer's failure to pay her in lieu of notice. An industrial tribunal dismissed this latter part of the claim on the basis that pay in lieu of notice did not constitute "wages" under s.7 of the Act. The tribunal's decision was upheld by both the EAT and the Court of Appeal, on the basis that a claim for a payment in lieu of notice was in effect a claim for damages for wrongful dismissal.

On further appeal to the House of Lords on this point, Lord Browne-Wilkinson observed that the phrase "payment in lieu of notice" was not a term of art, and was commonly used to describe many different types of payment. He went on to outline four principal categories:

The critical question in the present case, said Lord Browne-Wilkinson, was whether pay in lieu was a sum payable to Mrs Delaney "in connection" with her employment under s.7 of the Act. He agreed with the Court of Appeal that the provisions of the Act could not be made to work if pay in lieu were to be included in the definition of wages.

For example, in relation to the fourth category of pay in lieu outlined above, there was no occasion on which such a payment was "properly payable" as required by the definition of "deduction" in s.8(3) of the Act. A worker had no contractual or other right to a lump sum of liquidated damages at any time prior to a court judgment in his or her favour. Even if it was assumed that the payment was due on the date of summary dismissal, it would be impossible to quantify the correct amount of any payment since this would fall to be reduced by any amount the worker received by way of mitigation of loss.

Similarly, it would be impossible to identify the date on which the payment in lieu should have been made for the purposes of calculating the three-month time limit for complaint under the Act (s.5(2) - see below). Finally, under the general law, in paying damages for wrongful dismissal an employer would be entitled to set off any counter-claim it may have against the employee. If pay in lieu were covered by the Act, s.5(7) would preclude the employer from enforcing any counter-claim in respect of the amount deducted (see further below). "I find it impossible to believe that Parliament in passing this legislation intended, by a side-wind, to alter the common law rights of employers and workers on the termination of employment", said Lord Browne-Wilkinson.

The House of Lords further expressed the view that payments in lieu based on an express contract term or mutual agreement (the second and third categories above) also fell outside the definition of wages. The basic concept of wages was as payment in respect of rendering services during employment. All payments payable in respect of termination of the contract were consequently excluded, except to the extent that they were expressly included in s.7(1). It followed that only payments in respect of "garden leave" fell within the Act, since these were "advance payments of wages falling due under a subsisting contract of employment".

Note: An "employee" will now be able to invoke the industrial tribunal's new contractual jurisdiction to deal with most wrongful dismissal claims and claims for pay in lieu of notice, as well as retaining the option to pursue such claims in the ordinary courts.

What is a deduction?

The Act contains no express definition of the term "deduction". However, s.8(3) provides that: "Where the total amount of any wages that are paid on any occasion by an employer to any worker employed by him is less than the total amount of the wages that are properly payable by him to the worker on that occasion (after deductions) then, except in so far as the deficiency is attributable to an error of computation, the amount of the deficiency is to be treated as a deduction made by the employer from the worker's wages on that occasion."

Error of computation: "An error of computation" means an error of any description on the part of the employer affecting the computation of the gross amount of the wages that are properly payable to the worker on that occasion (s.8(4)). The "gross amount" of wages means the total amount of those wages before deductions of whatever nature. It would appear that this exception is largely confined to administrative, accounting or mathematical errors in calculating a worker's wages, and does not apply to disputes about contractual entitlement.

In Yemm v British Steel plc, for example, the EAT recently stated that: "An employer who makes a conscious decision not to pay because he believes the contract entitles him to take that course is not making an error of computation; he may be making an error in the sense that he may be mistaken about the terms and effect of the contract, but he is not making by any stretch of language an error of computation."

Excluded deductions: By virtue of s.1(5) of the Act, a number of deductions or payments are specifically excluded from the general requirements of s.1(1) and 1(2) of the Act. These are set out and discussed in box 2 (opposite).

Any shortfall is a deduction

According to the Court of Appeal in Delaney v Staples, s.8(3) must have been intended to widen the ambit of the Act, because it is a deeming provision, extending the scope of the expression "deduction". So, leaving aside errors of computation, any shortfall in payment of the amount properly payable is therefore to be treated as a deduction. The Act consequently applies not only to deductions which an employer alleges that it is entitled to make, but also to disputes as to whether any wages are due or as to the amount of wages payable.

It is thus the role of industrial tribunals to determine the amount that is "properly payable" on any "occasion". The "occasion" referred to is the pay period in respect of which an unlawful deduction is alleged. This means that where wages are payable by regular instalments (whether weekly, monthly or otherwise), each occasion on which wages are due to be paid under the contract must be considered separately. It is for this reason that the recovery of a previous overpayment is a deduction, since it does not affect the amount properly payable in any subsequent pay period (Murray v Strathclyde Regional Council). (Note, however, that a deduction in respect of a bona fide overpayment is expressly excluded from consideration by a tribunal by virtue of s.1(5)(a) of the Act.)

Properly payable according to law

The essential question to be resolved by tribunals is: was the sum properly payable in law or not? In Greg May (CF & C) Ltd v Dring, the employer refused to pay accrued holiday pay to an employee on dismissal. An express term of the employee's contract of employment provided that accrued holiday pay would not be paid if the employee was dismissed for gross misconduct. The industrial tribunal in the case, however, concluded that the employee's conduct did not, on the facts of the case, constitute gross misconduct, and that the holiday pay was therefore properly payable under s.8(3).

That decision was upheld by the EAT, where Mr Justice Knox asserted that it was for the industrial tribunal to determine what was properly payable under the contract. This meant "payable according to law", and required the tribunal to "apply the common law rules, together of course with any relevant statutory provision". Section 8(3) would, he felt, be virtually unworkable if a distinction were to be drawn between sums that were in dispute and those which were not.

The EAT's reasoning in Greg May was approved by the Court of Appeal in Delaney. As we have seen, that case involved not only the question of pay in lieu (which went to the House of Lords), but also the non-payment of commission and accrued holiday pay (totalling £55.50) outstanding on termination. An industrial tribunal's conclusion that this was an unlawful deduction under s.1(1) of the Act was overturned by the EAT on appeal. Mr Justice Wood held that s.8(3) was not intended to give tribunals jurisdiction to make awards for non-payment of wages due.

In the Court of Appeal, Lord Justice Nicholls firmly rejected that approach. Section 8(3) provided, in express terms, that wages that were properly payable but not paid were to be treated, to the extent of the non-payment, as a deduction: "That being so, a dispute, on whatever ground, as to the amount of wages properly payable cannot have the effect of taking the case outside of s.8(3). It is for the industrial tribunal to determine that dispute, as a necessary preliminary to discovering whether there has been an unauthorised deduction. Having determined any dispute about the amount of wages properly payable, the industrial tribunal will then move on to consider and determine whether, and to what extent, the shortfall in payment of that amount was authorised by the statute or was otherwise outside the ambit of the statutory prohibition."

Note: The Court of Appeal's decision in Delaney remains the most authoritative statement on the interpretation of s.8(3), since this point did not form part of the appeal to the House of Lords.

Reductions in pay and working under protest

It is prima facie a "deduction" under s.8(3) for an employer unilaterally to remove or reduce any element of a worker's wages, whether temporarily or permanently.

For example, in British Steel plc v Elliott, the EAT upheld an industrial tribunal's decision that the employer had unlawfully withheld a worker's shift allowance during a "pause" in production. The amount properly payable under the contract in this case, it was found, comprised a basic salary and the shift allowance. In reaching that conclusion, said the EAT, the tribunal had been entitled to take into account the fact that the shift allowance was paid in all other circumstances, including during holidays and periods of sickness.

In Bruce and others v Wiggins Teape (Stationery) Ltd, the employer proposed unilaterally to withdraw contractually agreed enhanced overtime rates. This change was accepted neither by individual workers, nor by their trade union on their behalf. Once the change was imposed, the workers continued to work overtime only under protest. An industrial tribunal dismissed their claims on the basis that the purpose of the Wages Act was to protect workers in relation to the payment of wages, not to protect their rates of pay.

Upholding the workers' appeal, the EAT said that three questions arose in the present case: (1) what were the wages of the workers at the relevant time? (2) did the employer make a deduction from those wages within the meaning of the Act? and (3) if so, were those deductions made in contravention of s.1(1)?

The EAT said there was no doubt that overtime payments were wages as defined in s.7(1). Turning to s.8(3), it referred to the Court of Appeal's decision in Delaney and concluded that there was no valid distinction between a deduction from wages and a reduction in wages. "The issue is whether, for whatever reason, apart from an error of computation, the worker is paid less than the amount of wages properly payable to him," said the EAT.

In the present case, the employer had agreed to pay enhanced overtime rates, and the workers had never agreed to any reduction in those rates. There had been no finding by the industrial tribunal that the workers, by continuing to work, had accepted a reduction or other variation in their overtime rates, or that the employer had any contractual authority to reduce wages unilaterally. It was clear from cases such as Rigby v Ferodo Ltd that a worker could continue to work under protest without impliedly consenting by conduct to a reduction in wages, and it was irrelevant that the workers did not treat the employer's decision to reduce wages as a repudiatory breach of contract and complain of unfair constructive dismissal.

Similarly, in McCruary v Washington Irvine Ltd , the employer unilaterally discontinued payment in respect of two hours' guaranteed overtime. Again, the employee had refused to accept the proposed change, and worked on only under protest. On his claim under s.1(1) of the Act, an industrial tribunal found that the employer had been in repudiatory breach of contract but that, when it had become clear that the employer was not going to change its mind, the employee had been faced with a "take-it-or-leave-it situation". In continuing to work at the reduced wage after that date, said the tribunal, the employee had impliedly agreed to a variation in terms.

Allowing the employee's appeal, the EAT again referred to Rigby v Ferodo and concluded that an employee was not, in such a case, faced with a "take-it-or-leave-it" situation: "The employee may agree to accept the reduced wage; or he may accept the repudiation, leave the employment and sue for damages or claim for unfair dismissal; or he may continue to work, under protest, while pursuing any other remedies open to him," said Lord Coulsfield. In the present case, the employee had continued to work only under protest, for a relatively short period, having expressly refused to agree to the reduction in pay.

Note: In order to determine the amount properly payable, tribunals may in some circumstances have to consider whether there has been a transfer of contractual terms and conditions under the Transfer of Undertakings (Protection of Employment) Regulations 1981 (Ruby and others v Sutcliffe Catering North Ltd). In Ruby, the EAT remitted the case for the tribunal to consider whether there had been a relevant transfer which could have preserved an alleged contractual right to 100% pay parity with another specified group of workers.

Equitable set-off and retentions

An employer may on occasion withhold sums from a worker's wages, arguing that the apparent deductions are in fact "retentions" against, or in part satisfaction of, future claims for damages for breach of contract against the worker. This form of "equitable set-off" is well-known in cases where deductions are made as a result of industrial action which is alleged to be in breach of contract. It may also arise where the breach alleged is the worker's failure to give proper notice of termination of employment, or a failure to work out notice.

For example, in New Centurion Trust v Welch and another, an employer submitted that it had counter-claims against the workers which exceeded any wages due and that, as a result of equitable set-off, there was no sum from which any deduction could be made. In response, the EAT noted that the principles upon which an equitable set-off could be effective in a claim for wages were "severely limited", and depended upon "a careful analysis of the nature of the breach relative to the nature of the contractual claim". An industrial tribunal would, it said, have to carry out a "detailed examination and analysis of the facts of the case", before reaching any conclusion on the employer's submission.

In Chiltern House Ltd v Chambers and others, however, the EAT was unequivocal: "the proposition that an employer by retaining part of the wages contractually due in order to meet a future claim for damages through breach of the contract of employment is therefore not in breach of s.1 is untenable." This was an obiter comment (that is, not a necessary part of the EAT's decision in the case and therefore not binding), but is in our view to be preferred to the uncertainty left by New Centurion Trust. It would seem to be correct in principle to treat an equitable set-off as a "deduction" (under s.8(3)), which would need to be authorised in the manner outlined below in order to be lawful (unless, as in the case of industrial action, it falls within the excluded categories contained in s.1(5)).

When is a deduction legitimate?

As we have already stated, a deduction made or payment received by an employer is lawful only if it is required or authorised by virtue of:

Statutory requirement or authority

Established examples of deductions (or payments) authorised or required by statutory provision include deductions in respect of income tax, national insurance and certain attachment of earnings orders.

A deduction (or payment) must be clearly covered by a relevant statutory provision if it is to be lawful. In McCree v London Borough of Tower Hamlets, Tower Hamlets council unilaterally phased out a pay supplement - which was paid only to former Greater London Council workers who (before their transfer to Tower Hamlets) had agreed to be paid by credit transfer instead of cash - by absorbing it into an overall increase in bonus payments applicable to all of its workers. The EAT held that an industrial tribunal had been wrong to find that Tower Hamlets was authorised to make this change by virtue of a statutory provision.

The purpose of the regulations upon which the council had relied was, said the EAT, to protect the personal position of staff who transferred from the GLC to other authorities, whilst recognising the need to integrate such staff into the new employer's organisation. For this reason, the regulations gave the new employer a right, within six months of transfer, to introduce or apply new terms and conditions of employment provided they were not less favourable than those enjoyed by a worker immediately before transfer. There was no power which allowed the new employer to continue to make unilateral changes in the contract of employment of a transferee beyond the six-month period laid down.

In the present case, the pay supplement had been clearly identified in the revised statement of terms and conditions which Tower Hamlets had issued to former GLC employees, and there was consequently no statutory (or contractual) authority for the abolition of the disputed supplement.

"Relevant provisions" of the contract

A "relevant provision" of a worker's contract, for the purposes of s.1(1)(a), means a provision which is contained:

The mere existence of a contractual term which satisfies these requirements does not, however, automatically settle the issue of the legality of a deduction or payment received in an employer's favour.

In Fairfield Ltd v Skinner, the employer made deductions totalling £305 from the last pay packet of one of its van drivers. These deductions were allegedly made in respect of the costs of repairing damage to the company vehicle used by the employee, and a "provisional deduction" for "van telephone calls and private mileage in excess of free allowance". An industrial tribunal found that the employee's contract of employment, together with a supplementary vehicle policy, contained terms that prima facie entitled the employer to deduct such sums from his wages. The tribunal nevertheless went on to hold that the deductions were not justified on the facts of the case because the sums claimed from the employee were not due to the employer. The employer had previously agreed that the employee could carry out repairs to the van at his own expense (and this had been done), and there was insufficient evidence of the sums due in respect of excess private mileage and phone calls.

Upholding this decision, the EAT said that the question which tribunals had to ask themselves under s.1(1)(a) of the Act was: "were the deductions that had here been made such as were authorised to be made by virtue of any relevant provision of the worker's contract?" As a matter of simple language, it seemed to the EAT "that s.1(1)(a) contemplates that the [tribunal] must, where there is a dispute as to the justification of the deduction, embark upon a resolution of the dispute".

Any variation must precede act or event

An employer cannot rely on a relevant provision of the contract which is the result of a variation of contract, unless the variation took effect before the conduct of the worker, or the occurrence of any other event, which led to the deduction or the receipt of a payment (s.1(4)(a)). The combined effect of this provision and s.1(3) is that in order for a variation to be effective:

A variation may, however, be the result of individual consent, or consent expressed through the collective bargaining process between employers and trade unions.

In York City & District Travel Ltd v Smith, the employer sought to rely on a contract term which entitled it to deduct cash shortages from the wages of staff who handled cash, "unless the shortage has already been made good". That clause was a variation of contract inserted as a result of a collective agreement between the employer and the recognised trade union. The proposed variation had been agreed in principle in March 1988, but the agreement was not signed until 9 September of that year. On 8 December, a deduction was made from Mr Smith's wages relating to cash shortages which had occurred on 9 August. An industrial tribunal held that the variation had not been in effect at the time the cash shortages had been discovered, since the collective agreement had not been "implemented and ratified" by that date. The deductions were, it said, consequently unlawful.

Allowing an appeal against this decision, the EAT said that it was clear that a variation of the original contract may be oral, but that it had to be notified to the employee in writing prior to the date of the deduction. Furthermore, by virtue of s.1(4), the variation must have been agreed before the conduct or event on account of which the deduction was made. Applying these principles to the present case, the variation would have to have been agreed before 9 August and the notification in writing of the variation given to Mr Smith before 8 December (that is, the date of the deduction).

The EAT concluded that the industrial tribunal had failed to give itself a proper direction in law, had failed to define the relevant issues and had omitted essential findings of fact. In particular, said the EAT, it would be an error for an industrial tribunal to approach a case with the fixed notion that collective agreements must always be, or almost always are, reduced to writing before they can be effective.

Prior agreement or consent

As an alternative to relying on relevant terms of the contract of employment, an employer may legitimately make a deduction from wages (or receive a payment), if the worker has previously given his or her written agreement or consent to the deduction being made, or the payment being received (s.1(1)(b)). Any such agreement or consent must in all cases be given before the conduct or event on which the employer relies in making the deduction or receiving any payment (s.1(4)(b)). It is thus insufficient for an employer merely to seek the worker's agreement or consent after that date, but before a deduction is made.

For example, in Discount Tobacco & Confectionery Ltd v Williamson, the employer discovered considerable stock shortages in December 1988 and February 1989. On 14 March 1989, Mr Williamson, a shop manager, signed a document authorising the employer to deduct £3,500 from his wages in 175 weekly instalments of £20. The EAT upheld an industrial tribunal's decision that Mr Williamson's authorisation did not render the deductions lawful, because the losses to which they related had occurred before the authorisation was given.

In the EAT's view, the purpose of s.1(4)(b), as with s.1(4)(a) above, was "to prevent any pressure being placed on an employee to agree to deductions, of whatever nature, and that can only be obviated if the agreement or the variation or the consent is made before the happening of the event which is the cause of the dispute between the employee and his employer".

Consent or agreement in writing

It is essential that a worker's agreement or consent under s.1(1)(b) be in writing. Thus, in Pename t/a Storage Lifting & Distribution Co v Paterson, Mr Paterson was informed at his job interview that his employment would normally be terminable by either party giving one week's notice, but that if he left without notice he would forfeit a week's pay. This was reiterated in a letter from the employer confirming his appointment. The EAT agreed with an industrial tribunal that the subsequent deduction of a week's pay from Mr Paterson's wages when he left without notice was a contravention of s.1(1)(b).

The arrangement was, the EAT said, an unusual one, and would in the circumstances have to be carefully spelt out so that the employee understood fully what was happening. It was "abundantly clear" that on the facts of the present case there had been no previous written agreement by Mr Paterson under s.1(1)(b) to the making of the deduction or to the forfeiture of a week's wages.

Health warning! On its facts, this early decision under the Act should be treated with care. There is no mention of s.1(1)(a) and s.1(3) in the EAT's judgment and, as we have seen, a "relevant provision" of the contract may be express or implied and, if express, written or oral. It is at least arguable that the letter of confirmation in Pename should have been viewed as written notice to the worker of the existence and effect of an express oral term agreed at the job interview.

Terms of consent must be clear

The terms of the worker's consent or agreement under s.1(1)(b) must clearly cover the deduction made. In Potter v Hunt Contracts Ltd, the employer agreed to lend Mr Potter £545 on terms set out in a letter which he had signed. That letter provided that repayments would be made at £22 a month, but that if Mr Potter left the company within two years he would immediately be required to return the outstanding balance. He left the company after only a month, and received none of the wages that he was due (£278.50).

The EAT held that an industrial tribunal had been wrong to conclude that the letter setting out the terms of the loan amounted to written consent by Mr Potter to the making of a deduction from his wages in respect of the outstanding balance. In the EAT's opinion, the letter did not indicate with sufficient clarity "the source from which the deduction was to be made - his wages - or that the deduction was authorised from that source. Each would need to be sufficiently identified in order to satisfy the true intent of s.1(1)."

Note: It seems clear that under s.1(1)(b) a worker must personally give his or her written consent to a deduction or payment. Nevertheless, in Duffield v Constructa-Stor Installation Services Ltd, the EAT recently discussed the possibility that a worker could delegate this power to a third party. That third party would, said the EAT, have to be given specific authority to agree to a deduction on the worker's behalf. On the facts of the case, however, any authority was found to have been limited to the collection of the worker's wages and did not extend to agreeing to a deduction.

Remedies and procedure

According to s.6(1) of the Act, the sole remedy available to a worker in respect of a breach of the Wages Act is by way of complaint under s.5, "and not otherwise". This does not, however, prevent a worker from choosing to pursue his or her contractual rights in the county court or High Court, or, indeed, under the industrial tribunals' new contractual jurisdiction. In Rickard v PB Glass Ltd, the Court of Appeal said that it did not believe that the Act "was intended to remove from any plaintiff all right of recourse to the courts in respect of a claim for monies allegedly due under the contract and not paid ... "

Under s.5(1), a worker may present a complaint to an industrial tribunal that his or her employer:

Time limit for complaint

A tribunal generally has no jurisdiction to hear a complaint unless it is presented within three months beginning with the date of payment of the wages from which the deduction complained of was made, or the date when a payment was received. A complaint may, however, be heard within such further period as the tribunal considers reasonable where it is satisfied that it was not reasonably practicable for the complaint to be presented within the normal time limit (s.5(2)).

Where a complaint is brought in respect of a series of deductions or payments - or a number of payments made in pursuance of demands for payment subject to the 10% limit under the retail provisions, but received by the employer on different dates - the time limit begins to run with the last deduction or payment in the series, or to the last of the payments so received (s.5(3)).

An example of a "series of deductions" can be seen in Bleazard v Manchester Central Hospitals & Community Care (NHS) Trust. In that case, the EAT overruled an industrial tribunal and applied s.5(3) to a situation where the employer had failed to pay the contractually agreed rate to a newly promoted nursing sister. In continuing to pay the worker at a lower incremental point on the relevant scale, said the EAT, there had been a series of deductions. The time limit consequently began to run with the last of those deductions, which occurred on the pay day immediately prior to the presentation of the worker's tribunal application.

It must be emphasised that the provisions of s.5(2) and (3) are concerned solely with the time limit for submitting an application to an industrial tribunal. They set out how the period of three months is to be calculated, and do not place any temporal limit on the past deductions (provided that they form part of the same series of deductions or payments) in respect of which a worker can claim recompense. So, in Reid v Camphill Engravers, the employer had continually underpaid an employee (whose rate of pay was fixed by Wages Council order) over a period of three years. The EAT rejected the employer's argument that the worker could be compensated only in respect of deductions made during the last three months of his employment.

Remedies

If a tribunal finds that a complaint is well-founded, it must make a declaration to that effect and order the employer to pay or repay to the worker the amounts unlawfully deducted or received (s.5(4)).

The overall amount which the employer will be ordered to pay or repay will be reduced by any payment which has already been made to the worker in respect of the relevant unlawful deduction(s) or payment(s) (s.5(6)).

Employer cannot recover unlawful deductions or payments

Where a tribunal orders an employer to pay or repay to a worker any amount in respect of a particular deduction or payment ("the relevant amount"), the amount which the employer is entitled to recover (by whatever means) in respect of the matter which led to the deduction or payment is reduced by the relevant amount (s.5(7)).

This provision is intended as a sanction against unlawful deductions being made or payments being received by employers. Once a tribunal has ordered an employer to repay any amount on the basis that a particular deduction or payment was unlawful under the Act, the employer loses the right to recover that amount in any other way (for example, by making further deductions or demands for payment), and in any other proceedings.

Thus, in Potter v Hunt Contracts Ltd, we saw earlier that the deduction of £278.50 from the worker's wages in respect of an outstanding loan of £523 was unlawful under s.1(1). By virtue of s.5(7), the amount of the deduction was consequently irrecoverable by the employer. The employer would, however, have been entitled to make a claim for the balance of the loan (£244.50) in the county court.

Similarly, where a tribunal has ordered an employer to pay or repay a retail worker any amount in respect of deductions or payments in excess of the 10% limit ("the relevant amount"), the aggregate amount which the employer will be entitled to recover (by whatever means) in future in respect of the cash shortages or stock deficiencies which led to the deductions or payments is reduced by the relevant amount (s.5(8)).

"Unnotified" deductions under the EP(C)A

Under s.8 of the EP(C)A an employee has a right to receive an itemised pay statement, setting out the gross amount of pay and any fixed or variable deductions made. (In the case of fixed deductions, the employer may give the employee a standing statement of fixed deductions, so that these do not need to be reproduced on every pay statement.) A complaint of a failure to comply with the requirements of s.8 may be made to an industrial tribunal under s.11 of the EP(C)A. If the complaint is upheld, the tribunal may award compensation in respect of any unnotified deductions that have been made (s.11(8)(b)).

There may consequently be some overlap between claims made under these provisions, and claims made under the Wages Act. This does not affect a tribunal's jurisdiction under the EP(C)A, but the aggregate amount that can be awarded by a tribunal under s.11 of that Act and s.5 of the Wages Act (whether on the same or different occasions) in respect of a particular deduction must not exceed the amount of the deduction (s.6(2) of the Wages Act).

Conciliation and compromise agreements

Any provision in an agreement is void in so far as it purports to exclude or limit the operation of any provision of Part I of the Act, or to preclude any person from presenting a complaint under s.5 (s.6(3)). This does not, however, apply to an agreement to refrain from presenting or continuing with a complaint where an ACAS conciliation officer has taken action in accordance with s.133(2) or (3) of the EP(C)A, or where the conditions regulating compromise agreements are satisfied in relation to the agreement.

The conditions regulating compromise agreements are contained in s.6(4)-(6) of the Wages Act and, other than the fact that they refer to "workers" and not "employees", are identical to those that apply under s.140(3) and (4) of the EP(C)A.

Assertion of statutory rights

The rights conferred by the Wages Act are on the list of "relevant" statutory rights protected under s.60A of the EP(C)A. That provision makes it automatically unfair to dismiss an employee because he or she has brought industrial tribunal proceedings against his or her employer, or alleged that the employer has infringed any of those rights. It is irrelevant whether or not the employee actually has the right, or whether it has been infringed, although both the claim to the right and that it has been infringed must be made in good faith.

Case list

Bleazard v Manchester Central Hospitals & Community Care (NHS) Trust 31.1.94 EAT 278/93

British Steel plc v Elliott 5.2.91 EAT 533/90

Bruce and others v Wiggins Teape (Stationery) Ltd 13.5.94 EAT 1050/93

Chiltern House Ltd v Chambers and others [1990] IRLR 88

Delaney v Staples (t/a De Montfort Recruitment) [1990] IRLR 86 (EAT); [1991] IRLR 112 (CA); [1992] IRLR 191 (HL)

Discount Tobacco & Confectionery Ltd v Williamson [1993] IRLR 327

Duffield v Constructa-Stor Installation Services Ltd 4.5.93 EAT 1026/93

Fairfield Ltd v Skinner [1993] IRLR 4

Greg May (CF & C) Ltd v Dring [1990] IRLR 19

Kent Management Services Ltd v Butterfield [1992] IRLR 394

McCree v London Borough of Tower Hamlets [1992] IRLR 56

McCruary v Washington Irvine Ltd 7.3.94 EAT 857/93

Murray v Strathclyde Regional Council [1992] IRLR 396

New Centurion Trust v Welch and another [1990] IRLR 123

Pename t/a Storage Lifting & Distribution Co v Paterson [1989] IRLR 195

Potter v Hunt Contracts Ltd [1992] IRLR 108

Reid v Camphill Engravers [1990] IRLR 268

Rickard v PB Glass Ltd [1990] ICR 150

Rigby v Ferodo Ltd [1987] IRLR 516

Ruby and others v Sutcliffe Catering North Ltd 25.4.94 EAT 741/93

Yemm v British Steel plc [1994] IRLR 117

York City & District Travel Ltd v Smith [1990] IRLR 213

Box 1: Who is covered by the Act? (ss.8, 9 and 30)

-a contract of service;

-a contract of apprenticeship; or

-any other contract whereby the individual undertakes to do or perform personally any work or services for another party to the contract (except where that other party is a professional client or business customer of the individual).

The protection provided by the Act thus covers certain self-employed persons, as well as "employees". In this respect, it parallels the coverage of the Sex Discrimination Act 1975 and the Race Relations Act 1976.

Box 2: Deductions excluded from the Wages Act (s.1(5))

By virtue of s.1(5), the general principle prohibiting unauthorised deductions or payments contained in s.1(1) and (2) of the Act does not apply:

(a)to any deduction from a worker's wages made by his or her employer, or any payment received from a worker by his or her employer, where the purpose of the deduction or payment is the reimbursement of the employer in respect of -

(i)any overpayment of wages, or

(ii)any overpayment in respect of expenses incurred by the worker in carrying out his or her employment,

made (for any reason) by the employer to the worker;

(b)to any deduction from a worker's wages made by his or her employer, or any payment received from a worker by his or her employer, in consequence of any disciplinary proceedings if those proceedings were held by virtue of any statutory provision. This subsection probably applies only to disciplinary proceedings involving certain "disciplined services" (such as the police or the fire service), and not to "private employees" (Chiltern House Ltd v Chambers and others⁴);

(c)to any deduction from a worker's wages made by his or her employer in pursuance of any requirement imposed on the employer by any statutory provision to deduct and pay over to a public authority amounts determined by that authority as being due to it from the worker, if the deduction is made in accordance with the relevant determination of that authority;

(d)to any deduction from a worker's wages made by his or her employer in pursuance of arrangements which have been established -

(i)in accordance with any relevant provision of the worker's contract to whose inclusion in the contract the worker has signified his or her agreement or consent in writing, or

(ii)otherwise with the prior agreement or consent of the worker signified in writing,

and under which the employer is to deduct and pay over to a third person amounts notified to the employer by that person as being due from the worker, if the deduction is made in accordance with the relevant notification by that person. This covers matters such as "check-off" arrangements providing for the deduction of union subscriptions from wages, and the deduction of employee pension contributions;

(e)to any deduction from a worker's wages made by his or her employer, or any payment received by the employer, where the deduction is made, or the payment has been required, on account of the worker having taken part in a strike or other industrial action; or

(f)to any deduction from a worker's wages made by his or her employer with the worker's prior agreement or consent signified in writing, or any payment received by the employer, where the purpose of the deduction or payment is the satisfaction (whether wholly or in part) of an order of a court or tribunal requiring the payment of any amount by the worker to the employer.

In short, any deduction or payment which falls under one of the above headings is not subject to any regulation or prohibition under the Act.

Excluded deductions a matter of jurisdiction

In Home Office v Ayres⁵, the EAT said that where an employer alleges that a deduction was made to recover an overpayment of wages or expenses under s.1(5)(a), an employee could raise a number of defences. These included: "no overpayment; incorrect amount of deduction; the purpose of the deduction was not to reimburse; [or] some defence under the general law to the claim to deduct." On the latter point, the EAT said that s.1(5)(a) had to be read as if the word "lawful" were inserted into the provision, so that the exclusion would only apply to a "lawful deduction" for the purpose of the "lawful reimbursement" of wages or expenses.

On the facts of the case, the EAT consequently upheld an industrial tribunal's finding that the employer had no lawful claim to reimbursement in respect of an overpayment of sickness pension. Under the general law, the employer would have been unable to reclaim the overpayment because the employee had received the money in good faith and without knowledge that it was an overpayment, and had spent it on ordinary living expenses. The employee could therefore rely on the common law defence of "estoppel" or "change of position".

Much of the reasoning in Ayres has, however, been doubted in subsequent decisions. In Sunderland Polytechnic v Evans⁶, the EAT held that a tribunal had no jurisdiction to consider the general legality (or lawfulness of the amount) of a deduction made on account of an employee's participation in a strike or other industrial action under s.1(5)(e). In particular, the EAT recognised that although an industrial tribunal could apply common law principles in its investigation of the lawfulness of a deduction once it had established its jurisdiction to hear a complaint, s.1(5) dealt with exceptions and the issue was whether the tribunal had jurisdiction in the first place.

Referring to the record of parliamentary proceedings in Hansard, the EAT was persuaded that if Parliament had intended to confer jurisdiction on tribunals to investigate contractual or common law issues at this stage, the word "lawful" could easily have been inserted in s.1(5). As a provision dealing with exceptions, s.1(5) had to be construed strictly and tribunals should not adopt a purposive construction. The EAT accepted that the subsection had to be read literally, and that its decision in Ayres "was perhaps affected by an enthusiasm to save multiple litigation".

A further nail was driven into the coffin of Ayres in SIP (Industrial Products) Ltd v Swinn ⁷. In a case involving the reimbursement of an alleged overpayment of expenses under s.1(5)(a)(ii), the EAT noted the approach in Sunderland Polytechnic, and held that an industrial tribunal's jurisdiction to hear a complaint is removed completely if the deduction falls within one of the categories listed in s.1(5). That provision, the EAT said, disapplies the general principle contained in s.1(1) of the Act in cases where there is "any deduction", lawful or unlawful, falling within any of the specified categories. In such cases, a tribunal has no jurisdiction to enquire into or determine the lawfulness or unlawfulness of the deduction.

Box 3: Special provisions covering workers in retail employment (ss.2-4)

Special provisions apply to deductions from the wages of workers in retail employment⁸, and to payments made by such workers, on account of cash shortages or stock deficiencies⁹. These provisions provide additional protection for such workers, and any deduction made or payment received must also comply with the general requirements of s.1(1) and (2) of the Act. The main points to note are:

On deductions

On the receipt of payments

(a)notifies the worker in writing of the worker's total liability in respect of that shortage or deficiency; and

(b)makes a written demand for payment on one of the worker's pay days.

The demand for payment (or the first demand in a series) must be made within 12 months of the date when the employer established or ought reasonably to have discovered the existence of the shortage or deficiency. A demand may not be made earlier than the first pay day on or after the date of written notification of total liability (s.3(1)-(3)).

A demand for payment is a demand which is given to the worker, or posted to, or left at, his or her last known address on a particular pay day, or in the case of a pay day which is not a working day of the employer's business, on the first such working day following that pay day.

¹ Hansard (HC) 11.2.86, col .799

² Employment Gazette, May 1989, pp.257-261

³ Industrial Tribunals Extension of Jurisdiction (England and Wales) Order 1994 SI No.1623; Industrial Tribunals Extension of Jurisdiction (Scotland) Order 1994 SI No.1624

⁴ [1990] IRLR 88

⁵ [1992] IRLR 59

⁶ [1993] IRLR 196

⁷ [1994] IRLR 323

⁸ "Retail employment" means the sale or supply of goods, or the supply of services (including financial services) directly to members of the public (or to fellow workers or other individuals in their personal capacities), or the collection of amounts payable in connection with such "retail transactions" carried out by other persons directly with members of the public or with fellow workers or other individuals in their personal capacities (that is, it includes cashiers and till operators) (s.2(2)).

⁹ This includes a deduction made or payment received on account of:

(a) any dishonesty or other conduct on the part of the worker which resulted in any shortage or deficiency, or

(b) any other event in respect of which he or she (whether together with any other workers or not) has any contractual liability and which so resulted (s.4(6)).

¹⁰ The "final instalment of wages" for these purposes means either:

(a) the amount of wages payable to the worker which consists of or includes an amount payable by way of contractual remuneration in respect of the last of the periods for which he or she was employed under his or her contract prior to its termination for any reason (but excluding any wages referable to any earlier such period), or

(b) where an amount in lieu of notice is paid to the worker later than the amount referred to in paragraph (a), the amount so paid, and in each case whether the amount in question is paid before or after the termination of the worker's contract (s.4(1)).