Payment of Wages
Cases
Histon v Shannon Foynes Port Company
[2006] IEHC 292
Finlay Geoghegan J.
“On the present hearing before me it was common case that until the date of the purported dismissal on the 21st September, 2001, the plaintiff was paid a salary by the defendant in accordance with the amount claimed. Further it was common case that the defendant recommenced paying the plaintiff the said salary from the date of the Supreme Court judgment, the 17th December, 2004, and that in the subsequent period the plaintiff was not required to turn up for work with the defendant. There is no dispute between the parties that if the plaintiff is entitled to be paid a salary for the period between the 22nd September, 2001 and 16th December, 2004, that the salary due is in the amount claimed. Further, it is not disputed by the defendant that prior to the purported dismissal on the 21st September, 2001, the plaintiff was the holder of an office in the employment of the defendant in respect of which he was entitled to be paid a salary in the amount claimed.
The defendant in its approach to the payment of salary to the plaintiff subsequent to the Supreme Court decision has sought to distinguish the plaintiff’s position prior to and subsequent to the judgment of the Court. Notwithstanding, no submission was made on behalf of the defendant, correctly in my view, that the decision of the Supreme Court in any way altered the legal relationship between the plaintiff and the defendant. The judgment and order of the Supreme Court of December, 2004, is simply declaratory of the plaintiff’s position. The Supreme Court declared that the plaintiff had not been validly removed from office in the employment of the defendant. Accordingly at all material times between the 21st September, 2004 and the 16th December, 2004 and prior to and subsequent to the said period the plaintiff was in office in the employment of the defendant. Whilst it is relevant to note this position, it does not necessarily determine the present application.
Potential Defences
The first defence sought to be made is that as the claim made by the plaintiff is for a debt due in respect of arrears of unpaid salary, and whilst the defendant accepts that the plaintiff was at all material times the holder of an office to which the salary claimed was attributable, it is contended that the payment of salary connotes a reward for services rendered and that the corollary is that if full services are not rendered, then full payment is not due. Reliance was placed in particular upon the analysis of the House of Lords in Myles v. Wakefield Metropolitan District Council [1987] AC 539.
The plaintiff asserts that this potential defence is unstateable in law by reason of s. 5 of the Payment of Wages Act, 1991 which governs the obligations of the defendant in relation to the payment of salary to the plaintiff. Section 5 of the Payment of Wages Act, 1991 provides that “an employer shall not make a deduction from the wages of an employee” unless certain conditions set out in s. 5 are fulfilled. Counsel for the defendant did not submit that on the facts herein any of the conditions which would potentially justify a deduction under s. 5 applied. Rather it was submitted that s. 5 of the Act of 1991 did not apply to the present situation as the defendant was not making a deduction from salary but was rather failing to pay 100% of the salary.
The plaintiff is an employee as defined in s. 1 of the Act of 1991. The defendant is an employer as defined in the same section and the salary claimed are wages as defined in the same section. The purpose of s. 5 is to preclude an employer from making deductions from the wages of an employee unless certain specified conditions are met. Section 5(2) is expressly directed to a prohibition against an employer making any deduction from wages in respect of “any act or omission of the employee” unless certain specified conditions are met. As already indicated it is not suggested that any of such conditions were met by the defendant herein. It does not appear to me arguable that a failure to pay to the plaintiff any part of his salary is not a deduction from his salary within the meaning of s. 5 of the Act of 1991. It is a deduction of 100%. Further the 100% deduction is being made in respect of an alleged omission by the employee i.e. the failure to turn up for work. Such a deduction is expressly prohibited by s. 5(2) of the Act of 1991.
Insofar as the defendant sought to rely on the decision in Myles v. Wakefield Metropolitan District Council it appears to me that the reasoning in that case which applies to the common law position is not applicable by reason of the express statutory prohibition in s. 5 of the Act of 1991which applies to the obligations of the defendant to the plaintiff herein.
The second defence sought to be made is that notwithstanding the decision on the preliminary issue, there exists a duty on the plaintiff to mitigate the loss which the plaintiff alleges he suffered in his claim in these proceedings. The plaintiff in response asserts that the obligation on a plaintiff to mitigate his loss does not apply to a claim for a debt due regardless of whether the claim is a debt due pursuant to contract or a payment due under statute. If this is properly a payment due under statute (which is disputed by the defendant) then the plaintiff relies upon the statement in McGregor on Damages, 17th Ed. (2003) at p.216 (para 7-002):-
“[t]he principal meaning of the term ‘mitigation’ … concerns the avoiding of the consequence of a wrong, whether tort or breach of contract, and forms probably the only exact use of the term.”
Those authors add at p.7 (para 1-010):-
“Actions claiming money under statutes, where the claim is made independently of a wrong which is a tort or breach of contract, are not actions for damages. Actions in respect of benefits under the Social Security Acts provide an excellent illustration; further examples are provided in the sphere of employment by claims for unfair dismissal and claims for redundancy payments, both of which are now provided for under the Employment Rights Act, 1996”
The plaintiff also relies upon a further statement in the same edition of McGregor at para 1-005 in relation to the distinction between actions for a debt, such as the present claim and actions for damages:-
“(1) Actions claiming money payable by the terms of a contract are for money which the defendant has promised by the contract to pay and therefore are not actions for damages. Illustrations are provided by actions for the price of goods sold and delivered, actions for salary or wages for services rendered, actions for rent, actions for freight and actions to recover moneys are payable under insurance policies. In tradition terminology the contrast is between actions of debt and actions for damages. Actions of debt are to be distinguished from actions for damages for breach of a contract and are outside the scope of this textbook.”
I accept the distinction made by the plaintiff. It does not appear to me arguable that the principles applicable to a plaintiff’s obligation to mitigate his or her loss are relevant to a claim for a debt due pursuant to contract or pursuant to statute. Those principles apply to claims for loss and damage suffered by reason of an alleged wrong (whether in contract or tort).
Accordingly I have concluded that the defendant has not satisfied the court that there is a fair or reasonable probability of the defendant having a real or bona fide defence to the plaintiff’s claim herein. Accordingly I have concluded that the plaintiff is entitled to summary judgment as claimed in the summary summons herein
Dunnes Stores Cornelscourt Ltd -v- Lacey & Anor
[2005] IEHC 417
Finnegan, P.
“This is an appeal from a determination of the Employment Appeals Tribunal pursuant to the Payment of Wages Act 1991 section 7(4)(b).
The Act in section 5 prohibits an employer from making a deduction from the wages of an employee unless the deduction is authorised to be made by virtue of any statute or any instrument made under statute or is required or authorised to be made under the employee’s contract of employment or the employee has consented to the same. The Act in section 6 provides that an employee may present a complaint in relation to a breach of the Act to a Rights Commissioner who shall hold a hearing. Section 7 provides for an appeal from a decision of the Rights Commissioner under section 6 to the Employment Appeals Tribunal and in section 7(4)(b) for an appeal from a determination of the Employment Appeals Tribunal to the High Court on a point of law.
Historically service pay has been a feature of wage scales for the Appellant’s employees. The first named Respondent at the time of the application to the Rights Commissioner was entitled to service pay of €3.81 per week and the second named Respondent €3.17 per week. Relevant employees with over five years service were entitled to receive between 50 cent and €3.50 per week payment being by way of staged increases up to 30 years service. In relation to Dublin based employees the payment was made pursuant to a Registered Employment Agreement but similar terms were applied to employees outside Dublin. In 1999 MANDATE the Respondent’s trade union sought the introduction of a long service increment for its members. The Appellant refused and the matter was referred to the Labour Relations Commission but no agreement was reached there. The dispute was then referred to the Labour Court pursuant to the Industrial Relations Act 1990 section 26(1). In its recommendation dated 26th October 2001 the Labour Court recommended that a long service increment of £7.83 per hour (sic) effective from the date of the recommendation be introduced at ten years service. I assume that this should correctly refer to €7.83 per week but that is irrelevant to the issue I have to decide. Such a recommendation is not of binding effect. The Appellant issued a memorandum dated the 18th September 2002 designed to give effect to the Labour Court recommendation as understood by the Appellant. This provides as follows –
“Long Service Increment to Existing Staff with more than Ten Years Service
In addition, long service increment of 0.23c per hour will be paid to all sales assistants with more than ten years service. This payment will not apply to canteen, cleaning, security or timepiece. This payment will be backdated to October 26th 2001. Therefore sales assistants with more than ten years service will actually be paid €10.47 per hour.
The old system of weekly service pay for fulltimers is now being abolished for all staff with more than ten years service as of October 26th 2001. Any service pay received by fulltimers in the interim will be set against the back pay for the new service rates by the Wages Department. Again this payment will be made directly into staff bank accounts this Friday.
However fulltimers with between five and ten years service will continue to receive their weekly service pay until they reach ten years service when this will be replaced by the hourly payment. Therefore on an ongoing basis staff who have over five years service will continue to receive weekly service pay until they have reached ten years service when their weekly pay will be replaced by hourly service pay.”
The effect of the memo is that staff with less than ten years service continue to receive service pay. Staff with ten years service no longer receive service pay but receive a higher sum described as a long service increment.
MANDATE responded to the memorandum by letter dated 23rd September 2002 the relevant part of that letter reading as follows –
“Service Pay
There is no agreement with MANDATE Trade Union or its members to abolish service pay after ten years. Dunnes Stores sought clarification from the Court on this matter and was advised that the issue of service pay was not before the Court. Therefore we are seeking the full restoration of service pay.”
The Respondents complained to a Rights Commissioner pursuant to the Payment of Wages Act 1991 section 6(1) the complaint being that in discontinuing service pay for employees with ten years service but in substituting a higher payment by way of long service increment the Appellant is in breach of section 5 of the Act: in short the complaint was that such employees are entitled to both service pay and long service increment. On the 1st December 2003 the Rights Commissioner found in favour of the Respondents he holding that the cessation of service pay amounted to an unlawful deduction. The Appellant appealed to the Employment Appeals Tribunal pursuant to section 7 of the Act. On the 10th August 2004 in its determination the Employment Appeals Tribunal upheld the recommendation of the Rights Commissioner.
The Appellant’s case is this. Section 5(6) of the Act provides as follows –
“5(6) Where –
(a) the total amount of any wages that are paid on any occasion by an employer to an employee is less than the total amount of wages that is properly payable by him to the employee on that occasion (after making any deductions there from that fall to be made and are in accordance with this Act) or
(b) none of the wages that are properly payable to an employee by an employer on any occasion (after making any such deductions as aforesaid) are paid to the employee,
then, except insofar as the deficiency or non payment is attributable to an error of computation, the amount of the deficiency or non payment shall be treated as a deduction made by the employer from the wages of the employee on that occasion.”
For the Appellant it was argued that regard must be had to the phrase “properly payable”. The recommendation of the Labour Court is not binding upon the Appellant. This is so whether remuneration is determined under the Registered Employment Agreement or an agreement simpliciter. Accordingly the Appellant was not obliged to implement payment of a long service increment but nonetheless decided to do so and thereby increased the remuneration of the relevant employees. The Employment Appeals Tribunal in order to make a determination ought first properly to have had regard to the remuneration “properly payable” to the employee. In the case of the Respondents the remuneration properly payable was their remuneration at the appropriate hourly rate together with service pay but increased in accordance with the memorandum of the 18th September 2002. The terms “service pay” and “long service increment” are not terms of art but each refer to additional remuneration to employees with long service. The Employment Appeals Tribunal erred in law in failing to address the question of the remuneration properly payable to the Respondents or in the alternative erred in implicitly finding that the remuneration properly payable as a result of an agreement reached between the Appellant and MANDATE was the appropriate hourly rate, the service pay and the long service increment there having been no agreement on the part of the Appellant to make such payment.
For the Respondents it was argued that on construing the memorandum of the 18th September 2002, the letter dated 23rd September 2002 MANDATE to the Appellant and the reply of 21st October 2002 the Appellant to MANDATE together with the submissions by the Appellant to the Rights Commissioner and the Employment Appeals Tribunal there is evidence of agreement on the part of the Appellant to pay both service pay and long service increment to the Respondents. These documents should be considered as containing no denial by the Appellant of an obligation to make such payment and so evidencing an agreement to make such payments: accordingly such payments are properly payable for the purposes of the Act.
Conclusion
I am satisfied upon careful perusal of the documents relied upon by the Respondents that the same cannot represent the agreement or an acknowledgement of the agreement contended for but rather contain a clear denial of the existence of any such agreement. No other evidence of an agreement was proffered. In these circumstances I am satisfied that the Employment Appeals Tribunal erred in law in failing to address the question of the remuneration properly payable to the Respondents such a determination being essential to the making by it of a determination. Insofar as implicit in the determination of the Employment Appeals Tribunal is a finding that the Appellant agreed to pay to the Respondents service pay and a long service increment then such finding was made without evidence and indeed in the face of the evidence: I am satisfied that there has been no deduction of pay from the Respondents within the terms of the Act but rather their remuneration has been unilaterally increased by the Appellant making a payment which recognises their long service in excess of that which was payable prior to the 18th September 2002. In either case there has been an error or law. Accordingly I allow the appeal.”
B-Lex Ltd -v- Fields
[2007] IEHC 437
Laffoy J.
“This is an appeal by the plaintiff, which was the defendant’s employer, from a determination of the Employment Appeals Tribunal (the Tribunal) dated 1st September, 2006 on a claim by the defendant against the plaintiff pursuant to the Payment of Wages Act, 1991 (the Act of 1991).
In outline, the circumstances which give rise to the appeal are as follows:
· Following determination of the defendant’s employment with the plaintiff the defendant brought a complaint under the Act of 1991 against the defendant claiming the sum of €13,115 on the basis that the plaintiff, as his employer, had wrongfully deducted sums aggregating that amount from his final wage, which he contended was due on 31st July, 2005, contrary to s. 5 of the Act of 1991. The defendant’s claim was made up of three components: €1,730.76 in respect of minimum notice of termination; €1,385.00 in respect of holiday pay; and the balance representing a bonus payment which the defendant contended was payable to him.
· The decision of the Rights Commissioner on the claim was dated 16th February, 2006. The Rights Commissioner found as follows:
§ That because of his service the defendant would have had a statutory entitlement to a minimum of two weeks’ notice and, accordingly, he was entitled to compensation in the sum of €1,486 (net).
§ That the defendant was entitled to the sum of €595 (net) in lieu of leave untaken at the termination of his employment.
§ That the defendant was entitled to payment of the bonus as provided in his contract in the sum of €7,800 (net).
Accordingly, the Rights Commissioner ordered the plaintiff to pay total compensation in the sum of €9,881 (net) to the defendant within six weeks of the date of the decision.
· The plaintiff appealed against the decision of the Rights Commissioner to the Tribunal. The appeal was against the entirety of that decision. The Tribunal gave its determination on the appeal on 1st September, 2006. In relation to the holiday pay and bonus components, the Tribunal affirmed the recommendation of the Rights Commissioner and the amounts awarded. In relation to the minimum notice component, the Tribunal varied the recommendation of the Rights Commissioner. It did so on the basis that it was a contractual term of the defendant’s employment that he had the right to a payment of three months where his employment was terminated by the plaintiff. On that basis Tribunal found that the defendant was entitled to the sum of €11,250 in respect of the minimum notice component.
· The plaintiff appealed against the entirety of the determination of the Tribunal. However, at the hearing of the appeal, counsel for the plaintiff indicated that the appeal was being pursued in respect of the minimum notice component only and that the plaintiff will pay to the defendant the sums of €595 and €7,800 to which the Rights Commissioner and the Tribunal found the plaintiff to be entitled in respect of the holiday pay and the bonus components respectively.
The defendant appeared in person on the hearing of the appeal.
Section 7(3)(b) of the Act of 1991 provides that a party to proceedings before the Tribunal may apply to the High Court from a determination of the Tribunal on a point of law and the determination of the High Court shall be final and conclusive. Counsel for the plaintiff referred the court to the decision of the Supreme Court on a similar type of appeal from the Tribunal to the High Court on a question of law in Bates v. Model Bakery Limited [1993] 1 I.R. 359. In that case, the Supreme Court (per Finlay C.J. at p. 365) held that on such an appeal there does not appear to be any room for repeating and, in particular, for adding to or supplementing evidence which was given before the Tribunal concerning the circumstances of the dispute which had been referred to the Tribunal. The position, accordingly, is that this appeal must be determined in accordance with the evidence which was before the Tribunal.
The facts relevant to the minimum notice component of the defendant’s claim are that the defendant was employed as director of business development by the plaintiff from February, 2003 to July, 2005. The terms of his employment were set out in a letter dated 14th December, 2002 from the plaintiff to the defendant. That letter was before both the Rights Commissioner and the Tribunal. In relation to termination, the letter provided:
“Payment of three months salary in the event of B-Lex wishing to terminate the contract/offer”
As the Rights Commissioner pointed out, the letter was silent on the length of notice of termination which the defendant was obliged to give. It was the defendant who initiated the termination of the contract of employment. He did so on Monday, 11th July, 2005, when he told Mr. Seamus Boland, the Managing Director of the plaintiff, that he was leaving his employment with the plaintiff but that he would work until the end of July, 2005. On the following day, 12th July, 2005, Mr. Boland directed him to leave forthwith.
The plaintiff’s case before the Rights Commissioner, before the Tribunal and in this Court was that the defendant had repudiated his contract of employment and the plaintiff was entitled to treat it as having terminated forthwith having regard to the following facts. During the previous week and for some time prior to that, the plaintiff, through Mr. Boland, was negotiating for the acquisition of a holding of shares in a company, which was a customer of the plaintiff and which I will refer to as “the Company”. The defendant was aware of this, although he denied that Mr. Boland had instructed him to look after the acquisition on behalf of the plaintiff. On 7th July, 2005 the defendant had discussions with one of the shareholders of the Company in relation to the acquisition of the shares which the plaintiff intended purchasing and on the following day the defendant was given financial information in relation to the Company. On 11th July, 2005 the defendant told the plaintiff that he had decided to buy the shares in question himself when giving notice of the termination of his employment.
The Tribunal rejected the plaintiff’s contention that the defendant had repudiated his contract of employment for a number of reasons. First, the Tribunal attached weight to the fact that the share purchase involved the Company, which was a customer rather than a competitor of the plaintiff. Secondly, there was no “documented agreement” for the acquisition of the shares by the plaintiff. Thirdly, as of 12th July, 2005, the defendant had merely expressed an intent to purchase the shares, rather than having actually purchased them. For those reasons the Tribunal held that the defendant had not by his actions repudiated the contract of employment, but rather it was terminated by the plaintiff, thus giving rise to the defendant’s entitlement to payment of three months’ salary under the terms of his contract.
In this Court, counsel for the plaintiff submitted that the Tribunal should have concluded that the defendant had breached his contract of employment and that the breach was sufficiently serious to justify the plaintiff in treating the contract as having terminated forthwith so that the defendant’s wages to the end of July, 2005 were not “properly payable” within the meaning of s. 5 of the Act of 1991. It was submitted that it is an established principle that a person employed under a contract of employment is subject to an implied obligation to act with good faith and fidelity in the course of his employment. As an example of that principle, the court was referred to the decision of the Court of Appeal of England and Wales in Wessex Dairies Limited v. Smith [1935] 2 K.B. 80. In that case, which concerned a milk roundsman employed by a dairy who canvassed the dairy’s customers while in the employ of the dairy but to take effect after his employment had terminated, Maughan L.J. stated the question to be determined as essentially depending upon the term to be implied in the ordinary case of a contract of employment in the absence of express agreement. He identified the term to be implied by adopting (at p. 86) what he described as the “general implication” stated by A.L. Smith L.J. in Robb v. Green [1895] 2 Q.B. 320 as follows:
“I think that it is a necessary implication which must be engrafted on such a contract that the servant undertakes to serve his master with good faith and fidelity …”
Counsel for the plaintiff submitted that, on the issue of repudiation, the question for the Tribunal was whether the defendant breached his duty of good faith and fidelity to the plaintiff in his dealing with the Company and that it should have found on the facts that he did. Further, it was submitted that the Tribunal should have recognised that it is well established law that an employee can be instantly dismissed when his conduct is such that it not only amounts to a wrongful act inconsistent with his duty towards his employer but is also inconsistent with the continuance of confidence between them (per Sachs L.J. in Sinclair v. Neighbour [1967] 2 Q.B. 279 at p. 289).
In my view, the submissions made on behalf of the plaintiff are correct. The factors which the Tribunal considered distinguished this case from the authorities to which it had been referred, in my view, are immaterial. It is immaterial that the Company in which the plaintiff was interested in acquiring a shareholding was a customer rather than a competitor of the plaintiff, that the plaintiff had not concluded a “documented agreement” in relation to the shareholding, and that the defendant had not a concluded agreement for the acquisition of the shareholding by 11th July, 2005. On that day, the defendant evinced an intention to frustrate the plaintiff’s acquisition of the shareholding, thus breaching his duty of good faith and fidelity to the plaintiff and shattering the plaintiff’s trust and confidence in him. The Tribunal erred in not finding that the defendant was not entitled as a matter of law to be paid his wages until the end of July, 2005, whether by way of minimum notice or otherwise.
An alternative argument was advanced on behalf of the plaintiff. It was submitted that, even if the defendant’s conduct was not repudiatory, the Tribunal erred in law in varying the decision of the Rights Commissioner. What the defendant claimed in his application to the Rights Commissioner represented his quantification of the salary which he claimed was due in respect of the period of notice he gave, that is to say, to the end of July, 2005. The decision of the Rights Commissioner was to award a sum representing the equivalent of the two weeks’ notice to which the defendant would have been entitled under the Minimum Notice and Terms of Employment Act, 1973, which was less than the amount he claimed. The defendant did not appeal against that decision and in this Court he intimated that he would have accepted the amount awarded by the Rights Commissioner. So the position is that the Tribunal, in awarding the plaintiff a sum equivalent to three months’ salary, gave him something which he had not claimed.
In support of its submission that the Tribunal erred in law in adopting that course, counsel for the plaintiff relied on the following statement by Charlton J. in Galway-Mayo Institute of Technology v. Employment Appeals Tribunal [2007] IEHC 210, at para. 24:
“… a judicial or quasi-judicial tribunal is not entitled to invoke a statutory remedy which no-one has sought and in respect of which no-one is on notice.”
The fact that the basis on which the Tribunal decided the minimum notice component of the defendant’s claim was a complete departure from what was claimed by him and from the claim of which the plaintiff was on notice violated the principles of natural and constitutional justice. Apart from that, it was patently erroneous in law in that it ignored the fact that it was the defendant who initiated the termination of his contract of employment.
There will be an order that the Tribunal erred in law in failing to set aside so much of the decision of the Rights Commissioner as found that the defendant had an entitlement to a minimum of two weeks’ notice and as awarded the defendant compensation in the sum of €1,486 (net).
W Potter v. Hunt Contracts Ltd
[1991] UKEAT 428_89_2011
MR JUSTICE WOOD (PRESIDENT):
“Finally, it will be important to construe or if necessary to imply a contractual term which covers the various ways in which the contract of employment may end before final repayment of the loan. If an employee leaves or is lawfully dismissed – we use that phrase because it could occur within the qualification period – no problem is likely to arise; but if termination occurs for some other reason it may be important to analyse the position.
In the present case the Tribunal construed the phrase “should you leave the Company” as “whether the applicant departed voluntarily or by dismissal” and such a construction was clearly open to them.
However, we are unable to agree that the letter of the 28th March indicated 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 Section 1(1).
In our judgment this was a loan agreement in writing; any consent to deduction was oral.
It follows that there has been an unlawful deduction of £278.50. We shall make a declaration to that effect under Section 5(4) and order repayment.
The balance of the loan is £244.50 pence. Before the Industrial Tribunal Mr Andrew, who appeared for the Company, gave an undertaking not to take any steps to recover the balance of what was owed. We will release him from that undertaking. Section 5 sets out provisions relating to remedies for unlawful deductions; the following are relevant:
“5(1) A worker may present a complaint to an industrial tribunal –
(a) that his employer has made a deduction from his wages in contravention of section 1(1) (including a deduction made in contravention of that provision as it applies by virtue of section 2(3)) or
……………………………………
5(4) Where a tribunal finds that a complaint under this section is well-founded, it shall make a declaration to that effect; and (subject to subsections (5) and (6)) –
(a) in the case of a complaint under subsection (1)(a) or (b), the tribunal shall order the employer to pay to the worker the amount of any deduction, or to repay to him the amount of any payment, made or received in contravention of section 1; and
……………………………………..
5(7) Where a tribunal has under subsection (4)(a) or (b) be ordered an employer to pay or repay to a worker any amount in respect of a particular deduction or payment falling with subsection (1)(a) to (d) (“the relevant amount”) the amount which the employer shall be entitled to recover (by whatever means) in respect of the matter in respect of which the deduction or payment was originally made or received shall be treated as reduced by the relevant amount.”
The provisions of subsection (7) are clearly intended as a sanction against unlawful deductions by employers and once a tribunal has ordered an employer to repay any amount on the basis that a particular deduction or payment was invalid, the employer loses the right to recover the money in any other way.
Thus the sum of £278.50 is irrecoverable, but the sum of £244.50 is still owing. Mr Potter is entitled to seek to enforce the Order of this Court for the former sum in his local County Court, but if he does so the Company will no doubt consider making a claim for the £244.50.”
Yemm & Ors v British Steel Plc
[1993] UKEAT 341_92_1607
MR JUSTICE TUCKEY:
On 13 March 1992 the Industrial Tribunal sitting in Cardiff held that applications by the four Appellants did not fall within the Wages Act 1986 and were therefore dismissed for want of jurisdiction. They did not hear and determine the merits of the claims. The Appellants say that the Trib
he Appellants claimed that they had not been paid the right amount by way of shift allowances during the months of August, September and October 1991 by the Respondents their employers, British Steel. The shift allowances were calculated as a percentage the basic pay and the source of the dispute was a change in the shift pattern, apparently imposed upon the Appellants by the Respondents which resulted in a dispute about their entitlement during the months in question. There were before the Tribunal, as indeed before us, a number of documents upon which each party to the dispute relied to support their contentions. The Appellants maintained that the alterations were not in accordance with their contracts and that they should have been paid as before, that is to say they should have been paid the shift allowances which they had been paid in earlier months. The Respondents contended that they were entitled to change the pattern of the shifts under the terms of the Appellants’ contracts and that accordingly the payments made were the contractual amounts to which the Appellants were entitled and they were not entitled to the further sums claimed.
When the matter came before the Tribunal it appears from their Reasons that they immediately questioned whether they had jurisdiction on the basis that what was being claimed was not a dispute about deductions but a dispute about what the Reasons refer to as `the top line’, that is to say the gross amount of pay which the Appellants were entitled to as basic pay and shift allowances. They were right it seems to us, to say that it was a dispute about the top line. Although it could be dressed up, as indeed by reference to the pay-slips in some cases it was, as a deduction, it was not a deduction in the ordinary sense of that word. The Appellants contended that the Tribunal had jurisdiction to hear the claims by reason of section 8(3) of the 1986 Act which we will come to in a moment. That submission was rejected by the Tribunal who having said that what was in dispute was not a deduction but a change in the top line went on to say that in any event it was not properly the subject of a claim before the Tribunal because non-payment of the amounts contended to be due was due to an error of computation within Section 8(4) of the Act.
They decided that the case of Delaney v Staples [1991] ICR 331 was not to the point and that the instant case was just like a pay-cut and that nobody had suggested that reducing an employee’s gross wage amounted to a deduction. So the applications were dismissed for want of jurisdiction.
The decision is said to be erroneous in law. We start with the relevant provisions of the Act. Section 1 says:
“An employer shall not make any deduction from any wages of any worker employed by him unless the deduction satisfies one of the following conditions, namely –
(a)it is required or authorised to be made by virtue of any statutory provision or any relevant provision of the worker’s contract…”
It is self-evident from that provision that this Act is concerned with contractual entitlement since one of the reasons that an employer may use to justify the making of a deduction is that it was authorised by the worker’s contract. That in turn must obviously mean that if there is a dispute about the contract, the Industrial Tribunal, who by virtue of the combined effect of sections 5 and 6 of the Act, have exclusive jurisdiction to hear cases under this Act will have to resolve the contractual issue.
Section 7 of the Act defines `wages’ for the purpose of the Act and it is common ground that a shift bonus of the type which is in issue here falls within the definition of wages. So we come to section 8 which is the section upon which the outcome of this appeal turns and subsection (3) which reads:
“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 shall be treated for the purposes of this Part as a deduction made by the employer from the worker’s wages on that occasion.”
So it is apparent that this is a deeming provision. It gives a much wider meaning to the word `deduction’ than the ordinary use of that word conveys or a reading of section 1 and the earlier sections of this Act would indicate, but it is clear in its terms. It has caused considerable difficulty as to precisely how far it went and has been the subject of conflicting decisions by Industrial Tribunals and in this Appeal Tribunal. The debate was as to whether the subsection had the effect of making disputes where the issue was contractual entitlement to wages, the subject of the Act or not.
This conflict in authority has now been resolved by the case of Delaney v Staples. That is a decision of the Court of Appeal which is of course binding on this Tribunal. There, an employee was dismissed and not paid commission and holiday pay which she alleged to be due to her. One of the points in the appeal was whether the non-payment of such commission and holiday pay, which it was conceded fell within the definition of wages under section 7, was a dispute which could be determined under the 1976 Act of not. That raised the question of whether the deeming provision in section 8(3) extended to cover such a dispute. Lord Justice Nicholls who gave the leading judgment of the Court of Appeal, under the heading in his judgment `Is mere non-payment a deduction?’, having set out the words of the Act and referred to one of the earlier decisions of this Appeal Tribunal, said at page 339(H):
“This subsection provides, in express terms, that wages which are properly payable but not paid are to be treated, to the extent of the non-payment, as within the scope of the expression “deduction”. Non-payment of the amount properly payable is to be treated as a deduction. The only exception is for a deficiency attributable to an error of computation.
The Act is, indeed, concerned with unauthorised deductions. But section 8(3) makes plain that, leaving aside errors of computation, any shortfall in payment of the amount of wages properly payable is to be treated 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 section 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: for example, by reason of section 1(5). To the extent that the shortfall is found to be a contravention, the industrial tribunal will make an appropriate declaration and orders.”
He then proceeded to consider various difficulties which had been advanced as reasons against construing section 8(3) in that wide way and rejected them. One of the matters he considered was at page 341(F) where he says:
“Fifth, as already noted, one item in the calculation prescribed by section 8(3) is the “total amount of wages that are properly payable” by the employer to the employee. It is implicit in this that in the event of dispute, this amount will be determined by the industrial tribunal when a complaint has been made under the Act. This must be so in a case where the employer claims that no wages are properly payable as well as in a case where the employer admits that something is due.”
We have considered that decision and the submission of the Appellants that it does, contrary to the decision of the Industrial Tribunal, clearly cover the situation here. That is to say the dispute here was as to whether shift payments of the order that the Appellants claimed were due, or whether shift payments of the order that the Respondents claimed were due. That necessarily involved a consideration of the contracts of the Appellants but that was a dispute it seems to us which fell squarely within the deeming provision of section 8(3), subject to one point which we will come to in a moment, and is covered by the case of Delaney v Staples. We are unable to understand why it was that the Industrial Tribunal decided that this case was not to the point but that is what they did and we think they were wrong.
However Mrs Williams, Counsel for the Respondents, who realistically accepted the difficulty that the decision in Delaney faced her with argued that the Tribunal were right in saying that this was an error of computation and was therefore excepted from the provisions of section 8(3 because such errors are not covered by the subsection.
“Error of computation” is further defined by subsection (4) in the following terms:
“In subsection (3) the reference to an error of computation is a reference to an error of any description on the part of the employer affecting the computation by him of the gross amount of the wages that are properly payable by him to the worker on that occasion.”
“Gross amount” is defined by subsection 8(1) as the total amount of wages before deductions of whatever nature, so the error of computation must be in the calculation of what the Tribunal called the top line. Accordingly, so it is argued, where you have a dispute about the top line which centres around contractual entitlement, that is excepted from the Act on the basis that the employer can say that he has not made the payment because, if he is wrong in his assertion that the contract entitles him to do what he has done, that is an error of computation.
However wide a meaning one gives to the words “error of computation” in this context (and it is clear that subsection (4) does contemplate a wide meaning) we cannot agree that it extends to an error of this kind. 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. Such an error cannot be characterised as an error of computation. Had this been a valid point we cannot believe that it would not have been ventilated and considered by the Court of Appeal in Delaney since in that case and indeed in every case where there is a contractual dispute about entitlement, it would be open to an employer to take the point and say that the 1986 Act had no application to the facts of such a dispute. The point was not taken in Delaney although it is obvious that the subsection (4) was considered. It was not taken for the simple reason we think, that it is not a good point, with the greatest respect to Mrs Williams and to the Tribunal who here thought that it was.
For those reasons we think that the Tribunal erred in law in deciding that they had no jurisdiction to hear this dispute and that these applications should be remitted to a different Industrial Tribunal to be heard and determined in accordance with our ruling.
Avon County Council v Howlett
[1983] 1 WLR 605, [1983] 1 All ER 1073
Slade LJ
‘However, this point causes no difficulty for the defendant in the present case since the plaintiffs, as the defendant’s employers, in my opinion clearly owed him a duty not to misrepresent the amount of the pay to which he was entitled from time to time, unless the misrepresentations were caused by incorrect information given to them by the defendant.’
Estoppel cannot operate pro tanto. Therefore if a defendant has innocently changed his position by disposing of part of the money, a defence of estoppel would provide him with a defence to the whole of the claim.
The ordinary rule is that the detriment is not the measure of the representee’s relief, and need not be commensurate with the loss that he would suffer if the representor did resile……
‘Employers who pay their employees under a computerized system should not in my opinion assume from the decision of this court in the present case that, if they overpay their employees through some kind of mistake, they are entitled to recover it simply for the asking, provided only that they are not barred by estoppel or some other special defence. The borderline between mistakes of law and mistakes of fact is not clearly defined in the cases . . The learned authors of Goff and Jones’s Law of Restitution (2nd edn, 1978) p. 91 express the view that the principle in Bilbie v. Lumley (1802) 2 East 469, [1775-1802] All ER Rep. 425 should not preclude recovery of money which was paid in settlement of an honest claim and that any other payment made under a mistake of law should be recoverable, if it would have been recoverable had the mistake been one of fact. Nevertheless the distinction still exists in English law. I think the burden will still fall on an employer who seeks to recover an overpayment from an overpaid employee to satisfy the court that, on the balance of probabilities in all the circumstances of the case, it was a mistake of fact which gave rise to the overpayment.’
Petkus & ors -v- Complete Highway Care Limited
Ryan -v- Bank of Ireland
20. The Court takes the view that it has to have regard to the extremely unfortunate background circumstances that pertain in the particular circumstances of this case and accordingly directs that this is a case which has to be brought to trial at the earliest possible opportunity and I will hear the submissions of counsel as to how this process can be facilitated.
Cleary & Ors -v- B&Q Ireland Ltd
TH v HSE
Finnegan v J & E Davy
(Sgd.) ________________________
Hogan v. Steele & Co. Ltd.
[2000] IESC 26; [2000] 4 IR 587; [2001] 2 ILRM 321 (1st November, 2000)
Keane C.J.
Hardiman J.
Geoghegan J.
289/99
JUDGMENT delivered the 1st day of November 2000 by Keane C.J. (nem. diss.)
1. The plaintiff in these proceedings was, at the relevant time, in the employment of the Notice Party (hereafter “the ESB” ). He was injured while he was delivering materials to the defendant’s premises. The plaintiffs instituted proceedings against the defendant arising out of the injuries he had sustained which were subsequently settled. While the plaintiff was out of work [*2]
as a result of his injuries, he was paid by the ESB the wages that he would have been paid if he had been working. The amount for which the action was settled included, in addition to a sum for general damages, a sum representing the loss of earnings of the plaintiff during that period. The plaintiff had signed an undertaking in writing after the accident by virtue of which he was to refund to the ESB the wages paid to him during his absence from work as a result of the injuries, in the event of his recovering that sum by way of damages from another party.
2. An issue was tried in the High Court (Macken J.) as to whether the plaintiff was entitled to recover these sums from the defendant, the defendant contending that, since the plaintiff was not at any loss in respect of them, they could not form part of his damages. Since, in the event of the plaintiff being held to be entitled to recover these sums from the defendant, he would be obliged by virtue of his undertaking to refund them to the ESB, the protagonists in the argument before the High Court and again in this court were effectively the ESB and the defendant.
3. The ESB had deducted from the sums paid to the plaintiff during the time that he was out of work the normal deductions for PAYE, PRSI and contributions in respect of his pension. In a careful and comprehensive written [*3] judgment, the learned High Court judge upheld the contention of the ESB that the plaintiff was entitled to recover the sums in respect of loss of wages from the defendant, but concluded that the deductions in respect of PAYE, PRSI and pension contributions were not recoverable from the defendant. The ESB has appealed to this court from the latter finding: a cross-appeal by the defendant from her finding in favour of the ESB on the recoverability of the sums paid in respect of wages was not pursued.
4. The undertaking given by the plaintiff was in the following terms:-
“In consideration of the [ESB] making me advance payments during my absences from duty arising out of my accident on
4.9.93, I undertake to refund to the Board the total amount so advanced out of any monies which I may recover by way of damages from the third party involved in the accident or by way of compensation from any other source.”
5. That undertaking in turn gave effect, in broad terms, to a clause in an agreement entered into between the ESB and the Trade Unions representing its employers, known as the 1975 Comprehensive Agreement, which provided that
“Sick pay is not allowed for an absence due to injuiy or accident in which a third party is involved. However, advances equivalent [*4] to sick pay, within the limits of the sick pay provision, may be granted in such cases subject to the prior receipt from the staff member of a signed undertaking as follows:
‘In consideration of the ESB making me advance payments during my absence from duty arising out of my accident on…I undertake to refund to the Board, out of any monies which I may recover by way of damages from the third party involved in the accident, the total amount so advanced.’
6. On behalf of the ESB, Mr. Hardiman S.C. submitted that the true measure of the plaintiff’s loss was not the wages which he would have earned during the period net of PAYE, PRSI and pension contributions. The measure of his loss was the gross wages which he would have earned and the defendant, as a wrongdoer, was not entitled to benefit from the fact that the plaintiff would have been paid his wages net of these deductions. Nor could the defendant be heard to complain that the plaintiff was now receiving more money than he would have if he had not been injured in an accident: the assessment of damages in accordance with recognised legal principles sometimes had the consequence that the plaintiff was financially better off than he would have been if the defendant had not committed the wrong in question. He cited in this [*5] context the decision in Harbutt’s Plasticine Limited .v. Wayne Tank and Pump Company Limited (1971) All ER 225.
7. Mr. Hardiman said that the decision in British Transport Commission .v. Gourley (1955) 3 All ER 796 which had been followed in this country in Glover .v. BLN Limited (No. 2) (1973) IR 432 was undoubtedly authority for the proposition that, in some cases at least, damages in respect of loss of earnings should be calculated on the basis of the net loss after deducting tax. However, he submitted that it was unduly simplistic to treat this as a universal rule that damages must always be assessed on this basis. Both of those cases were dealing solely with the question of the loss sustained by the plaintiff. Different considerations arose where a third party made the payments as part of the process of paying the plaintiff the full amount of his wages during the period of his absence from work as a result of the injury and thus avoiding undue hardship to him.
8. Finally, he submitted that, in a case such as this involving three parties -the wrongdoer, the plaintiff and the employer – justice required that the loss should fall on the wrongdoer rather than the blameless parties involved. [*6]
9. On behalf of the defendant, Mr. Reidy S.C. submitted that the liability of his client in damages was confined to the actual loss sustained by the plaintiff. He owed no duty, either tortious or contractual, to the ESB. To allow a third party to recover damages from an admitted wrongdoer to which he was only entitled, if at all, as a result of an agreement between himself and the injured party was inconsistent with the statement of the law by Kingsmill Moore J., speaking for this court in Attorney General .v. Ryan’s Car Hire Limited (1965) IR 642.
10. It is beyond argument, in my view, that the plaintiff will be fully compensated in this case by the payment to him of the wages that he would have earned after deducting PAYE, PRSI and pension contributions. His obligation under the undertaking was to refund to the ESB “the total amount so advanced [to me during my absences from duty arising out of my accident]” out of any monies which he might recover from the defendant. To require the defendant to pay more than that sum would be to compensate the plaintiff for a loss which he had never suffered. It would, of course, have been open to the ESB to require the plaintiff to include in his claim the gross wages to which he would have been entitled during his absence from work because of the injury without any deduction for PAYE, PRSI or pension contributions. Whatever might have been the position if such an agreement had been entered into, there [*7] is no legal basis, in its absence, on which either the plaintiff or the ESB could recover those sums from the defendant. Unlike the net wages, these were payments which had been applied for particular purposes by the ESB on behalf of the plaintiff and, in the absence of any agreement, were irrecoverable.
11. That conclusion is supported by the decision of the English Court of
Appeal in Franklin .v. The British Railways Board (1994) PIQR 1 which was
referred to by the learned High Court judge in the course of her judgment. In
that case, Nolan L.J., (with whom the other two members of the court, Sir
12. Thomas Bingham M.R. and Sir Michael Fox agreed), said:-
“It seems to me quite inappropriate to describe the sums handed
over by the respondents to the Inland Revenue and the Department
of Social Security in discharge of an accepted statutory duty as
constituting in any sense of the word a ‘loan’ which is ‘repayable’
by the appellant to the respondents. So far as both the
respondents and the appellant are concerned the amounts paid
over in tax and national insurance contributions have gone
forever as a matter of law, if their accepted treatment was correct.
The only sum which can in any way in a sense be described as
‘repayable’ as between the respondents and the appellant is the
sum of £5, 550.92 which the appellant in fact received and which [*8] he has duly repaid. No doubt it would be possible for A and B to
make an agreement under which A will pay B ‘s tax on his behalf,
in return for B´s promise of reimbursement, and such an
agreement might broadly be described as involving a loan by A to
B, but it seems to me that … the payments of tax and national
insurance contributions by the respondents in the present case
stand on a different footing.”
13. I would also adopt that as a correct statement of the law. Although
14. Mr. Hardiman suggested in argument that the pension contributions were in a
different category, I cannot see any difference in principle: as was the case
with the PAYE and PRSI payments, they were deducted by the ESB for
specific purposes, admittedly more directly to the benefit of the plaintiff, and
were not in any sense a “loan” to him which he was obliged to repay to them.
15. As to the broader grounds on which the ESB sought to base their claim in
the present case, I am satisfied that, as Mr. Reidy submitted on behalf of the
defendant, they cannot be reconciled with the statement of the law by
16. Kingsmill Moore J. in Attorney General & Other .v. Ryan’s Car Hire Limited .
17. In that case the learned judge said that [*9]
“… I agree with the views of Rich J. and Starke J. in Quince´s case
(68 CLR 227) that a tortfeasor ordinarily is only responsible in
damages for the direct injury which he has caused to the person
against whom the tort has been committed and not for indirect
injuries to a third person who may suffer loss indirectly as a result
of the injury to the first person. To this rule there are two
exceptions in common law, the actions per guod servitium amisit
and per guod consortium amisit, both anomalous and both
apparently based on the conception of a direct injury to
quasi-property. They are too long established to be disturbed, but
in my opinion should not be enlarged.”
18. I would dismiss the appeal and affirm the order of the High Court.
Domantas Petkevicius v Goode Concrete Limited (In receivership) and Employment Appeals Tribunal
2013 No. 340 MCA
High Court
31 January 2014
[2014] 25 E.L.R 117
Kearns P.
(January 31, 2014)
[2014] IEHC 66 ([2014] E.L.R 117)
KEARNS P.
delivered his judgment on January 31, 2014:
Introduction
This is an appeal from determinations of the Employment Appeals Tribunal (hereafter “the Tribunal”) dated April 19, 2012 and September 23, 2013. The appellant is seeking a declaration that the Tribunal erred in law in its interpretation and application of s.11 of the Redundancy Payments Act 1967 and a declaration that the Tribunal erred in law in finding that the appellant’s contractual and statutory right to pay during the period of lay-off was not infringed.
Under s.5 of the Payment of Wages Act 1991 the appellant seeks full remuneration for a 16 week period of lay-off in the sum of €6,552.
Facts of the case
The appellant commenced employment with the respondent company in November 2005. The respondent company is in the business of providing concrete and other by-products to the construction, building and maintenance industries. There was a contract of employment which described the appellant as a general operative. The respondent worked normal hours at the respondent’s premises in Carbury, Co. Kildare.
On April 19, 2009, the appellant was given notice of the need to lay off and a letter of notification was given to the appellant by a Mr Y.T. The claimant was laid off on September 4, 2009. He was not in receipt of payment during this time. Despite questioning counsel was unable to inform the court whether the appellant was in receipt of social welfare during the currency of his lay-off. On December 16, 2009, the appellant was notified that he would be made redundant. He was paid two weeks’ pay in lieu of notice and redundancy was also paid.
History of the proceedings
The appellant brought a case before the Rights Commissioner who in his decision of October 13, 2010, held against the appellant and stated:
“Despite the fact that the claimant was out on temporary lay-off from September 4, 2009, he was provided with a notice on December 10, 2009 notifying him that his job would be made redundant on December 23, 2009. He received two weeks’ pay in lieu of notice and this was paid to him on January 21, 2010.”
*119
The appeal of the appellant from this decision came before the Tribunal by way of appeal on April 19, 2012, and the Tribunal held as follows:
“The Tribunal noted the arguments put forward by the representative on behalf of the appellant and in particular the case of Lawe v Irish Country Meats (Pig Meats) Ltd [1998] E.L.R. 266, but was not persuaded by them. The Tribunal upholds the decision of the Rights Commissioner”.
By way of judicial review on November 26, 2012, the decision of the Tribunal of April 19, 2012, was quashed and a rehearing of the applicant’s application was directed. Hogan J. held that the Tribunal failed to engage with the legal submissions in respect of the Acts of 1991 and 1967 and to hear evidence in relation to these matters. The court held that one could not discern from the pithy words of the Tribunal the essential rationale of its conclusions in the manner required by the Supreme Court in Meadows v Minister for Justice [2010] IESC 3; [2010] 2 I.R. 701; [2011] 2 I.L.R.M. 157. The Tribunal was held not to have adequately ventilated the issue of custom and practice of payment or non-payment during periods of lay-off and whether this was in compliance with the Acts of 1991 and 1967. No essential rationale was set out within the remit of the requirements under O’Donoghue v An Bord Pleanala [1991] I.L.R.M. 750.
The Tribunal in its determination of September 23, 2013, again held against the respondent and stated:
“The Tribunal is satisfied that the contract of employment specifically allowed for and recognised the periodic need to operate a scheme of lay-off. The question of custom and practice is not so compelling where the contract actually provides for lay-off … the employer reasonably believed that the lay-off would not be permanent and that an appropriate notice to that effect was delivered ….The Tribunal accepts that whilst the contract does not specify that there will be no wages payable during lay-off any other interpretation would be a nonsense …. The Tribunal determines … that the claim under the Payment of Wages Act 1991 fails.”
Relevant law
Section 5 of the Payment of Wages Act 1991 upon which the appellant relies states:
An employer shall not make a deduction from the wages of an employee (or receive any payment from an employee) unless—
(a) the deduction (or payment) is required or authorised to be made by virtue of any statute or any instrument made under statute,
(b) the deduction (or payment) is required or authorised to be made by virtue of a term of the employee’s contract of employment included in the contract before, and in force at the time of, the deduction or payment, or
(c) in the case of a deduction, the employee has given his prior consent in *120 writing to it.
An employer shall not make a deduction from the wages of an employee in respect of—
(a) any act or omission of the employee, or
(b) any goods or services supplied to or provided for the employee by the employer the supply or provision of which is necessary to the employment, unless—
(i) the deduction is required or authorised to be made by virtue of a term (whether express or implied and, if express, whether oral or in writing) of the contract of employment made between the employer and the employee, and
(ii) the deduction is of an amount that is fair and reasonable having regard to all the circumstances (including the amount of the wages of the employee), and
(iii) before the time of the act or omission or the provision of the goods or services, the employee has been furnished with—
(I) in case the term referred to in subparagraph (i) is in writing, a copy thereof,
(II) in any other case, notice in writing of the existence and effect of the term,
and
(iv) in case the deduction is in respect of an act or omission of the employee, the employee has been furnished, at least one week before the making of the deduction, with particulars in writing of the act or omission and the amount of the deduction, and
(v) in case the deduction is in respect of compensation for loss or damage sustained by the employer as a result of an act or omission of the employee, the deduction is of an amount not exceeding the amount of the loss or the cost of the damage, and
(vi) in case the deduction is in respect of goods or services supplied or provided as aforesaid, the deduction is of an amount not exceeding the cost to the employer of the goods or services, and
(vii) the deduction or, if the total amount payable to the employer by the employee in respect of the act or omission or the goods or services is to be so paid by means of more than one deduction from the wages of the employee, the first such deduction is made not later than six months after the act or omission becomes known to the employer or, as the case may be, after the provision of the goods or services.
[…]
Where—
(a) the total amount of any wages that are paid on any occasion by an employer to an employee is less than the total amount of wages that is properly payable by him to the employee on that occasion (after making any deductions therefrom that fall to be made and are in accordance with this Act), or
(b) none of the wages that are properly payable to an employee by an employer *121 on any occasion (after making any such deductions as aforesaid) are paid to the employee,
then, except in so far as the deficiency or non-payment is attributable to an error of computation, the amount of the deficiency or non-payment shall be treated as a deduction made by the employer from the wages of the employee on the occasion.”
Section 11(1) of the Redundancy Payments Act 1967 is as follows:
Where after the commencement of this Act an employee’s employment ceases by reason of his employer’s being unable to provide the work for which the employee was employed to do, and—
(a) it is reasonable in the circumstances for that employer to believe that the cessation of employment will not be permanent, and
(b) the employer gives notice to that effect to the employee prior to the cessation,
that cessation of employment shall be regarded for the purposes of this Act as lay-off.
(2) Where by reason of a diminution in the work provided for an employee by his employer (being work of a kind which under his contract the employee is employed to do) the employee’s remuneration for any week is less than one-half of his normal weekly remuneration, he shall for the purposes of this Part be taken to be kept on short-time for that week.”
Appeal
The appellant claims that the respondent contravened its obligation under s.5 of the Act of 1991 which said section generally prohibits employers from making deductions in wages save in circumstances specifically provided for and regulated for under section 5. The appellant further asserts that any deduction from wages can only be made by virtue of a term so permitting in the employee’s contract. There is no said express term. The appellant claims that the employer must also genuinely believe that the cessation of employment will be temporary only.
There was no appearance on behalf of the respondent.
Discussion
The court may only interfere in a finding of an expert tribunal where there was no evidence whatsoever to support it. In Mara (Inspector of Taxes) v Hummingbird Limited [1982] I.L.R.M. 421 Kenny J. in the Supreme Court noted that “findings on primary facts [of an Appeal Commissioner] should not be set aside by the Courts unless there was no evidence whatever to support them”, he went on to note that “[i]f however they are not based on a mistaken view of the law or a wrong interpretation of documents, they should not be set aside unless the inferences which he made from the primary facts were ones that no reasonable Commissioner could draw.” In the case presently before the court the findings *122 of the Tribunal are comprehensive and discuss relevant legislation and case law.
Under s.11(1) the Act of 1967 the employer must give notice and must reasonably believe that a lay-off is not permanent. It cannot be said that the respondent knew or ought to have known around that time of the “freefall” that was to occur in the construction industry and so many other industries at that time. The letter of the respondent of April 19, 2009, to the appellant operates as the notice required under the Act of 1967.
There is no right to lay-off with pay. It is well-established law that lay-off without pay may occur where it can be established that that is the custom and practice of the trade. This custom must be reasonable, certain and notorious, perJelf J. in Devonald v Rosser & Sons (1906) 2 K.B. 728.
It is notable that the case law as referenced by counsel for the appellant which highlights the need for custom which allows for lay-off without pay has generally been considered where there is no contract or where the contract is silent on the issue of lay-off.
The appellant’s contract of employment states as follows:
“The employer reserves the right to lay you off from work or reduce your working hours where through circumstances, beyond its control it is unable to maintain you in full time employment. You will receive as much notice as is reasonably possible prior to any such lay-off.”
Decision
Deference must be extended to the Tribunal which must be taken as knowing and being aware of the general terms that arise in the construction industry. The Tribunal stated the position and practice to be that lay-off means lay-off without pay within the custom and practice of the construction industry. It is to be noted in this case that, despite requests made by the court, it is not confirmed whether or not the appellant was in receipt of social welfare during the currency of his lay-off.
I refuse the appeal as any other conclusion would be quite illogical and it is not for the court to come to illogical conclusions unless forced to do so by statute.
Don McDonagh v Shoreline Taverns Limited
trading as Daly’s of Donore and Shoreline Taverns Limited trading as Daly’s of Donore
PW674/2012
Employment Appeals Tribunal
15 November 2013
[2014] 25 E.L.R. 98
(
This case came before the Tribunal by way of an appeal by an employee (appellant) against the decision of the Rights Commissioner ref (r-123040-pw-12/JW) under the Payment of Wages Act 1991.
Summary of case
The appellant was employed as a full-time bar and restaurant manager by the respondent from April 1996. He was placed on lay off from February 6, 2012 and was not paid during this period of lay off. He accepted that there had been a downturn in the respondent’s business from 2010 onwards. He was never contacted by the respondent after February 2012 with any offer of work. In May 2012 he sought his redundancy entitlement and this entitlement was conceded by the respondent at the Tribunal hearing.
During his tenure of employment with the respondent he was never provided with a contract of employment. It is the appellant’s case that he is entitled to payment for the period of lay off as he did not consent to a deduction from his wages. He told the Tribunal that he has worked in the industry since his teens and he has never heard of lay off without pay for full-time employees. He believed his lay off in February 2012 was a ruse and a genuine lay off situation did not exist.
The Tribunal heard evidence from the owner of the respondent’s business that the appellant was well aware of the company’s financial position. He laid off the appellant in February 2012 in the hope that the business wold grow again and recover. He also reduced the working hours of other employees at this time. The business had not recovered sufficiently enough by April/May to re-employ the appellant. He told the Tribunal that the appellant was well aware that he would not be paid during his period of lay off.
Determination
The Tribunal have carefully considered all of the evidence together with the documentation handed in during the hearing.
The appellant was placed on temporary lay off from February 6, 2012. He was not paid during that lay off period. He did not contact the respondent nor did the respondent contact him prior to lodging his claim with the Tribunal in May 2012. The appellant did not have a written contract of employment nor was he given any terms of his employment. The appellant states that he is entitled to his pay for the period he was on lay off as he did not consent to the deduction either verbally or in writing. He also stated that there was no custom and practice in the industry in relation to lay off as opposed to payment during lay off. Furthermore, he states that the deduction made to his wages was unlawful. The Tribunal notes that the appellant did not know anyone in the industry who had been put on lay off in the past and therefore by extension could not have known anyone who had been paid during a period of lay off.
*100
The Payment of Wages Act 1991 prohibits the employer from deducting the wages of an employee unless specifically provided for by statute or where has been by prior agreement of parties. Lay off is a creature of statute.
Wages are defined in the Payment of Wages Act 1991 as:
“‘Wages’ in relation to an employee, means any sum payable to the employee by the employer in connection with his employment, including-
(a) Any fee, bonus or commission or any holiday, sick or maternity pay or any other emolument referable to his employment whether payable under his contract of employment or otherwise…”
Lay off is defined by s.11 Redundancy Payments Act 1967 as follows:
“(1) Where an employee’s employment ceases by reason of his employer’s being unable to provide the work for which the employee was employed to do, and—
(a) it is reasonable in the circumstances for that employer to believe that the cessation of employment will not be permanent, and
(b) the employer gives notice to that effect to the employee prior to the cessation, that cessation of employment shall be regarded for the purposes of this Act as lay off.”
“Wages” arise in connection with the employment, and lay off arises for the period of the “cessation of employment”. The Tribunal finds that it would not be absurd to suggest that a lay off which gives rise to a cessation of work must by implication also give rise to a cessation of wages.
It is clear from the facts submitted that the respondent was of the belief that the cessation of employment would not be permanent. That in fact was the case. From the accounts submitted it was clear that the period after Christmas until late spring was traditionally quiet. It always picked up in late spring/early summer and continued until the end of the year. Therefore, s.11(1)(a) is satisfied. The respondent did give notice to the appellant prior to the period of lay off, however that notice was not in the usual form. The appellant was not issued with an RP9. He was told that the cessation would not be permanent and he was told that his employer would contact him when things picked up. It should also be noted that appellant was very familiar with the company’s accounts and was fully aware that there was always a quiet period after Christmas. Therefore s.11(1)(b) is satisfied.
The question the Tribunal must answer is whether or not by virtue of the employer having invoked s.11 of the 1967 Act the employee’s contractual and statutory right to pay during that period of lay off is suspended.
At common law there is no general right to lay off without pay. However it has always been accepted that there are some limited circumstances wherein there will be such a right. This right has been implied in the past in cases such as Browning and Others v Crumlin Valley Collieries [1926] 1 K.B. 698. In that *101 case the court found that there was an implied term that a mine owner could lay off miners without pay while repairs are effected through no fault of the mine owners. Furthermore, it is a well-established practice in this jurisdiction that lay off without pay is operable where an employer can demonstrate it has been the custom and practise of the trade and/or workplace and that the custom must be reasonable, certain and notorious
The appellant relied on a precedent from the Tribunal PW 426/2011 wherein the case of Industrial Yearns v Greene [1984] I.L.R.M. 15 was opened to the Tribunal. The factual situation that existed in the Industrial Yarns case is different from those in the appellant’s case. That case primarily focused on the right of an employee to be given statutory notice of the termination of his employment or to be paid in lieu in circumstances where the company, knowing that the employees where going to claim redundancy, used the statutory lay off legislation to force its employees to invoke their rights under s.12 of the 1967 Act. All of the parties were fully aware that the lay off period would be permanent and that the sole purpose for putting the employees on lay off was so that they would invoke their right to claim redundancy. The company then used that to avoid its legal obligation to pay notice, based on the fact that it was the employee who sought redundancy. That was clearly an improper use of the legislation and was not its intended use. In the case before the Tribunal s.11 of the 1967 Act was used for its intended purpose and the respondent clearly satisfied s.11(1)(a) and (b).
It would seem from the appellant’s submissions to the Tribunal that he too was relying on Costello J. when he stated that “It is clear that the employer in operating this section is not terminating the contract of employment – there is a cesser of employment, but the contract still subsists”. The appellant went on to argue that by virtue of the fact that the contract still subsists together with the fact as per Costello J. “there is no contractual power (express or implied) in the contract of employment to suspend the operation of the contract for a limited period than by ceasing to employ an employee and refusing to pay him wages the employer is guilty of a serious breach amounting to repudiation of it” that the respondent’s failure to pay him during the lay off period was unlawful. If one reads on, Costello J. states correctly that repudiation does not automatically bring the contract to an end. The employee is free to accept that the repudiation has brought the contract to an end or not as the case may be. The learned judge in that section of his judgment was specifically referring to the employer’s erroneous use of s.11 and the legal position that followed from it. His comments are inextricably linked to the factual situation that existed in that case and cannot be applied to the appellant’s case. Furthermore, whilst there may not be a “contractual power in the contract of employment to suspend the operation of the contract for a limited period of time” there is a statutory one, s.11 of the 1967 Act, and that statutory power takes precedence over a contract regardless of whether the contract is silent on the issue or not. Once s.11 is invoked there *102 is a temporary cessation of employment but the contract of employment still existed but in a state of temporary suspension. There can be no breach of contract in these circumstances.
In the case of Lawe v Irish Country Meats Limited [1998] E.L.R. 266 White J. quoted from Hanley v Pearse & Partners [1915] 1 K.B. 698 “Absent a term in the contract, the employer’s fundamental obligation is to pay the agreed remuneration for the times of work during which the employee is prepared to work. Ordinarily an employer is free to lay off workers for any reason provided he continues paying them”. The Tribunal note that White J. relied heavily on authorities from the United Kingdom. Whilst they are helpful in some respects one must take note of the fact that the United Kingdom’s statutory position in relation to layoff differs from ours in that the legislation specifically refer to the employee “being employee under a contract on terms and conditions …” Our equivalent legislation is silent in relation to the contractual terms. Section 147 Employment Rights Act 1996 (U.K.) provides:
“(1) For the purposes of this Part an employee shall be taken to be laid off for a week if—
(a) he is employed under a contract on terms and conditions such that his remuneration under the contract depends on his being provided by the employer with work of the kind which he is employed to do, but
(b) he is not entitled to any remuneration under the contract in respect of the week because the employer does not provide such work for him.
(2) For the purposes of this Part an employee shall be taken to be kept on short-time for a week if by reason of a diminution in the work provided for the employee by his employer (being work of a kind which under his contract the employee is employed to do) the employee’s remuneration for the week is less than half a week’s pay.”
Furthermore, British common law seems to rely on the employee “being prepared to work”. No such legal test exists in this jurisdiction. What is noteworthy about the Lawe case is that, as in the Industrial Yarns case there seems to have been an unlawful use of s.11. The plaintiff contended that the lay-off was not justified and was done to put pressure on the workforce to accept the new practices and that it was essentially a lock out situation. Also White J. found that the lay-off was not temporary but formed part of the winding down of the company and its workforce. The Tribunal find that it would be wrong to apply principles of law established in circumstances where a party attempted to avoid its legal obligation by wrongly invoking legislation for a purpose for which it was never intended. To apply such principles generally could lead to an injustice.
White J., based on the specific set of circumstances that were before him, found that in that situation the employees are entitled to pay during the period of lay-off. Interestingly White J. did state that a right to lay off without pay could exist where the lay off was temporary and where a custom and practice *103 existed. Such custom must be reasonable, certain and notorious. No evidence was produced before the Tribunal in relation to the custom and practice of the respondent. However, it can be said that generally throughout this country the custom and practice is that lay off will be without pay. That custom and practice has existed since the coming into force of the Redundancy Payments Act.
The Tribunal find that when s.11 is genuinely invoked and the employer satisfies s.11(1)(a) and (b) then the contract of employment is temporarily suspended and there is no right to payment during that period. Furthermore, the Tribunal finds that there is a notorious custom and practice in this jurisdiction that employees will not be paid during a period of lay off. Lay off itself is an instrument of statute.
The appellant’s appeal under the Payment of Wages Act must fail and the decision of the Rights Commissioner is upheld.
Colette Rooney v Ossie J. Kilkenny and v Brian P. Murphy
2001 No. 1121P
High Court
9 March 2001
[2001] 12 E.L.R. 129
(Kinlen J)
he plaintiff issued plenary summons on 26 January 2001. The general endorsement of claim includes a request for a declaration that the plaintiff is entitled to payment of her salary as a term and condition of her employment whilst on certified sick leave and that she is and continues to be in the permanent and pensionable employment of the defendants as personal assistant to the first named defendant. She also sought other declarations, injunctions and orders. She then brought a motion dated 29 January 2001 for the following orders and relief:
1. An injunction restraining the defendants their servants and agents from treating the plaintiff as other than continuing to be employed by the defendant.
2. An injunction requiring the defendant to maintain the plaintiff’s sick pay until further order or the trial of the action.
3. Without prejudice to the relief sought at paragraph 2 aforesaid an injunction requiring the defendants to pay the plaintiff’s salary as it falls due and requiring the defendants to discharge all other incidents of the plaintiffs employment and in particular the relevant pension premiums.
4. An injunction restraining the defendants from dismissing or purporting to dismiss the plaintiff from her said post.
5. An injunction restraining the defendants, their servants and agents from appointing any person other than the plaintiff to the plaintiff’s said position and restraining the discharge of the plaintiff’s function and responsibilities by any person other than the plaintiff. She also seeks further and other relief and costs.
This motion is presently before this Court. The plaintiff is a certified chartered accountant and the defendants are partners in an accountancy firm, practicing under the style of O.J. Kilkenny & Co. The plaintiff has been personal assistant to the first named defendant since the month of February 1990. She alleges that she is being subjected to oppressive, abusive and bullying treatments by Mr Kilkenny since at least 1999. She had only had one day’s illness off work since she started until January 2000. As a result of the alleged confrontation on 19 January 2000 she was away from work for approximately two weeks with stress *131 related disorder. The plaintiff was diagnosed by her psychiatrist as having a severe stress reaction which she ascribed directly to work stress. She also certified her as unfit to work.
Since the plaintiff’s problem was mainly with her immediate boss the first named defendant, the second named defendant offered to meet her to discuss her grievances. She refused to attend this meeting unless she was accompanied by her solicitor in view of her medical condition. The defendants’ solicitors replied in a letter of 24 October 2000. Inter alia it states:
At a recent hearing in the Law Society in relation to a claim made by Mr Ernie Fallon it was stated by your client’s representative that she would be not returning to her employment with O.J. Kilkenny & Co. You might confirm that that is the position and if so our client is prepared to offer your client three months’ pay in lieu of notice together with a bonus in the sum of £50,000 and to arrange for the transfer of her pension entitlements under the scheme. If your client is maintaining the position that she is returning to work our client will need to take steps to ascertain her fitness to return to work and the likely date of such return.
You might note that our client has no contractual arrangement with your client in relation to payment of sick pay. Notwithstanding this our client has been paying your client her full salary for a considerable period of time. Your client has, we assume, applied for and obtained social welfare benefit for this period and you might arrange for any benefit payments to be remitted to our client. Our client will be reviewing its position in relation to sick pay as it cannot continue to pay your client sick pay on an indefinite basis. Our client will pay your client for the month of October 2000 (that such payment will be deducted from the three months’ notice mentioned above).
A reply of Messrs A & L Goodbody, solicitors for the plaintiff on 31 October 2000 reads:
For the record and as was made clear to the disciplinary tribunal of the Law Society the position is that our client remains unfit for work. Her medical advise is that her health problems are entirely due to her situation at your clients’ work place. We enclose a copy of her medical report in this respect.
Accordingly, the position is not, as seems to be suggested in your letter, one of our client’s deciding not to return to her employment but rather that your client has wrongfully created that situation. If you are in any doubt as to whether our client can or can not return to work now or at all, we would suggest that you arrange for a medical examination to *132 confirm the position.
With regard to social welfare benefit we will advise our client appropriately. As regards sick pay your client does have an obligation to continue payment. We are instructed that another employee was paid for at least as long. If your client wishes to be seen to be dealing with this serious matter appropriately it would need to rethink the strategy and messages conveyed with reference to continuing payment of our client. Furthermore, we could point out for the record that our client has earned and is due from your clients the bonus of £50,000 which sum has been due since July 1997 and unless payment together with interest is made by return we are instructed to issue proceedings forthwith.
By notice of motion dated 29 January 2001 and returnable for 5 February of this year the plaintiff seeks:
1. An injunction restraining the defendants their servants and agents from treating the plaintiff as other than continuing to be employed by the defendants.
2. An injunction requiring the defendant to maintain the plaintiff’s sick pay until further order or the trial of the action.
3. Without prejudice to the reliefs sought at paragraph 2 hereof an injunction requiring the defendant to pay the plaintiff a salary as it falls due and requiring the defendants to discharge all other incidents of the plaintiff’s employment and in particular the relevant pension premiums.
4. An injunction restraining the defendants from dismissing or purporting to dismiss the plaintiff from her said post.
5. An injunction restraining the defendants, their servants and agents from appointing any person other than the plaintiff to the plaintiff’s said position and restraining the discharge of the plaintiff’s functions and responsibilities by any person other than the plaintiff.
It is agreed by both parties that this plaintiff has not been dismissed. However, it is clear that unhappy differences have arisen between the parties. The sooner this case is expedited to a full hearing in court the better for both parties. It is not necessary at this stage to decide on the merits of the case. Senior counsel has stated it is not necessary for this Court to decide whether she is difficult, whether her employer is the root of the problem. The question is simply is she entitled to sick leave? The parties agree that the contract of employment still endures. There is no statutory right to sick leave. The problem about repayment of social welfare benefit has been resolved between the parties. The court has been referred to Boyle v. An Post [1992] 2 IR 437; Morrison v. Bell [1939] *133 2 KB 187; [1939] 1 All ER 745. In the Morrison v. Bell case Scott LJ says at p.198 of the official report.
On the contrary, those cases say, in my opinion quite clearly, that under a contract of service, irrespective of the question of the length of notice provided by that contract, wages continue through sickness and incapacity from sickness to do the work contracted for until the contract is terminated by a notice by the employer in accordance with the terms of the contract.
This case lists a long series of English cases in which eminent judges come to the same conclusion as Scott LJ in Morrison v. Bell case. The Court is also being referred to the 6th ed. of Dix and Crump on Contracts of Employment at p. 82 which at paragraph 3.52 states:
If under the terms of his contract, expressed or implied, the employee is entitled to wages through temporary sickness, he is entitled during such absence to receive his full remuneration in accordance with the terms of his employment. This may, in certain circumstances, include a bonus.
The Court was also refereed to Jakeman and Others v. South West Thames Regional Health Authority and London Ambulance Service [1990] IRLR 62 which found that where mandatory interlocutory relief is sought a more onerous test generally applies than that of whether the plaintiffs have a good arguable claim that there is a question to be tried as laid down in the American Cyanamid Co. v. Ethicon Ltd [1975] AC 396. The headnote reads:
In the present case, while there was undoubtedly a serious question to be tried, the plaintiffs’ case could not be said to be a clear one. Nor were there any special circumstances, either hardship or otherwise, which made it inappropriate to apply the Locabail test ([1986] 1 WLR 657, CA) that a clear case must be shown and that would justify granting mandatory relief simply on the basis that there was a serious question to be tried. Although for the plaintiffs to do without the wages claimed until the issue was finally determined might well be difficult for them, such is the case in every claim by an employee for wages withheld from him by his employer and in many other claims for money not arising out of the employment relationship.
In any event, whether the initial test was one of a clear case or of a serious issue to be tried, the balance of convenience lay in favour of refusing the interlocutory relief in that if the plaintiffs were to succeed at trial in establishing their right to the deducted wages, they would be *134 adequately compensated by an award of damages. No authority was cited in which the court had regarded temporary hardship as a ground for granting interlocutory relief in a claim for payment of wages. This was understandable, since otherwise nearly every strong case for unpaid wages would attract such an order for interlocutory relief.
Mandatory interlocutory relief is generally not appropriate even in a clear case of entitlement to unpaid wages.
In the 6th ed. of Dix and Crump on Contracts of Employment , paragraph 3.52, p. 82 the following appears:
If under the terms of his contract, express or implied, the employee is entitled to wages during temporary sickness, he is entitled during such absence to receive his full remuneration in accordance with the terms of his employment. This may, in certain circumstances, include a bonus.
The authority for that statement is Marrison v. Bell already cited. I should also draw attention to the Terms of Employment (Information) Act 1994 and O’Reilly v. Irish Press Limited (1937) 71 ILTR 194. Maguire P states at p. 195:
As was said by Mr Martin Maguire, a custom or usage of any kind is a difficult thing to establish. Before a usage such as is contended for here can be established it must be proved by persons whose position in the world of journalism entitles them to speak with certainty and knowledge of its existence. I have to be satisfied that it is so notorious, well known and acquiesced in that in the absence of agreement in writing it is to be taken as one of the terms of the contract between the parties.
It is argued that the letter of 24 October already cited was not a termination of employment, merely a termination of sick pay. Is it right that an employer who refuses to pay is in a better position than someone who pays for a reasonable period based on generosity? If there is, that is something for a trial judge. The defendant says six months is good practice and is so regarded by big firms and in public services. This was not contradicted. The defendant should not be penalised for doing the decent thing. The difficulty in this case is in very similar circumstances Laffoy J made an order similar to the one sought here. That is Charlton v. H.H. The Aga Khan’s Studs Société Civile [1999] ELR 136.
The Court has to be satisfied that there is a fair issue to be tried between the parties and that damages would not be an adequate remedy and that the balance of convenience favours the granting rather than the refusing of the injunctive relief claimed.
There are undoubtedly fair issues to be tried in this case for example as to *135 whether she is entitled to sick pay and if it is restricted to ‘a reasonable period’ and if so what is the legal definition of ‘a reasonable period’. As she had been out on three occasions due to illness she states that another employee had been out a longer period and was paid in full this may involve finding there is an implied term for the payment (after deduction of state benefit sick pay). There is also a conflict on the affidavits regarding the ‘fault’ had in the relationship between the plaintiff and the first named defendant.
On the question of the balance of convenience Laffoy J refers to the line of authorities commencing with the decision of Costello J, as he then was, in Fennelly v. Assicurazioni Generali Spa [1985] 3 ILTR 73:
Damages would not be an adequate remedy for the plaintiff if it were to be found at the trial of the action she has the entitlement she contends for to sick pay, and that, having regard to the circumstances of the matter, justice requires that the defendant should be ordered to discharge her sick pay and preserve her pension entitlements pending the trial of the action, subject to the defendant’s reasonable requirements in relation to verification of the plaintiff’s incapacity for work on medical grounds being adhered to.
If the plaintiff becomes fit for work before the trial of the action, her entitlement to sick pay will cease. The defendant acknowledges that the plaintiff’s contract of employment still subsists and, if the plaintiff’s incapacity ceases and she presents for work, it would be for the defendant then to decide what steps to take.
The Court would adopt as its decision in this case the last preceding two paragraphs. It is important to realise that in this particular case it is alleged that the plaintiff’s incapacity is due in part or entirely to the conduct of the first named defendant. This is another factor which will be taken into account on the question of the balance of convenience.
Having regard to all those factors at this stage damages may not be adequate.
The Court will adopt the judgment of Laffoy J by making similar orders. It is of utmost importance that the trial of the action should be expedited. I propose fixing a date for the trial and making any orders in relation to pleadings, discovery and such like as are necessary on hearing counsels’ submissions. Pending the trial of the action the following orders will be enforced.
1. An order that the defendant pays the plaintiff a weekly sum equivalent to her nett salary less a sum as the plaintiff is entitled to by way of disability or other benefit from the State provided that the plaintiff furnishes to the defendant on a weekly basis evidence in the form of a certificate from a medical practitioner of her unfitness for work and that the plaintiff com *136 plies with reasonable requirements of the defendant that the plaintiff be examined by a medical practitioner nominated by the defendant and that the defendant maintain the plaintiff’s pension rights, superannuation and other benefits by paying the premiums in respect thereof.
2. Each party shall have liberty to apply. The costs are reserved to the trial judge. The plaintiff does not have ‘a blank cheque’ and must do everything possible to expedite her case.
Stefanazzi v Labour Court & Anor
[2019] IEHC 660 (09 October 2019)
JUDGMENT of Mr. Justice MacGrath delivered on the 9th day of October, 2019.1. This is an appeal on a point of law pursuant to s. 7(4)(b) of the Payment of Wages Act,1991 (“the Act of 1991”) from the determination of the Labour Court made on the 20thDecember, 2016, whereby it refused Mr. Stefanazzi’s appeal from a decision of theadjudication officer on the issue of the wages properly payable to him in accordance withs. 5(6) of the Act of 1991.2. Mr. Stefanazzi is employed by the notice party in the Site Designation and Plans Unit ofthe National Parks and Wildlife Service. This unit was historically under the control of theDepartment of the Environment, Heritage and Local Government but was transferred tothe Department of Arts, Heritage and the Gaeltacht (“the Department”) from 2011. He isemployed at clerical officer grade but maintains that for some considerable time he hasbeen fulfilling the duties of a geographic information system technician (“GIS technician”)at executive officer level, which attracts a higher rate of pay.3. In its determination, the Labour Court described the central contention of the applicant asbeing the failure of the Department to pay wages properly due to him and that this failureconstituted a deduction in accordance with s. 5 of the Act of 1991, ss. (6) of whichprovides:-“Where -(a) the total amount of any wages that are paid on any occasion by an employerto an employee is less than the total amount of wages that is properlypayable by him to the employee on that occasion (after making anydeductions therefrom that fall to be made and are in accordance with thisAct).(b) none of the wages that are properly payable to an employee by an employer onany occasion (after making any such deductions as aforesaid) are paid to theemployee, then, except in so far as the deficiency or non-payment isattributable to an error of computation, the amount of the deficiency or non-payment shall be treated as a deduction made by the employer from thewages of the employee on the occasion.”Page 2 ⇓The Labour Court’s Determination4. The appeal was heard by the Labour Court in accordance with the provisions of s. 44 ofthe Workplace Relations Act, 2015 on 14th December, 2016. Ms. Caitriona Ryan, the headof human resources at the notice party’s Department, who has sworn affidavits on behalfof the notice party, avers that in the course of the hearing an objection was made thatthe appellant’s claim had not been filed within the appropriate time limits as set out in s.6(4) of the Act of 1991 but the Labour Court focused on a different point, namely howwages become properly payable to a civil servant in the Department (emphasis added)and subsequently made its ruling on this. It seems that in coming to this decision, theLabour Court was of the view that a finding on this issue had the potential to bedeterminative of the case.5. The preliminary issue deemed to require determination was whether, at the material time,a rate of pay was properly payable to the appellant, higher than that which was actuallypaid to him. If no such rate of pay was properly payable to him at the material time, thens. 5(6) of the Act of 1991 could have no application because the pay received by himwould have been in accordance with that which was properly payable to him.6. The Labour Court expressly records in its determination that the parties accepted itsdecision as regards this approach and consequently made submissions concerning themechanisms employed to assign a rate of pay, or a grade, to a civil servant in theDepartment. The Labour Court also expressly noted that while there was disagreementwith regard to the range of mechanisms available to award acting up allowances or higherduty allowances, it was common case that a procedure had to be followed by theDepartment in order to apply a rate of pay, award a grade, or assign an acting up/higherduty allowance to a person in the position of the applicant (emphasis added). It is alsoexpressly stated that it was common case that the application of any greater allowancefollowing the execution of such procedure required the sanction of the Department ofPublic Expenditure and Reform, and that no available procedure had been followed inrelation to the applicant in order to secure for him a higher grade or an acting up/higherduty allowance. The court also noted the Department’s assertion that no sanction hadbeen received from the Department of Public Expenditure and Reform for the applicationof a higher rate of pay, the award of the higher grade, or the assignment of an allowanceto the appellant.7. The Labour court found that no procedure had been followed by the Department whichwould create a rate of pay properly payable to Mr. Stefanazzi, other than that which hedid receive at the material time. It found that he was not at any time assigned an actingup/higher duty allowance, awarded a grade other than that of clerical officer in theDepartment, or otherwise had a higher rate of pay applied to him. It determined that thetotal amount of wages paid to the appellant at the material time was not less than theamount properly payable to him throughout that period. His appeal could not thereforesucceed.8. For the sake of completeness, it ought to be recorded that the adjudicating officer in hisruling described the complaint as being misconceived and hopelessly out of time, statingPage 3 ⇓that the appellant was relying on a breach which allegedly occurred in 2009 to advance acomplaint made in 2015. He also stated that the Act was not the appropriate vehicle foradvancing what he regarded as a re-grading claim. The appellant disagrees with thisassessment and contends that there were ongoing and continuous breaches of the Act,and that in any event, the hearing before the Labour Court was a de novo hearing.The appeal to this Court9. The appeal to this Court is grounded on an affidavit of the appellant sworn on the 25thJanuary, 2017, at paras 3 to 5 of which Mr. Stefanazzi summarises the errors of law intowhich he asserts the Labour Court fell. These are as follows:-a. it failed to recognise the breach of the Act of 1991;b. it overextended the limits of its role by exonerating the Department on thepreliminary point while at the same time acknowledging that the notice party didnot follow its own procedure as an employer of the plaintiff; andc. the procedures not followed by the Department should have been helddeterminative in the Labour Court’ finding under the Act of 1991.Factual background10. The appellant obtained an honours degree in geography from Trinity College Dublin in2004, a major component of which was GIS. He commenced employment with theDepartment (or rather its predecessor) as a temporary clerical officer in June, 2007.Initially he provided cover for an executive officer who was on leave from the SiteDesignation and Plans Unit of the National Parks and Wildlife Service (“NPWS”). It is hiscase that at interview with the Public Appointment Service he informed the interviewerthat he was only interested in taking up a position that was closely associated with hisqualification, a major component of which was GIS. He maintains that he was informedthat the Department had a GIS unit but did not have an administrative division and hewas therefore assigned to the Sites Designations and Plans Unit which had a closeworking relationship with the GIS unit. On 1st August, 2007 it was decided by thepersonnel unit to establish a position on a probationary basis, being that of clerical officerwithin the same unit. He maintains that the basis of this offer was that he was successfulin entering a competition for the established position of clerical officer, that he had madeit known that his qualifications would be an asset to the department and that a posting inthe NPWS would be beneficial to his career development. He signed a probationarycontract on 15th August, 2007 for a period of one year. He was made permanent in 2008.11. The appellant contends that on 23rd July, 2009 it was agreed between Mr. Jim Kelly,assistant principal of the Site Designations and Plans Unit and the GIS coordinator, Mr.Robert Ovington, to transfer him from Unit to the GIS to take over from a GIS technicianwho was due to take a career break from the end of August, 2009. The appellantmaintains that it was a requirement of the Department that GIS technician candidatesshould hold certain qualifications; including a primary degree with GIS or equivalent, andthat he was so qualified. He avers that he has continued to carry out the duties of GIStechnician since joining the unit. He points to the fact that the notice party paid forPage 4 ⇓specialist training in the field of GIS and funded a Masters degree course at DublinInstitute of Technology which he attended during business hours. He was awarded anM.Sc. in Spatial Information Management/GIS in 2012. In 2013, he applied to become amember of the Society of Chartered Surveyors Ireland, to what is described as theGraduate Route 2 pathway and was accepted by the Board of the Society and theDepartment.12. Mr. Stefanazzi places particular emphasis on written observations of the GIS manager,Mr. Gareth John, in a 2013 review document which was submitted to the personnel unit ofthe Department, entitled “GIS Service and Staff Review for Department of Arts, Heritageand the Gaeltacht”. Mr. John highlighted the situation of a clerical officer in the NPWS GISunit carrying out the duties of the GIS technician but not being remunerated accordingly.The appellant asserts that he was suitably qualified as a GIS professional to fulfil that roleand that the Department facilitated the advancement in his technical ability andresponsibility and paid for his attendance at a number of specialised training courses andconferences attended by fellow GIS technicians.13. In an affidavit sworn on the 20th April, 2017, Ms. Ryan avers that the appellant’s case isbuilt on an erroneous belief that he is employed at a higher grade than he actually is. Itis the Departments case that in 2009 the appellant expressed an interest in becomingmore involved in GIS within the Department. This expression of interest was responded topositively by management in what is described as a spirit of goodwill and in accordancewith the Department’s business needs. The notice party maintains that the appellant wasclearly informed, on transfer, that by working with the GIS unit he would continue toserve in the role of clerical officer and that the transfer did not entail him replacinganother GIS employee or assuming duties that had previously been carried out by a GISemployee. It is also the Department’s case that it was made clear to the appellant that hewould continue to remain part of the Site Designations Unit to which he had beenoriginally assigned.14. The Department maintains that Mr. Stefanazzi is and was at all times fully aware thatpromotion to a higher grade is only possible through participation in open interview-basedcompetitions. He has not achieved such position as a result of participation in the officialrecruitment process, as required. Recruitment and promotion within the civil service ismanaged by the Public Appointment Service operating under the Public ServiceAppointments (Management) Act, 2004. No competition for recruitment had taken placesince 2006. Thus, it is contended that in the absence of such competition it was notpossible for the appellant to have been promoted to the role of GIS technician.15. The notice party also disputes the contention that the appellant has fulfilled the functionsof a GIS technician and draws the court’s attention to the fact that when the Civil Publicand Services Union (“CPSU”) agitated this issue on his behalf, it was informed, andaccepted, that remuneration at the level of GIS technician could only be considered if theappellant was promoted to a comparable grade of executive officer following participationin an interview-based competition. The CPSU wrote to the Department on the 18th June,Page 5 ⇓2014 asserting that Mr. Stefanazzi had taken on the full GIS technician role from July,2009, equivalent to executive officer level. The union referred to HSE West v. A WorkerAD 1242 (2012), where the Labour Court found that it was unsustainable to continue anarrangement whereby different rates are paid for identical work and that the union’s claimin seeking the application of the appropriate rate for the job was not precluded by thePublic Service Agreements 2010-2014.16. On 16th April, 2014, a solicitor representing the appellant wrote to the Department andmade the same point. In a reply of 13th May, 2014, the Department stated that since2009 Mr. Stefanazzi had been assigned to work with the GIS as a clerical officer providingassistance to the technical staff of that unit and while he had expressed his interest indeveloping his career in GIS, in light of the ongoing moratorium on public servicerecruitment since 2009, the Department continued to be restricted in its ability to recruitnew staff and to offer promotional opportunities to existing staff.17. In a further affidavit sworn by Ms. Ryan on 21st June, 2017, she avers that while incertain circumstances, a higher up allowance is available, it did not apply to Mr.Stefanazzi as he was not carrying out such work and at all times he worked in thecapacity of clerical officer. To be appointed to an acting up position or a higher dutycapacity position in 2012, the sanction of the Department of Public Expenditure andReform was required. If sanction was given, a competitive process would then have to beundertaken and she maintains that Mr. Stefanazzi was fully aware of the competitionprocess. Further, she maintains that the duties which were carried out by Mr. Stefanazziduring the period in question did not carry the same level of responsibility as thosecarried out by a GIS Technician Grade 1 staff member. She states that he was the subjectof a lateral transfer which arose from his expression of interest and that he was clearlyaware of the position which he was assuming which was to provide assistance in hiscapacity as clerical officer. She exhibits correspondence between the union and theDepartment. At all material times the appellant had been employed as a clerical officerand had been remunerated as such and therefore no unlawful pay deductions were madeunder the provisions of the Act of 1991. The appellant participated in a competition for anexecutive officer position in 2013 but was unsuccessful. She maintains that the refundingof fees is not relevant and that the purpose of the scheme is to benefit the employee’spersonal or career development and thus contribute to the overall objectives of theDepartment.18. Ms. Ryan also states that a recruitment moratorium was imposed generally on the civilservice in 2009. However, situations did exist were government departments, with theprior approval of the Department of Public Expenditure and Reform, could acquiresanction to fill special positions, subject to available payroll resources, in order to addressexisting and emerging business needs. Thus, for example, the competition for promotionto GIS manager in 2013 was one of those sanctioned exceptions.19. Mr. Stefanazzi maintains that the eligibility criteria for the GIS manager position for whichhe applied in 2013, required a relevant GIS qualification and a minimum three years postPage 6 ⇓graduate experience with GIS. He asserts that the fact that he was accepted into thiscompetition, constitutes an acknowledgement of his role as a GIS technician for a periodof more than three years. Ms. Ryan states that the fact that he participated in such acompetition did not in any way confirm that he satisfied the eligibility requirements.Qualifications and eligibility are not verified until the final stage of the process and aninvitation to take part in tests, interviews or any other element of the selection process isnot an acceptance of eligibility. The appellant, however, maintains that he had suchexperience and therefore satisfied eligibility criteria for the competition, and that fundingunder the Payment and Refund of Fee Schemes is only awarded to staff where thepostgraduate qualification is directly related to the role, and his qualification was notrelated to the role of clerical officer. Ms. Ryan disputes this and in an affidavit sworn on12th September, 2017 outlines various factors which are considered and assessed inorder for a successful candidate to qualify for 100% funding. These include the year ofstudy, the relevance of the course of study to the work of the Department and the level ofthe course chosen. She states that the appellant’s application for funding was assessed inaccordance with that criteria.20. Mr. Stefanazzi contends that the Labour Court did not give due consideration to theevidence which was presented by him in support of his contention that he was fulfillingthe role of GIS technician. It is clear that his submissions to the Labour Court, whichwere referred to in argument before this court, were very detailed and highlighted themany areas of responsibility, qualifications, training, course studies and duties (includingdigital editing of photographs and technical support to the NPWS) which he undertook andwhich he maintains are consistent with the role of GIS technician rather than clericalofficer. He alleges that the Labour Court ruling fell short of an appropriate investigation.He states that the notice party’s assertion that he was not carrying out the role of GIStechnician was with a late attempt to justify not paying him properly.21. In an affidavit sworn on 18th July, 2017, Mr. Stefanazzi highlights what he considers tobe a contradictory position adopted by the Department in relation to the higher dutyallowance being available to staff of the Department from that which it adopted in theLabour Court; where it “proclaimed to the Labour Court that the only way in which hecould be paid for the position he was carrying out as a GIS Technician” would be for himto compete in an external competition, He states that he presented evidence that staff inthe Department were in receipt of an acting up/higher duty allowance, and had beenpromoted automatically and without external competition based on those higher duties –a position which he asserts was conceded to be true. He produced to the Labour Courtand relied on a letter dated 4th October, 2012 from the Secretary General of theDepartment in which it was stated that all acting up/higher duties allowances wererestricted under the moratorium and that “where an exception to the moratorium isallowed, such allowances can only be paid where the acting exceeds a continuous periodof 84 days”. He maintains that in acknowledging that a higher duty/acting up allowancewas available to staff, the Department continued to benefit from him fulfilling the role ofGIS technician. It was not a coincidence, he states, that the Department chose him to fillthis roll. Ms. Ryan in an affidavit sworn by on 12th September, 2017, however, shePage 7 ⇓reiterates that promotion to a higher grade, including in an acting capacity, is onlypossible through participation in a competitive process. She also maintained that theappellant was assigned tasks appropriate to his grade and those carried out by himrequired a level of supervision which would not be required for a GIS Technician Grade 1.The Appellant’s submissions22. The appellant’s submissions were succinctly outlined in the forms/information sheetscompleted by him in respect of applications in proceedings involving a litigant in person,and which he repeated and supplemented in submissions to this court. A number of hisarguments were outlined in his affidavits and have been referred to earlier in thisjudgment. Mr. Stefanazzi submits that the court has jurisdiction to intervene and shoulddo so and that despite the Labour Court being provided with substantive evidence insupport, it dismissed the claim without taking cognisance of the facts and thus acted inbreach of the Act of 1991. He also contends that he had a legitimate expectation to beawarded an acting up allowance for the role which he was fulfilling. He relies on a numberof authorities which are referred to below. He submits that the Labour Court erred in lawin not affording him the opportunity to present his evidence, that it erred in deciding tohear a preliminary issue rather than to allow him to present all his evidence, that it erredin affording undue weight to the absence of procedures and in failing to recognise thatthere had been a breach of the provisions of the Act of 1991. Reliance is also placed onthe decision of O’Malley J. in Minister for Education and Science v. The Labour Court & Ors[2015] IEHC 429. He requests this Court to determine whether the Labour Court erred inlaw by making its decision on a preliminary point and submits that it came to its decisionwithout examining the facts or affording him the opportunity to present his evidence.23. The appellant relies on the Labour Court decision in HSE West where the Court upheld therecommendation of the Rights Commissioner and ordered that an employee be placed onan appropriate salary scale to reflect her duties at work, despite the argument of theemployer that a moratorium had been placed on promotions at the time the claim arose.He submits that this constitutes a correct interpretation of the claim as being anapplication of an appropriate rate for the job, rather than an application for an increase inan existing rate. He also relies on a decision of the Employment Appeals Tribunal (“EAT”)in Malanaphy v. Minister of Transport, Tourism and Sport W 655/2012 (2012) where theapplicant was seeking to be paid in line with his predecessors. The EAT was satisfied thatthe appellant had fulfilled the same role albeit under a different title which was notgraded. The EAT concluded that it was fundamentally unfair to deny the appellant likepayments for like work solely based on the premise that the new named position had notyet been graded.24. Mr. Stefanazzi also argues that he has a legitimate expectation to such pay because hewas carrying out the role of GIS technician in similar manner as his GIS techniciancolleagues.He does not maintain that he had been re-graded but contends that he has been carryingout the duties of a GIS technician. A central thrust of his argument is that by not havingprocedures, as opposed to not following them, the notice party may circumvent itsPage 8 ⇓statutory obligations. Insofar as the preliminary issue is concerned, he informed this courtthat there may have been a misinterpretation of what was being proposed by the LabourCourt. It is to be observed, however that a case is not made by Mr. Stefanazzi onaffidavit that he was in any way misled by the Labour Court in relation to its proposal todeal with the matter by way of preliminary issue. Indeed, at para. 7 of the affidavit swornby him on 15th May, 2017 he avers:-“I say that during the Labour Court hearing the Plaintiff brought the Court’s attention toparts of his submission as at the Court’s resolve it wanted to examining (sic) howwages become properly payable to a civil servant. However I believe the Plaintiff’ssubmission as a whole which was submitted to the Labour Court within thestatutory period of time prior to the hearing more than validated such a preliminarypoint as brought to the fore by the Labour Court.”The Notice Party’s submissions25. Mr. Leonard B.L., on behalf of the notice party, submits that as this is an appeal on apoint of law from the determination of the Labour Court due respect must be shown tothat decision. The Labour Court is a specialist body in the area of industrial relationsdisputes and the principle of curial deference applies. This is particularly so where thecourt is called upon to resolve disputes of a factual nature. That this court may disagreewith a factual conclusion is not a sufficient basis upon which to intervene and it can onlydo so where the conclusion is so abhorrent to logic and common sense, or involves anerror of law. He places reliance on the decision in HSE v. O’Doherty [2015] IEHC 611where Noonan J. reiterated the reluctance of the courts to interfere with a finding of factby the Labour Court and would only do so if the finding was irrational, unreasonable andwas not supported by the available evidence. It is contended that the finding underchallenge cannot be described as unsustainable but was an entirely logical and rationaldecision based on a comprehensive and fair analysis of the information which was beforethe Labour Court. It is submitted that the claim pursuant to the Act of 1991 is based onthe applicant’s erroneous belief that he was employed at a higher grade than was thecase. Counsel suggests that reliance by Mr. Stefanazzi on the comments in Mr. John’sreport confirms that Mr. Stefanazzi was employed as a clerical officer. He submits that theLabour Court considered Mr. John’s evidence and his report but ultimately what the Courtwas obliged to consider was a complaint under the Act of 1991.The role of the court on appeal26. In Fitzgibbon v. Law Society [2015] 1 I.R. 156, Clarke J. (as he then was) observed atpara. 73:-“Where the legislature confirms a right to a statutory appeal, it must evidently beassumed that this was intended to have some meaning and some purpose. Where,for example, judicial review is independently available, it must be considered asconferring some additional benefit(s) on the appellant. Something separate from amere ‘test’ for legality, or the mere quashing or remitting of a decision based onstandard judicial review grounds. The range of possibilities in this regard isextensive, varying from a full appeal, as from the Circuit Court to the High Court onPage 9 ⇓circuit (s. 38 of the Courts of Justice Act 1936), to one strictly limited, say on apoint of law, perhaps even further limited by the nature of the point and only thenon due certification by the trial court (see as examples, s.29 of the Courts of JusticeAct 1924 as substituted by s. 22 of the Criminal Justice Act 2006 and as lateramended and s. 50(3)(f) of the Planning and Development Act 2000). In between,one can find several other variable forms of ‘appeal’. It therefore follows that theavailability of such a right does not mean that all reviews, by way of appeal, arenecessarily the same: quite obviously they are not. As Costello J. pointed out inDunne v. Minister for Fisheries [1984]1 I.R. 230, ‘in every case the statute inquestion must be construed’ (p.237). Barron J. in Orange said ‘the test forcompetition cases cannot be a guide for other cases’ (p. 238): certainly, withoutmuch concordance on many other important factors, this surely must be right. Thistherefore being the situation, it then becomes necessary to consider each legislativeframework in its own right”.27. Clarke J. acknowledged that expertise and knowledge is at the very heart of the rule andthat the greater level of expert knowledge which a body has, the greater should be therespect; but cautioned against the over application of the principle of curial deference.28. In An Post v. Monaghan [2013] IEHC 404, Hedigan J. observed that the role of the courtis limited and it may intervene only where it finds that the decision is based on anidentifiable error of law or an unsustainable finding of fact. The authorities in this pointhighlight the fact that such decisions are made by expert administrative tribunals andfurthermore that when it comes to the question of fact, a practical reason for thereluctance to interfere is that this Court has not heard the evidence which the LabourCourt had the benefit of hearing. Thus, for example, in Dunnes Stores v. Doyle [2014] 25ELR 184, Birmingham J. considered that findings of fact by the EAT was deserving ofgreat respect as it was at a tribunal representing both sides of industry.29. It is clear that the role of this court on an appeal such as this is limited. It may onlyintervene where an error of law has been demonstrated or where a finding of fact hasbeen made which is unsupported by the evidence presented to the Tribunal below. In thelight of the appellant’s submissions, written and oral, in essence, therefore, a principalissue to be addressed on this appeal is whether, as a matter of law, the court erred indetermining the matter by way of preliminary issue.Decision30. In the affidavits and submissions of the appellant, no ground of appeal is suggested toarise on the basis of the inadequacy of reasons provided by the Labour Court for adoptingthe preliminary procedure and framing it in the manner in which it did. The courtacknowledges that Mr. Stefanazzi was unrepresented before the Labour Court. It may bethat had he been represented, the course of action proposed by the Labour Court mightnot have been acceded to. Nevertheless, in the light of the contention that the LabourCourt erred in law in its approach, and in the interest of justice, it is relevant to considerits jurisdiction in relation to the procedures employed.Page 10 ⇓31. Section 20(5) of the Industrial Relations Act, 1946 empowers the Labour Court to makerules for the regulation of its procedures. Section 20 was amended by s. 50 of theWorkplace Relations Act 2015, pursuant to which the Labour Court (Employment RightsEnactments) Rule 2016 were adopted. Rule 57 provides:-“The Court may, in its discretion, give a preliminary ruling on any aspect of thecase where it is satisfied that time and expense may be saved by the giving of sucha ruling.”Rule 47 also provides that the conduct of the hearing of an appeal is to be regulated bythe chairman of the division of the Labour Court before which the appeal takes place. Forthe sake of completeness it is to be noted that these rules have now been replaced by theLabour Court Rules 2019 which at rules 41 and 31 make similar provisions in respect ofpreliminary rulings and the conduct of the hearing. Therefore, it appears to me that theLabour Court had the power to proceed by way of preliminary ruling if satisfied that timeand expense might be saved in so doing.32. There is no reference in the determination of the Labour Court as to the basis upon whichit considered that the preliminary issue, as defined by it, had the potential to bedeterminative of the case. Little insight is presented as to the basis upon which as amatter of law the Labour Court concluded how wages become properly payable to a civilservant in the Department, was potentially determinative of the issues before it. It wouldseem that this was a procedure which the court itself raised and adopted. Further, thereis little discussion as to the meaning or correct interpretation of the expression “properlypayable” in s. 5(6) of the Act of 1991.33. In Earagail Eisc Teoranta v. Ann Marie Doherty and Others [2015] IEHC 347, Kearns P.stressed the obligation on a decision maker to provide reasons for its decisions. Heconcluded, in the circumstances of that case, that there had been a manifest error of lawin the Tribunal’s interpretation of s. 5 of the Act of 1991. It had determined that under s.5(1)(c) the written consent of the employee was required before the company could bringabout any changes to salary levels. He further concluded that the Tribunal had failed toprovide adequate reasons for a number of its findings. While the duty to give reasons didnot require extensive analysis of every aspect:-“…and indeed, as held in Faulkner, the ‘gist’ of the basis for a decision is sufficient.However, in the present case I am satisfied that the brief determination of theTribunal is wholly inadequate to meet even this low threshold. It is not clear howthe Tribunal arrived at the determinations it did and there is not as much as afleeting reference to vital matters such as the ‘reduction or deduction’ argument orwhy section 8.2 of the company handbook is not applicable”.34. Submissions had been made relating to relevant sections of the contract of employmenthandbook but there was no finding in relation to them. He continued:-Page 11 ⇓“There is no engagement whatsoever, however minimal, with the detailedsubmissions of the appellant in relation to its financial circumstances at the timeand no consideration of the circumstances relied upon by the appellant forintroducing the pay cut”.He was satisfied that the Tribunal had erred in failing to apply well-established principlesof construction to the provisions of the handbook and in failing to give reasons for itsfinding. Importantly, he stated:-“Both sides were in dispute on this point and the decision of the Tribunal fails toindicate which submission was preferred and why” (emphasis added).35. It is evident from the passage above that there was a conflict between the parties as tothe proper manner in which the handbook should be construed and Kearns P. was criticalof the inadequacy of the reasons given for the decision of the EAT. In this case, however,it is clear from the express wording of the determination of the Labour Court that theparties accepted its decision regarding the preliminary issue and made submissions on themechanisms undertaken or employed to assign a rate of pay or to upgrade in theDepartment. It is difficult to see a basis upon which it might be contended that where theparties have consented to, or have accepted a particular procedure, that one who issubsequently disappointed with the outcome ought to be entitled to protest that theprocedures which were employed were unfair or arose as a result of an error of law. It isnot suggested by Mr. Stefanazzi in the affidavits sworn in support of this appeal that hewas in some way misled by the Labour Court. Although to this Court he submitted thatthere may have been a misunderstanding about what was proposed by the Labour Court,the extract from his affidavit referred to in para. 24 above, would tend to suggest that hewas satisfied that the Labour Court had information before it to determine the case on apreliminary basis.36. While I have considerable sympathy with the argument made by Mr. Stefanazzi inconnection with the nature of the duties being fulfilled by him, many of which tend tosupport and corroborate his argument that he was in fact fulfilling the duties of a GIStechnician, the fact of the matter is that the express determination of the Labour reflectsan agreed approach to the determination of the issue on the preliminary basis proposed.Given the limited role of this Court on an appeal such as this, the room for interventionmust, of necessity, be limited.37. It is true that the Labour Court does not provide any specific reason as to how it came toits decision to proceed by way of preliminary issue. It seems to me that if there had beenan absence of consensus, a disagreement or demur from the suggested course of action,there may be merit in an argument that the failure of the Court to provide reasons as towhy it adopted such approach might lead to its determination being susceptible tosuccessful challenge on appeal on the basis of the reasoning of Kearns P. in Earagail EiscTeoranta. However, the fact that this was a procedure which was acceded to at the time,and upon which submissions were made leads me, not without some hesitation, to thePage 12 ⇓conclusion that it would be inappropriate to interfere with the determination of the LabourCourt on this basis.38. Even if I am incorrect in this, having considered the evidence and in particular theevidence placed before the Labour Court and to which this court was referred inargument, I am satisfied that there was material before the Court upon which it was opento it to conclude as it did, although that is not to say that this court would necessarilyhave taken the same view of the facts.39. An analysis of the decision reveals essentially two findings. The first relates to theabsence of a procedure being followed which would create a rate of pay property payableother than that which was received. The court earlier in its determination had describedas being common case the position of the parties that a procedure had to be followed inorder to apply such a rate of pay. On that basis, it is difficult for this court to intervenewhere the issue was approached on the basis of a consensus of the parties and inaccordance with the general powers of the Labour Court to determine preliminary issues.In any event, in my view there was evidence before the Court on which it might come tothat determination. Similar reasoning applies to the second finding on the basis of thefacts then presented to it – whether at the relevant time Mr. Stefanazzi was assignedacting up/higher duty allowance or awarded a grade other than that of clerical officer orotherwise had a higher rate of pay apply to him, the Labour Court noted that theapplication of any greater allowance following the execution of such procedure requiredthe sanction of the Department of Public Expenditure and Reform and that it was alsocommon case that at no time was such procedure followed in relation to the appellant inorder to secure for him a higher grade or acting up/higher duty allowance.40. To deal with certain of the authorities relied upon by Mr. Stefanazzi, in HSE West, theLabour Court was concerned with an application under the Industrial Relations Act, 1969,in particular s.30(9) in the context of a dispute as to whether a worker should beupgraded to a social work team leader salary. It was contended that the worker wascarrying out more work for significantly less pay than her colleagues. The employerargued that the claim was precluded by the terms of the Public Service Agreement 2010-2014 and there was no standardised grade/rate of pay for people undertaking the work inquestion. The union argued that the case predated the moratorium on promotion and thePublic Sector Agreement and contended that the social work team leader scale was theappropriate rate for the job, a view shared by the claimant’s managers. The Labour Courtfound that it was unsustainable to continue an arrangement whereby different rates werepaid for identical work. In the circumstances, the Labour Court decided that the union’sclaim should properly be classified as being for the application of the appropriate rate forthe job, in the nature of an individual re-grading, rather than for an increase in theexisting rate. As such, the claim was not precluded by the Public Service Agreement. Mr.Stefanazzi submits that this constitutes a correct interpretation of the claim as being anapplication for an appropriate rate for the job, rather than an application for an increasein an existing rate. The precise factual background is not entirely clear and it is furtherunclear whether it was necessary to follow a particular procedure, whether by way ofPage 13 ⇓open competition or otherwise, with regard to the job being fulfilled. Further, it seemsclear from the decision that it concerned an appeal from a recommendation of the RightsCommissioner regarding an upgrading claim and the court did not consider the provisionsof s. 5(6) of the Act of 1991. The case also predated the moratorium on promotion andthe Public Sector Agreement.41. Malanaphy concerned an appeal to the EAT from a decision of the Rights Commissionerunder the Act of 1991. It is more on point. The appellant therein was appointed CoastalUnit Sector Manager. He took over the position when those previously in the positionwere promoted. He was not paid a shift allowance, on-call allowance, increments, orSunday supplement which, as he alleged, his predecessors who were of the same gradewere paid. The notice party, the Minister for Transport, Tourism and Sport, argued that hewas not graded at the relevant time. There was a factual issue as to whether theappellant knew or ought to have known that he would be entitled to such allowances andincrements as part of his package. He claimed that he had a legitimate expectation inrelation to such payments, formed on the basis of the information supplied to him and byprecedent which had been set by payments made to his predecessors. The EAT concludedthat he had carried out the same role as his predecessors, albeit he was given a different,ungraded, title and that it was fundamentally unfair to deny the appellant like paymentsfor like work solely based on the premise that the newly named position was not yetgraded. It found that he had a legitimate expectation that payments would be made as heclaimed. There was therefore a breach of the implied terms of his contract as a result ofwhich the provisions of s. 5(6) of the Act had been transgressed. Again, although more onpoint than HSE West it is not entirely clear that the facts are similar to that in the instantappeal and I note that a fact in dispute was one of grading; and that a newly namedposition was not yet graded.42. Further, it is not clear that the decision in Minister for Education and Science v. TheLabour Court is directly relevant. It concerned an issue which arose under a differentlegislative regime. It was an application for judicial review and the court was thereconcerned with the claim under the Protection of Employees (Part-Time Work) Act, 2001.It was held that, although not a national school teacher or a teacher in a recognisedschool, the Labour Court was correct in determining that she was employed on the samebasis as such teachers and that teachers whose salaries were publicly funded must bedeemed to be employees for the purposes of that legislation.43. In all the circumstances, and not without some sympathy, I find that Mr. Stefanazzi, amost courteous individual and on the basis of the information before this court, a verydiligent worker, has failed to discharge the onus of proof which is upon him and thereforeI must dismiss the appeal.
Trinity Leisure Holdings Ltd. (t/a Trinity City Hotel) v Kolesnik & Anor [2019] IEHC 654 (07 October 2019)
URL: http://www.bailii.org/ie/cases/IEHC/2019/2019_IEHC_654.html
Cite as: [2019] IEHC 654
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Page 1 ⇓THE HIGH COURT[2019] IEHC 654[2017/ 81 MCA]IN THE MATTER OF AN APPEAL PURSUANT TO SECTION 46 OF THE WORKPLACERELATIONS COMMISSION ACT, 2015BETWEENTRINITY LEISURE HOLDINGS LIMITED TRADING AS TRINITY CITY HOTELAPPELLANTANDSOFIA KOLESNIK AND NATALIA ALFIMOVARESPONDENTSJUDGMENT of Mr. Justice Binchy delivered on the 7th day of October, 20191. This is a judgment on an appeal brought by the appellant against a decision of the LabourCourt of 17th January 2017. As prescribed by O. 84 (C) of the rules of the SuperiorCourts, the appeal is brought by way of an originating notice of motion, grounded on anaffidavit sworn on behalf of the appellant by a Mr. Ronnie Neville, solicitor, of MasonHayes and Curran, solicitors for the appellant. Provision for such appeals is made by s. 46of the Workplace Relations Act 2015, on a point of law only.2. The respondents advanced identical claims against the appellant alleging various breachesof employment law legislation, only one of which is relevant to this appeal, and that is theclaim that the claimants were not paid a premium for working on Sundays. That claim isadvanced pursuant to s. 14(1) of the Organisation of Working Time Act 1997 (“the Act of1997”). The appellant seeks, inter alia, the following orders: -(i) An order declaring that the Labour Court erred in law in assuming jurisdiction unders. 14(1) of the Act of 1997, or in applying that section to the respondents ingranting them relief pursuant to the same;(ii) An order allowing the appeal on the ground that the Labour Court erred in law inawarding Sunday premium to the respondents;(iii) A declaration that the Labour Court erred in law in determining that the appellanthad to tender evidence in relation to what element of the respondent’s hourly rateof pay was specifically referable to them having to work on Sundays;(iv) A declaration that the Labour Court erred in law in failing to find the fact of therespondents having to work on Sundays had been taken into account in thedetermination of their pay.3. A statement of opposition was delivered on behalf of the respondents in which they fudeny each ground of appeal relied upon by the appellant in its appeal/notice of motion.In summary, the repsondents plead that the decision of the Labour Court involvesunappealable findings of fact, and that the appellant has failed to identify any errors oflaw on the part of the Labour Court in arriving at its decision.4. The first named respondent originally entered into her contract of employment on 10thSeptember 2007, and the second named respondent entered into her contract ofPage 2 ⇓employment on 11th September 2006. The respondents were not initially employed bythe appellant and their respective employment contracts transferred to the appellant inSeptember 2013 pursuant to the EC (Protection of Employment on Transfer ofUndertakings) Regulations 2003, S.I. 131 of 2003. Their contracts made provision forpayment of salary at an hourly rate, which, on the date on which their claims were made,was in each case €9.53 per hour. In each case, the contract having stated the hourly rateof pay, goes on to state: -“This includes your Sunday premium based on you getting every third Sunday off(i.e. you work two Sundays out of three). Payment will be made weekly with oneweek in arrears and will be paid directly into your bank account […]”5. It was the respondent’s contention before both the Labour Court and the RightsCommissioner that where a Sunday premium is included in an employee’s rate of pay,then some element of the employees pay must be specifically referable to the obligationto work on Sundays. Since in this case the contract did not identify any element of theclaimants’ pay as being a premium for working on Sundays, then it follows that the fact ofthe employees having to work on Sundays has not been taken into account, and theemployees are therefore entitled to be compensated in accordance with those provisionsof s. 14(1) of the Act of 1997 that apply where the fact of an employee having to work ona Sunday has not been taken into account in the determination of his or her pay.6. In response to this, it is the appellants’ case that the determination of the employee’s paydoes take account of the fact that they are required to work on Sundays, because this isexpressly stated to be so in the contracts, and there is no requirement that the contractshould identify how much of the hourly rate of pay is specifically referable to Sundaywork.7. The Labour Court held against the appellant, in each case in identical terms, on thegrounds that: -“[…] the respondent failed to tender any evidence to the court in relation to what,if any, element of the complainant’s hourly rate of pay was specifically referable toher contractual obligation to work on Sundays. It follows that the respondent’scross appeal in this regard fails. At first instance, the adjudication officer directedthe respondent to pay the complainant ‘a premium of 30% of the basic rate for allhours worked on Sundays falling within the period 25th September 2013 to 24thMarch 2014’. The court affirms that decision”.8. Section 14(1) of the Act of 1997 provides as follows: -“14. — (1) An employee who is required to work on a Sunday (and the fact of his or herhaving to work on that day has not otherwise been taken account of in thedetermination of his or her pay) shall be compensated by his or her employer forbeing required so to work by the following means, namely—Page 3 ⇓(a) by the payment to the employee of an allowance of such an amount as isreasonable having regard to all the circumstances, or(b) by otherwise increasing the employee’s rate of pay by such an amount as isreasonable having regard to all the circumstances, or(c) by granting the employee such paid time off from work as is reasonablehaving regard to all the circumstances, or(d) by a combination of two or more of the means referred to in the precedingparagraphs.”9. In the event of a claim being advanced by an employee to a rights commissioner (now ,since the Workplace Relations Act, 2015 , an adjudication officer) or the Labour Court,pursuant to the Act of 1997, subsections 14(3) – (6) provide a mechanism fordetermining reasonable compensation to employees in respect of Sunday work, byreference to collective agreements for comparable employees.10. On this appeal, it is the respondents’ case that the decision of the Labour Court is to theeffect (although it is not actually stated in the decision) that the fact of the employeeshaving to work on Sundays has not been taken into account in the determination of theirpay. As is apparent from the extract from the decision of the Labour Court quoted above,the precise conclusion that that it arrived at, and the reason that it affirmed the decisionof the Adjudication Officer, was that it found that the appellant had not tendered anyevidence as to what, if any, element of the respondents’ pay related to their obligation towork on Sundays. It is the respondents’ case that this is a decision on a matter of fact,and not on a matter of law, and is not therefore amenable to appeal. This, it is submitted,is well established by a long line of authorities (to which I refer below). Furthermore, it isargued that if a Sunday premium is included in an employee’s rate of pay, then someelement of that rate of pay must be specifically referable to the obligation to work onSundays, and it was a matter for the appellant to give evidence in this regard, and itfailed to do so. It is submitted on behalf of the respondents that for this reason theLabour Court was correct to reject the appellant’s appeal. The Labour Court made itsdecision based upon the evidence before it and it is unclear how it can be argued that itmade an error of law in doing so. The respondents suggest that these proceedings arebeing used as yet another appeal on the same points, rather than on a meritorious pointof law.11. It is submitted that the Labour Court properly applied the express terms of the contractand, in accordance with the parole evidence rule, found that the appellant had failed totender evidence in relation to what, if any, element of the hourly rate of pay wasspecifically referable to the contractual obligation to work on Sundays. Since the writtencontracts set out the hourly rate of pay without any ambiguity, they are not amenable tovariation by parole evidence, even had such evidence been presented, which it was not.Specifically, the respondents argue that since the employment contracts make noreference to the minimum wage, this Court should not have any regard to whatever theminimum wage may have been at any point in time in considering whether or not theemployment contracts of the respondents take into account the requirement to work onPage 4 ⇓Sundays. This point is made in response to arguments made on behalf of the appellantboth at the hearing of this appeal and before the Labour Court.12. It is submitted on behalf of the appellant that the decision of the Labour Court is based onthree clearly identifiable errors of law as follows: -(1) The Labour Court incorrectly assumed jurisdiction to consider the respondents’claim to Sunday premium in circumstances where the employment contracts statethat the requirement to work on Sundays had been taken into account in thedetermination of the respondents’ pay.(2) The Labour Court failed to give any consideration as to whether or not it had anyjurisdiction to examine a claim for Sunday premium in circumstances where thefirst limb of s.14(1) of the Act of 1997 has been complied with i.e., where thecontract states that the requirement to work on Sundays has been taken intoaccount. Instead, the Labour Court proceeded directly to consider the claim of therespondents.(3) Thirdly, if the Labour Court was entitled to find that the respondents were entitledto an additional Sunday premium (which is denied), it failed to consider afresh theappropriate premium to be awarded to the respondents, but rather simply endorsedthe amounts awarded by the adjudication officer, without due consideration,including inviting submissions from the appellant, and having regard to the wordingof s.14(2) of the Act of 1997.13. Both parties made comprehensive submissions on the jurisdiction of this Court in appealsfrom the Labour Court. Both parties referred to the same passage from the decision ofHamilton C.J. in the case of Henry Denny & Sons (Ireland) Limited v. Minister for SocialWelfare [1998] 1 IR 34, where he stated, at pp. 37-38: -“That the Court should be slow to interfere with the decisions of expertadministrative tribunals. Where conclusions are based upon an identifiable error oflaw or an unsustainable finding of fact by a tribunal such conclusions must becorrected. Otherwise it should be recognised that tribunals which have been givenstatutory tasks to perform and exercise their functions, as is now usually the case,with a high degree of expertise and provide coherent and balanced judgments onthe evidence and arguments heard by them, it should not be necessary for thecourts to review their decisions by way of appeal or judicial review.”14. Both parties also referred to the decision of the Supreme Court in the case of Mara(Inspector of Taxes) v. Hummingbird Limited [1982] ILRM 421, in which case Kenny J., inconsidering the approach to be taken where mixed questions of fact and law arise held: -“If they are based on the interpretation of documents, the courts should reversethem if they are incorrect for it is in as good a position to determine the meaning ofdocuments as is the Commissioner. If the conclusions drawn from the primaryPage 5 ⇓facts are ones which no reasonable Commissioner could draw, the court should setaside his findings on the ground that he must be assumed to have misdirectedhimself as to the law or made a mistake in reasoning. Finally, if his conclusionsshow that he had adopted a wrong view of the law, they should be set aside.”15. Both parties also referred to and relied upon the decision of Baker J. in Health ServicesExecutive v. Sallam [2014] IEHC 298, a case which also considered an appeal from thedetermination of the Labour Court. In that case, Baker J. stated: -“The power of the High Court in an appeal from a determination of the Labour Courtwas explained by McCracken J. in the Supreme Court in National University ofIreland Cork v. Ahern & Ors. [2005] IESC 40, [2005] 2 IR 577, where he stated asfollows: – at para. 9: -‘The respondents submit that the matters determined by the Labour Courtwere largely questions of fact and that matters of fact as found by the LabourCourt must be accepted by the High Court in any appeal from its findings. Asa statement of principle, this is certainly correct. However, this is not to saythat the High Court or this Court cannot examine the basis upon which thelabour court found certain facts. The relevance, or indeed admissibility, ofthe matters relied upon by the Labour Court in determining the facts is aquestion of law. In particular, the question of whether certain matters oughtor ought not to have been considered or taken into account by it indetermining the facts.’This Court, then, may on appeal consider whether the Labour Court wrongly tookinto account or ignored a fact or piece of evidence, incorrectly applied a legal test incoming to a conclusion, or erred in law in its interpretation of the law.”16. Counsel for the respondents in this case argue that cases such as Health ServicesExecutive v. Sallam and National University of Ireland Cork v. Ahearn make it clear that inconsidering appeals from the Labour Court, this Court is obliged to afford the decision ofthe Labour Court a curial deference. In this regard the respondents also rely upon thedecision of Gilligan J. in Electricity Supply Board v. The Minister for Social Community andFamily Affairs [2016] IEHC 59 in which he stated in his conclusion: -“I take the view that the approach of this Court to an appeal on a point of law isthat findings of primary fact are not to be set aside by this Court unless there is noevidence whatsoever to support them. Inferences of fact should not be disturbedunless they are such that no reasonable tribunal could arrive at the inference drawnand further if the court is satisfied that the conclusion arrived at adopts a wrongview of the law, then this conclusion should be set aside. I take the view that thisCourt has to be mindful that its own view of the particular decision arrived at isirrelevant. The Court is not retrying the issue but merely considering the primaryfindings of fact and as to whether there was a basis for such findings and as toPage 6 ⇓whether it was open to the appeals officer to arrive at the inferences drawn andadopting a reasonable and coherent view, to arrive at her ultimate decision.”17. The respondents submit that no error of law on the part of the Labour Court has beenidentified by the appellant. The employment contracts are clear and give rise to noambiguity. They provide for an hourly rate of pay to the claimants. While that hourlyrate of pay is stated to take account of the fact that the claimants are required to work onSundays the contracts do not explain how this is so, and nor did the claimant present anyevidence before the Labour Court to explain how the rate of pay takes into account therequirement of the claimants to work on Sundays. Moreover, the Labour Court would nothave been entitled to hear such evidence, had it been tendered, if the effect of suchevidence would be to vary the unambiguous contractual terms as set out in the writtencontracts of employment.18. Counsel for the appellant also relies on the decision of Earagail Eisc Teoranta v. Doherty& Ors. [2015] IEHC 347, a case in which the appellant employer submitted that theEmployment Appeals Tribunal had erroneously interpreted s. 5(1) of the Payment ofWages Act, 1991 (the “Act of 1991”) and had incorrectly proceeded on the basis that theprovisions at subs. (a)-(c) of that section were to be taken conjunctively. The court wassatisfied that this argument concerned a point of law and concluded that there was amanifest error in the tribunals’ interpretation of s. 5 of the 1991 Act. Kearns P. held at p.26: -“I have carefully considered the submissions of both sides and am satisfied thatthere is a manifest error of law in the tribunals’ interpretation of s. 5 of the 1991Act. The determination of the tribunal clearly indicates the tribunals’ view that,pursuant to s. 5(1)(c) of the 1991 Act, the written consent of the employees wasrequired before the appellant company could bring about any changes to salarylevels. However, these exceptions listed at (a),(b) and (c) of s. 5(1) are clearly notto be taken conjunctively. The word “or” is expressly used in the provision and it isclear that each subsection concerns separate instances which might give rise to anexception to the rule that an employer shall not make a deduction from the wagesof an employee. Sub-section (b) states that deductions are allowable where theyare authorised by virtue of an employees’ contract of employment, which issomething the tribunal should have considered independently of sub-section (c).However, in treating ss. (a) – (c) as conjunctive, the tribunal erred in law.”19. Counsel for the appellant also referred me to a number of decisions of the Labour Courtitself in which it considered claims advanced under s. 14 of the Act of 1997. In the case ofGroup 4 Securitas v. SIPTU [DWT 996] the Labour Court held that s. 14 of the Act of1997 did not allow for a claim of enhancement of the premium paid to employees in thesecurity industry in respect of Sunday working, the premium for which was IR£5, and hadbeen set some thirteen years previously. The Labour Court in its decision stated: -“Section 14(1) Of the Organisation of Working Time Act, 1997, clearly states thatwhere an employee’s pay has not taken account of the requirement to work onPage 7 ⇓Sunday, he/she shall be compensated. In this case the employee is paid anallowance for working on Sunday and, therefore, does not have a case under theAct. The court does not consider that section 14, under which this claim has beenbrought, allows for a claim for enhancement of the rate.”20. In the case of Duesbury Limited, T/A Old Ground Hotel v. Mary Frost [DWT 1032], theclaimant gave evidence that she had become employed by the respondent in that case in1996, when it took over ownership of the hotel. She claimed that while employed by theprevious owner, she was paid double time in respect of working on Sunday, but this wasdiscontinued by the respondent when it took over the hotel. She claimed that theobligation to work on Sunday was not taken into account in her personal rate of pay.21. The witness for the respondent gave evidence as to her belief that the claimant’s rate ofpay included consideration for working on Sundays, but she was not employed by therespondent when the claimant’s rate of pay was fixed and had no involvement in fixingthe same. Crucially, the evidence given on behalf of the respondent was unsupported byany documentary records or other corroborative evidence of any kind. In thosecircumstances, the Labour Court stated that it could not accept the evidence of therespondent as going far enough to rebut the direct evidence of the claimant. The courtalso stated in its decision that: -“It is clear from subsection (1)(b) of this section [ i.e. s.14(1) of the Act of 1997]that the right to compensation for Sunday working can be satisfied where therequirement is taken into account in determining the employee’s rate of pay. Thissuggests that some element of the employee’s pay must be specifically referable tothe obligation to work on Sundays.”22. The case of Duesbury was referred to in the decision of the Labour Court in this case,arising out of the fact that before the Labour Court , counsel for the appellant hadreferred to that decision for the purpose of distinguishing the facts in Duesbury from thefacts in this case. The Labour Court thought that the appellant was relying on Duesburyin support of its arguments in this case, whereas on this appeal it was submitted thatcounsel for the appellant was referring to Duesbury to the intent of distinguishing thefacts in that case from the facts in this case. In its decision the Labour Court stated: -“However, notwithstanding the respondent’s purported reliance on thedetermination in Duesbury, the respondent failed to tender any evidence to theCourt in relation to what, if any, element of the Complainant’s hourly rate of paywas specifically referable to her contractual obligation to work on Sundays.”This gave rise to an additional ground of appeal on the part of the appellant in thisappeal.23. In the case of Matthew Scally and Aoife Lynch and Michelle Kelly, [DWT 13102] theLabour Court found in favour of the claimants in circumstances where the respondent wasunable to say how the rate of pay of the claimants was computed. Moreover, the hourlyPage 8 ⇓rate paid to the claimants was directly in line with that prescribed by the then applicableemployment regulation order, which rate was exclusive of Sunday premium. For thisreason, the court was satisfied that the rate paid to the claimants did not contain anyelement of compensation for the purposes of s. 14 of the Act of 1997.24. Finally, I was referred to the case of Paul Fitzpatrick, t/a The Morgan Hotel and JarmilaRiecka [DWT 1523] which is probably the most relevant of these cases because theclaimant’s contract of employment expressly provided that her salary took account of theobligation to work on Sundays. Unfortunately, the precise wording of the contract ofemployment of the claimant in that case is not recorded in the decision of the LabourCourt. However, the court held: -“On its plain and ordinary meaning, paras (a)-(d) of this subsection take effect onlywhere the fact of the employee being required to work on Sunday is not otherwisetaken into account in determining his or her pay. The court has reviewed theclaimant’s written contract of employment and it is satisfied that the fact of herhaving to work on Sundays was taken into account in determining her salary. Itfollows that the respondent did not contravene s. 14 of the Act in relation to theclaimant.”Discussion and Decision25. It is not in dispute that the claimants were required to work two out of three Sundays.The Labour Court found as a fact that this requirement had not been taken into account inthe determination of the claimants’ pay. The Labour Court arrived at this finding of facton the basis that the appellant did not adduce any evidence at the hearing before theLabour Court to satisfy the Labour Court that the respondents’ pay took into account theirobligation to work on Sundays.26. While submissions appear to have been made to the Labour Court to the effect that theminimum wage was at all relevant times less than the hourly rate paid to therespondents, and that this was how the pay of the respondents took into account theircontractual obligation to work on Sundays, no oral evidence was given to the LabourCourt to this effect, and nor is this stated in the contracts of employment of therespondents. There was therefore no evidence of any kind presented to the labour Courtrelating to this issue, to the intent of proving that the excess of the rate of pay over theminimum wage was the means by which the rate of pay took account of the obligation towork on Sundays.27. However, it is not correct to say that there was no evidence at all before the Labour Courtas regards the question as to whether or not the rate of pay of the respondents takesaccount of the requirement to work on Sundays. The Labour Court had before it writtenevidence, in the form of the contracts of employment of the respondents. The languageused in the contracts is plain English and could not be more clear. The contracts statethat the hourly rate of pay “includes your Sunday premium based on you getting everythird Sunday off”. The wording is not buried in small print somewhere in the middle ofthe contract, but appears on the front page thereof, in the third clause of the contract.Page 9 ⇓28. Section 14(1) of the Act of 1997 imposes an obligation on employers to pay a reasonableremuneration to employees in respect of Sunday work by reference to stated criteria setout in ss.14(1)(a)-(d), unless the requirement to work on Sundays is otherwise taken intoaccount in the rate of pay of the employee. Here , in stating that the hourly rate of pay“includes your Sunday Premium” the contracts make it clear that the requirement to workon Sundays is included in the rate of pay of the respondents,or, in the words of the Act of1997, is “taken into account in the rate of pay of the employee”, and in executing thecontracts, the respondents accept that to be the case.29. Neither of the decisions of the adjudication officer or the Labour Court record anyevidence having been given either by the appellant or the respondents in either forum onthis question, although it is clear that submissions on the question were made. However,it hardly needs to be said that submissions are not evidence. The only evidence presentedto either forum on the question was the contract of employment in each case, whichcontained a clear and unambiguous statement,i.e., that the rate of pay included theSunday Premium, based upon the repondents having every third Sunday off.30. It is the respondents’ contention that the court ought to take account of the vulnerableposition that employees such as the respondents are in when presented by an employerwith such contracts, and that it is the duty of the employer to ensure that the contractclearly identifies the portion of the hourly rate of pay that relates to Sunday work. Havingfailed to so provide in the contract, or to give any evidence on the issue, the appellant, itis submitted, has failed to establish that the rate of pay of the respondents takes accountof the requirement to work on a Sunday for the purposes of s.14(1) of the Act of 1997.31. The difficulty with this line of argument is that it ignores not just the clear andunambiguous language of the contracts of employment, but also the fact that therespondents do not appear to have given any evidence on the question. If they did, it isnot recorded either in the decision of the adjudication officer or the Labour Court, and norwere any submissions made to me as regards the evidence that they gave on thequestion.32. While a statement in a contract that the rate of pay takes account of the requirement towork on Sundays may not always be conclusive , if an employee wishes to assert thatthe rate of pay does not do so then in my opinion he or she must advance some credibleevidence to rebut the express provision of the employment contract, or at least so as toshift the onus of proof in the matter to the employer,although he or she will still have toovercome the parole evidence rule. However, it may be possible to do so. For example itmight be that events have overtaken the contract, and that surrounding circumstances nolonger reflect that which was originally agreed. For example, if the rate of pay providedfor in the contract ,was at the time the contract was completed, greater than thestatutory minimum wage, but is no longer so at the time the complaint is advanced , it isdifficult to see how that rate of pay could still be said to reflect the requirement to workon a Sunday, since that is the minimum rate of pay which the employer must in anyevent pay. Whatever the reason, faced with written evidence of his or her ownPage 10 ⇓agreement that his/her hourly rate of pay takes into account an obligation to work onSundays, an employee advancing a claim under s. 14(1) of the Act of 1997 must leadsome evidence to explain why he/she claims that what is stated in the contract is notcorrect. In failing to do so, the employee leaves the contract unchallenged, and theemployer is under no obligation to go into evidence on the issue33. Upon receiving a complaint from an employee that his or her rate of pay does not takeaccount of the requirement of Sunday work, it is obvious that the Labour Court mustundertake an investigation as to whether or not this is so. Its conclusion on the issueconstitutes a finding of fact, which, in the ordinary course, in accordance with theauthorities referred to above, will not be disturbed by this Court. In this case howeverthat finding of fact was arrived at by the Labour Court on the basis that the appellant“failed to tender any evidence to the court in relation to what, if any, element of thecomplainants’ hourly rate of pay was specifically referable to [their] contractual obligationto work on Sundays”. In the circumstances of the case, this was a conclusion on a matterof law, because in so deciding the Labour Court decided that a clear statement made in acontract of employment signed by both parties may not be relied upon ,and instead mustbe proven in a particular way. In drawing this conclusion the Labour Court in my viewmade an error of law.It did so firstly by ignoring the express statement in the contracts ofemployment of the respondents, that their hourly rate of pay includes their Sundaypremium. Secondly it did so by interpreting the Act of 1997 in such a manner as toimpose an obligation on an employer either to ensure that a contract of employment isdrawn up in a particular way i.e., to explain by way of a breakdown any statement to theeffect that an hourly rate takes into account the obligation to work on a Sunday, or,alternatively, to adduce oral testimony at the hearing of a complaint pursuant to s. 14 ofthe Act of 1997 in order to prove a statement agreed expressly to by an employee inhis/her contract of employment.34. Finally, I should address one other argument advanced on behalf of the respondents. Itwas argued that, pursuant to s. 3(1)(g) of the Terms of Employment (Information) Act,1994 (the “Act of 1994”), there is an obligation on the employer to show the method ofcalculation of the employees’ remuneration, and that it cannot be said that the appellanthas done so in this case. The failure to comply with the provisions of the Act of 1994 is ofcourse a separate complaint, and one which the respondents made in this case also,together with other complaints under the Act of 1994. The Labour Court determinedthose complaints in favour of the respondents, but considered that the breaches of the1994 Act were technical and did not cause the respondent any detriment. However, thedecision of the court does not record any specific breach of s. 3(g) of the Act of 1994. Inthe context of this appeal however, the respondents point to s. 3(1)(g) of the Act of 1994to bolster their argument that there is an obligation on an employer to identify theelement of the rate of pay of the respondents that is specifically referable to thecontractual obligation to work on Sundays. However, this argument must also berejected because it is clear that in providing simply that the respondents are to be paid aspecific rate per hour worked, the appellant has met its statutory obligation to therespondents under s. 3(1)(g) of the Act of 1994.Page 11 ⇓35. For these reasons the appeal must be allowed, and the claim of the respondents under s.14(1) of the Act of 1997 dismissed.
Result: The appeal was allowed, and the claim of the respondents under s. 14(1) of the Act of 1997 was dismissed.
Cleary v B&Q Limited
Sandra Cleary, Ellen Bradley, Joyce Donovan, Angela Carmody, Joan Thompson, Anita Malone, Yvonne Masters, Maureen Andres, Brian McCarthy and James Dowdall
v B & Q Ireland Limited (respondent):
2014 No. 304 MCA
High Court
8 January 2016
[2016] 27 E.L.R. 121
(McDermott J.)
January 8, 2016
[2016] IEHC 119 ([2016] E.L.R 121)
Introduction/background
1. The appellants are 10 employees of the respondent who commenced their *123 employment on different dates between the years 2001 and 2008 respectively in different retail premises operated by the respondent. The first, second, third, fourth, fifth, sixth and tenth appellants claim an entitlement to be paid a winter/summer bonus under their respective contracts of employment. The bonus was normally paid twice annually and amounted to six per cent per annum of gross salary: the first payment, amounting to three per cent of gross salary, was paid in June of each year (the summer bonus) for the work period August to January and the second, a further three per cent, was payable in November for the work period of February to July (the Christmas bonus). Those commencing employment in 2009 did not benefit from this bonus scheme. The employer discontinued the bonus scheme applicable to the appellants in January 2012 but later indicated that it would take effect from 1 April 2012. The appellants claim that the summer bonus, payable in 2012, should nevertheless have been paid since it was earned and/or accrued during the previous August to January. It was also claimed that the withdrawal of the bonus was in itself unlawful and in breach of the provisions of the Payment of Wages Act 1991 (“the 1991 Act”).
2. The second element of the claim concerned the withdrawal of a “zone allowance” payable to staff at three Dublin outlets owned by the respondents at Liffey Valley, Tallaght and Swords, which is also said to be a breach of the appellants’ entitlements under the 1991 Act.
3. The appeal is pursuant to s.7(4)(b) of the 1991 Act from a number of determinations made by the Employment Appeals Tribunal (“the Tribunal”) on 14 May 2014 in respect of appeals against decisions of the Rights Commissioner (“the Commissioner”) dated 5 and 20 November 2013 following complaints brought by the appellants. It is made by way of Notice of Motion dated 25 June 2014 grounded upon affidavits sworn by Mr Jonathon Hogan, an industrial officer with the Mandate trade union. A replying affidavit of Louise Harrison, solicitor, verifying the Statement of Opposition was submitted on behalf of the respondent.
Reliefs sought
4. The appellants seek orders pursuant to Ord.84C of the Rules of the Superior Courts and s.7(4)(b) of the 1991 Act:
a. that the Tribunal erred in law in determining that the removal of a winter/summer bonus by the respondent was not in breach of s.5 of the Act;
b. that the Tribunal erred in law in determining that the removal of a “zone allowance” by the respondent was not in breach of s.5;
c. that the Tribunal had erred in law in failing to award compensation to the appellants pursuant to s.6;
d. that the Tribunal erred in law in determining that the removal of the winter/summer bonus constituted a deduction in compliance with s.5(1)(b) of the Act;
e. that the Tribunal erred in law in determining that the zone allowance was *124 paid as an expense/compensation for working in a particular geographic area as defined and contemplated by s. 1(1)(i) of the Act;
f. that the Tribunal erred in law in classifying the non-payment of the zone allowance as a “reduction” rather than a deduction for the purposes of s.5, and, if required;
g. an Order remitting the matter back to the Tribunal for hearing.
5. Three related declarations are also sought by the appellants that:
a. the respondent made unlawful deductions from the appellant’s wages contrary to s.5;
b. the winter/summer bonus and/or zone allowance are properly payable to the appellants within the meaning of the 1991 Act; and
c. the appellants are entitled to compensation pursuant to s.6 for the unlawful deductions.
Procedural background
6. The appellants challenged the decisions of the respondent not to pay the zone allowance (where applicable) and the winter/summer bonus payment as unlawful deductions of wages properly payable to them under the appropriate provisions of the Act of 1991. The claims were first brought to the Commissioner and were heard over four days in June, July and October 2013. The claims were upheld.
7. The Commissioner’s decisions were subsequently appealed by the respondent to the Tribunal. By determinations dated 14 May 2014, the Tribunal overturned the decisions reached by the Commissioner in respect of both points.
Preliminary points of objection
8. The respondent submits that the originating Notice of Motion dated 25 June 2014 does not, as required under Ord.84C, r.2(3), set out the “points of law on which the appeal is made.”
9. It is also claimed that the appellants have failed to exhibit the transcript of the hearing as contemplated by Ord.84C, r.3(1)(e).
10. These issues were raised as preliminary points of objection in the Statement of Opposition dated 21 July 2014. During the course of the hearing both sides sought to rely upon elements of the transcript in support of their respective arguments and I do not consider that this challenge to the admissibility of the transcript in evidence was seriously pursued.
11. I am also satisfied that the grounds upon which the appeal is brought as set out in the Notice of Motion are sufficient to raise a number of points of law, as required under the Rules and s.7 of the 1991 Act, which clearly arise from the pleadings, the affidavits submitted and the substance of the claims brought by the appellants under the relevant legislation.
*125
The Tribunal’s determination
12. The Tribunal’s decisions of 14 May 2014 dealt separately with the winter/summer bonus and the zone allowance payments.
Winter/summer bonus
13. With regard to the winter/summer bonus payment, the Tribunal found that although the terms of the appellants’ contracts of employment differed in a number of respects, each contained a common clause which was set out in the employee’s handbook and provided that “all bonus schemes are discretionary and are subject to scheme rules. They may be reviewed or withdrawn at any time.”
14. The Tribunal found as follows:
“On the 1 April 2012 the respondents were notified that ‘with effect from the 1st April, 2012 you will no longer receive the summer/winter bonus traditionally paid in June and November of each year’. Each employee was asked to sign a letter ‘to confirm receipt of the notification of the amendment’. It is clear from the letter that it does not seek an amendment of the contract as was argued by the appellant(s). It merely seeks acknowledgement of receipt of the amendment to the terms and conditions of employment. From the evidence adduced it would seem that the contracts of employment differed slightly in relation to the point at issue. One set of contracts stated ‘… may amend or vary your terms of employment from time to time and these variations or amendments will be posted on their staff notice board if the change is minor or in writing if the change is more substantial’. The other set of contracts stated “Details of the other terms and conditions (of employment are given in the Employee Handbook. Any changes to the above details will be notified to you directly”. There is one consistency between those two contracts and it is set out in the employee handbook, wherein it states in bold ‘all bonus schemes are discretionary and are subject to scheme rules. They may be reviewed or withdrawn at any time’. That clause is clear unequivocal and incapable of any other interpretation”.
The Tribunal concluded that the non-payment of the winter/summer bonus complied with the provisions of s.5(1)(b) of the Act of 1991 and, reversed the Commissioner’s decision. It stated that:
“If the respondents (the employees) were not content with the appellant (the employer) retaining the power to unilaterally review or withdraw the allowance, they should not have entered into such a contract.”
Winter/summer bonus payment-factual background
15. All employees of the respondents who had served for at least six months with the respondent company received a winter/summer bonus payment on the basis of pay earned during certain periods of trade. The winter bonus was based on the basic pay earned in the previous February-July period of trade, with the summer *126 bonus payment being derived from the basic pay earned in the previous August-January trading period. The employee handbook, provided by the respondent to its employees, states that the “scheme guarantees six per cent of your basic pay earned salary (excluding commission and overtime) per annum subject to qualifying and accrual times being satisfied.” In January 2012 the respondent announced the withdrawal of these two seasonal bonus payments with effect from 1 April 2012. In a letter dated 29 February 2012, the respondent informed its employees that even though they had an expectation that the summer bonus would be paid, this would not be forthcoming due to cost-cutting measures by the respondent. It was accepted by the respondent, in meetings held in January 2012 between the respondent and employees, that the latter were eligible to receive a summer bonus, but that there was no prospect of payment due to the implementation of cost-reducing policies. The decision was taken in the context of rapidly deteriorating trading conditions for the employer.
Winter/summer bonus payment-appellants’ submissions
16. The appellants submit that the Tribunal’s finding that the withdrawal of the winter/summer bonus was not contrary to the provisions of s.5(1)(b) of the 1991 Act was wrong in law. They claim that s.5(1)(b) only allows afinancial deduction to be made when authorised by the contract of employment. The appellants argue that the Tribunal failed to consider the fact that their summer bonus—which was payable in June 2012—was referable to a period which the appellants had already worked, i.e. August 2011 to January 2012 and could not be the subject of a retrospective withdrawal under the “bonus” clause. It failed to consider the fact that the respondent had accepted that the appellants had accrued the summer bonus payable in June 2012 at the time when the decision was made by the respondent to withdraw it. The employees had already provided consideration by their work over that period and had therefore earned the bonus which could not be retrospectively and unilaterally withdrawn.
17. The appellants also submit that the Tribunal failed to examine whether their contracts of employment contained an express provision which permitted the withdrawal of the winter/summer bonus and if so, whether their consent was required before the bonus could be withdrawn.
18. In addition, the appellants contend that the withdrawal of a “declared” bonus could not occur on the exercise of the employer’s discretion.
Winter/summer bonus payment-respondent’s submissions
19. The respondent submits that the bonus was not “declared” by the respondent to the appellants for the period commencing August 2011 and ending in January 2012 or any other period. The Tribunal reached the same conclusion on the evidence before it.
20. The respondent pleads in their Statement of Opposition that it was open *127 to the Tribunal, on the evidence, to make the findings set out in its determination dated 14 May 2014 in relation to the winter/summer bonus payment and that there is no basis for impugning such findings.
21. The respondent submits that none of the material put before the court provides any basis for overturning Tribunal’s findings. The contracts of employment were clear and unambiguous in respect of the discretionary nature of the bonus payment. In arguing that these terms ought to be construed within the context of their factual background, the appellants fail to provide an adequate rebuttal to the clear meaning of the words used in the clause that “all bonus schemes are discretionary… [and] may be reviewed or withdrawn at any time.”
22. Further, the respondent argues that the appellants’ submission that the power to withdraw the winter/summer bonus should be subject to specific limitations, has no legal or factual basis and is unfounded as the Tribunal’s determination of 14 May 2014, clearly states that it considered the evidence proffered in relation to the terms of the contract. The Tribunal found that there was a clear and unambiguous term in the contracts that gave the employer the right to “review or withdraw” the bonus scheme. Furthermore, such a review or withdrawal could be undertaken “at any time”. This clause also clearly states that the bonus scheme is discretionary in nature.
23. The respondent rejects the appellants’ contention that the employer’s discretion to withdraw the bonus is qualified in any respect. In that regard, the appellants contend that the discretionary nature of the bonus payment was removed because the period of time to which the bonus was referable had passed. Secondly, it is argued by the appellants that the contract falls to be interpreted in light of the “factual matrix” under which it was made and intended to operate. The respondent highlights that neither of these points were made before the Tribunal, and that being so, the court would be acting ultra vires if these arguments were allowed to be advanced on this appeal.
24. The respondent claims that it is not clear what the appellants mean by describing the bonus as “declared”, that there is no provision for the declaration of a bonus under the contract and that no announcement or process was identified by which the bonus was ever “declared” to its employees. On the contrary, it is submitted that the evidence before the Tribunal clearly stated that the bonus was under review as of January 2012.
25. The respondent further argues that the Tribunal did not consider that the existence of the bonus scheme coupled with the passing of time was sufficient to give rise to the conclusion that the bonus was payable. Furthermore, the respondent contends that there is no legal precedent for such a finding.
26. The respondent contends that the Notice of Motion, dated 25 June 2014, discloses no error of law by the Tribunal in reaching its determination on this issue.
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Zone allowance
27. With respect to the zone allowance, the Tribunal considered the definition of wages and expenses under s.1(1)(i) of the 1991 Act that payments will not be regarded as wages for the purposes of the Act if they include “any payment in respect of expenses incurred by the employee in carrying out his employment.”
28. The Tribunal’s determination further states:
“There can be no doubt that the allowance paid was a separate and distinct payment from that of the salary and had a separate and distinct purpose. Wages are paid in consideration of work carried out. Zone allowances were paid as a form of compensation for working in a particular area and therefore come under the umbrella of section 1(1)(i) [of the Act of 1991].”
29. The Tribunal also considered a letter of 29 January 2003 concerning the allowance which indicated that employees would receive “a five per cent increase in the hourly earnings in the form of a Zone Allowance (41 cents per hour)”. It concluded that this letter must have been amended and that there was no evidence that the five per cent increase was ever maintained. The Tribunal was satisfied that the content of the letter did not form part of the contract of employment.
30. The Tribunal also noted in its determination of 14 May 2014 that the removal of the zone allowance payment was made in good faith by the respondent in an attempt to save money. The Tribunal further highlighted that the respondent company was experiencing severe financial losses and an examiner had been appointed in May 2013.
31. It concluded that the case bore striking similarities to the facts of McKenzie v Minister for Finance [2011] E.L.R. 109. It found that the provisions of the 1991 Act had no application to the circumstances of this case. It held that “[t]he removal of the allowance amounts to a reduction in the allowance, albeit a 100 per cent reduction, and is not a deduction from the wages payable.”
Zone allowance payment-factual background
32. Prior to April 2012, those appellants who worked at the respondent’s stores based in the “Dublin region” (i.e. stores at Swords, Tallaght and Liffey Valley) received a “zone allowance” of €0.41 per hour which was payable to those appellants who were eligible for such an allowance. The respondent introduced this zone allowance payment in January 2003. The zone allowance was conceived as a compensatory payment to those who worked in the Dublin stores, because the cost of living in Dublin was deemed to be higher than other regions of the country. The allowance was clearly calculated to attract candidates for employment and to offer terms of employment whereby they would be paid the allowance in consideration of their working for the employer in a “zone” in which it was recognised additional living expenses would be incurred.
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33. By letter dated 29 January 2003, the respondent informed its employees that the said zone allowance “will be reviewed but not removed or reduced”. Nine years later, in January 2012, the respondent announced that the zone allowance would be removed from 1 April 2012 onwards. The affected employees consulted with the Mandate trade union expressing their concerns with the respondent’s decision in relation to the removal of the allowance.
34. At the time of the announcement in relation to the zone allowance payment, the respondent company was in a poor financial situation. These difficulties necessitated cost-saving measures which, as argued by the respondent, were required to safeguard the future of the business and to protect jobs. It was accepted by the Tribunal that this factor does not alter the employer’s contractual obligations to its employees.
35. On 31 January 2013 the respondent was forced to petition the High Court for the appointment of an examiner under the provisions of the Companies (Amendment) Act 1990. That application was successful and on 23 May 2013, the High Court approved the scheme of arrangement proposed by the examiner.
36. Though it engaged in correspondence with the Mandate trade union, the respondent reaffirmed its decision by letter dated 29 February 2012 to remove the zone allowance payment. In this letter the respondent offered an explanation for the decision to remove the said allowance as “there is no longer a valid reason to pay a higher rate of pay in the three Dublin stores”.
37. The respondent offered to “buy-out” the zone allowance. The appellants refused to accept this offer and the proposed “cushion payment” offered by the respondent. The zone allowance payment has not been paid to the appellants since 1 April 2012.
Zone allowance payment-appellants ‘submissions
38. The appellants submit that the Tribunal failed to have proper regard to the contents of the letter of 29 January 2003, erred in law in concluding that the allowance did not fall within the meaning of “wages” and failed to engage in any appropriate analysis of the term “expenses” for the purposes of s.1(1)(i) of the Act of 1991. The appellant submits, in this regard, that there was no evidence before the Tribunal from which it could be inferred that the zone allowance was an expense under s.1(1)(i) of the Act of 1991. However, it is not submitted that an expense under the subsection only applies to vouched or vouchable items; rather, it is submitted that in these cases the zone allowance was an intrinsic part of the wages payable to employees contracted to work at the Dublin outlets.
39. It is also argued that the Tribunal erred in law in holding that the contents of the letter dated 29 January 2003 did not form part of the contractual terms on which the appellants could rely.
40. The appellants allege that the Tribunal’s finding that the appellants’ case mirrored that of the decision reached by Edwards J. in McKenzie, was a *130 misinterpretation of that case, upon which the finding that the Act of 1991 did not apply to the circumstances of the appellants’ case, was incorrectly based.
Zone allowance payment-respondent’s submissions
41. The respondent submits that the appellants must show that they had a contractual entitlement to be paid the zone allowance.
42. The respondent states that it is accepted between the parties that the Tribunal’s finding that the zone allowance was an “expense” within the meaning of s.1(1)(i) of the Act of 1991 cannot be disturbed unless there was an absence of evidence before the Tribunal upon which such a finding could reasonably be made.
43. The respondent notes that the grounds of appeal identified in the originating Notice of Motion do not identify any error of law in the definition of an expense. The respondent submits that this argument is new and that the appellants should not be permitted to advance it in this appeal for the first time. The respondent argues that the appellants seek a fresh determination of fact on evidence adduced before the Tribunal which it was for the Tribunal to assess and is not a proper basis for an appeal on a point of law.
44. The respondent also notes that the submission that the Tribunal erred in law in its interpretation of the decision of Edwards J. in McKenzie was not relevant to the issues on this appeal because the appellants implicitly accept that if there was evidence before the Tribunal that the zone allowance was a payment in respect of expenses; then it automatically fell outside the scope of the Act of 1991.
The law
45. The relevant statutory provisions are set out in the Act of 1991 and the Payment of Wages (Appeals) Regulations 1991 (S.I. No.351 of 1991) (hereinafter “the 1991 regulations”), and the provisions of Ord.84C of the Rules of the Superior Courts 1986 (as amended).
46. Section 1 of the Act of 1991 provides the definition of wages:
‘“wages’, in relation to an employee, means any sums payable to the employee by the employer in connection with his employment, including—
(a) any fee, bonus or commission, or any holiday, sick or maternity pay, or any other emolument, referable to his employment, whether payable under his contract of employment or otherwise, and
(b) any sum payable to the employee upon the termination by the employer of his contract of employment without his having given to the employee the appropriate prior notice of the termination, being a sum paid in lieu of the giving of such notice:
Provided however that the following payments shall not be regarded as wages for the purposes of this definition: *131
(i) any payment in respect of expenses incurred by the employee in carrying out his employment,
(ii) any payment by way of a pension, allowance or gratuity in connection with the death, or the retirement or resignation from his employment, of the employee or as compensation for loss of office,
(iii) any payment referable to the employee’s redundancy,
(iv) any payment to the employee otherwise than in his capacity as an employee,
(v) any payment in kind or benefit in kind.”
47. Section 5 is entitled the “Regulation of certain deductions made and payments received by employers”.Subsection 1 of s.5 is most relevant, and states:
“(1) An employer shall not make a deduction from the wages of an employee (or receive any payment from an employee) unless—
(a) the deduction (or payment) is required or authorised to be made by virtue of any statute or any instrument made under statute,
(b) the deduction (or payment) is required or authorised to be made by virtue of a term of the employee’s contract of employment included in the contract before, and in force at the time of, the deduction or payment, or
(c) in the case of a deduction, the employee has given his prior consent in writing to it…”
Subsection 5 of s.5 provides:
“(5) Nothing in this section applies to-
(d) a deduction made by an employer from the wages of an employee in pursuance of any arrangements—
(i) which are in accordance with a term of a contract made between the employer and the employee to whose inclusion in the contract the employee has given his prior consent in writing, or
(ii) to which the employee has otherwise given his prior consent in writing, and under which the employer deducts and pays to a third person amounts, being amounts in relation to which he has received a notice in writing from that person stating that they are amounts due to him from the employee, if the deduction is made in accordance with the notice and the amount thereof is paid to the third person not later than the date on which it is required by the notice to be so paid…”
48. Section 5(6) of the Act of 1991 provides that:
“Where-
(a) the total amount of any wages that are paid on any occasion by an employer to an employee is less than the total amount of wages that is properly payable by him to the employee on that occasion (after making *132 any deductions therefrom that fall to be made and are in accordance with this Act), or
(b) none of the wages that are properly payable to an employee by an employer on any occasion (after making any such deductions as aforesaid) are paid to the employee, then, except in so far as the deficiency or non-payment is attributable to an error of computation, the amount of the deficiency or non-payment shall be treated as a deduction made by the employer from the wages of the employee on the occasion.”
49. This appeal is brought by way of s.7(4)(b) of the Act of 1991 which states that:
“(b) A party to proceedings before the Tribunal may appeal to the High Court from a determination of the Tribunal on a point of law and the determination of the High Court shall be final and conclusive.”
50. In Henry Denny & Sons (Ireland) Ltd v Minister for Social Welfare [1998] 1 I.R. 34; [1996] 1 I.L.R.M. 418 the Supreme Court dealt with the circumstances in which the High Court will overturn a decision of a specialist tribunal such as the Employment Appeals Tribunal. Hamilton C.J. commented, at pp.37-38 of the report, that:
“… I believe it would be desirable to take this opportunity of expressing the view that the courts should be slow to interfere with the decisions of expert administrative tribunals. Where conclusions are based upon an identifiable error of law or an unsustainable finding of fact by a tribunal such conclusions must be corrected. Otherwise it should be recognised that tribunals which have been given statutory tasks to perform and exercise their functions, as is now usually the case, with a high degree of expertise and provide coherent and balanced judgments on the evidence and arguments heard by them it should not be necessary for the courts to review their decisions by way of appeal or judicial review.”
51. As was noted in the appellants’ submissions, the High Court, in considering whether to overturn the Tribunal’s determination, must first scrutinise whether the Tribunal based its determination upon an identifiable error of law or upon an unsustainable finding of fact. The Supreme Court in National University of Ireland, Cork v Ahern [2005] 2 I.R. 577; [2005] 2 I.L.R.M. 437 held that although findings of fact must be accepted by the High Court on appeal, that court could still examine the basis upon which those facts were found. The relevance or admissibility of the matters relied on by the Tribunal in determining the facts in the manner that it did may give rise to a matter of law.
The format of the appeal
52. Regulation 3 of the 1991 regulations, upon which the respondent relies in respect of the format and grounds of this appeal, states that: *133
“A notice under section 7(2) in relation to an appeal shall contain—
(a) the names, addresses and descriptions of the parties to the proceedings to which the appeal relates,
(b) the date of the decision to which the appeal relates, and the name of the rights commissioner who made the decision, and
(c) a brief outline of the grounds of the appeal.”
Rules of court
53. Order 84C, r.2(3) of the Rules of the Superior Courts as inserted by r.1 of the Rules of the Superior Courts (Statutory Applications and Appeals) 2007 (S.I. No.14 of 2007) states:
“(3) Where the relevant enactment provides only for appeal to the High Court on a point of law, the notice of motion shall state concisely the point of law on which the appeal is made.”
54. The correct format of an appeal on a point of law was considered by Hedigan J. in Blackrock College v Browne [2013] IEHC 607; High Court, 20 December 2013 in which the Labour Court made a determination, which, the appellant argued, was based on an error of law. Section 17(6) of the Protection of Employees (Part-Time Work) Act 2001 provided specifically for an appeal on a point of law. It was held that where the Oireachtas provides for a particular and limited form of statutory appeal, the appellant is obliged to proceed in accordance with those provisions and adhere to the rules prescribed therein.
Decision on the winter/summer bonus
55. The court is satisfied that the bonus at issue in this case was not declared by the employer at any stage and the Tribunal was not invited to and did not make any finding that a bonus had been declared. There was no announcement that a particular bonus was payable. The bonus scheme clearly operated on a basis that did not require such an announcement. It was payable at the rate of three per cent in June 2012 for the period worked between August 2011 and January 2012. The attempt to categorise the bonus payable in respect of the period from August 2011 to January 20012 as a form of declared bonus is therefore misconceived.
56. There is no doubt that the relevant appellants provided their labour during this period and had an expectation, having done so, that the three per cent bonus would be paid. That expectation was based upon the terms of the bonus scheme which provided that an employee was entitled to the payment of the three per cent if he/she had the requisite period of service to enable him/her to benefit from the scheme and had worked the relevant accrual period, i.e. the six months to which it applied. It was unilaterally withdrawn from them. However, the employer contends that this was in accordance with the terms of the contract of employment and bonus scheme which provides that the bonus *134 “may be reviewed or withdrawn at any time”. The employer accepts that their employees’ expectations were understandable, if not legally warranted, but submit that whether post or pre- the summer or winter period covered in any particular year, it is entitled to withdraw the bonus. In the case of a period of the relevant year not yet worked, the withdrawal of the bonus simply means that the balance of the three per cent cannot be earned because it cannot accrue. Therefore, it is not payable. Similarly, it is said that the bonus scheme, once withdrawn, means that it is no longer applicable to the first part of the year which has been worked and in respect of which the three per cent bonus would otherwise have accrued: it simply need not and will not be paid. It is submitted that the clear and unambiguous terms of the bonus clause and scheme allow for this result and that the Tribunal was correct in so finding. I respectfully disagree.
57. I am satisfied that the terms of the contract and bonus scheme must be interpreted in the overall context of the contract. The bonus scheme applied to each eligible employee during the course of his/her employment. To be eligible for the bonus payment employees had to have at least six months’ service. The bonus was calculated at the rate of six per cent per annum of the gross basic pay of the employee and was payable twice annually. The scheme provided that an eligible employee was to be paid a three per cent bonus on the completion of the six-month winter or summer period regardless of whether he/she remained in employment for the full year. The bonus was not contingent at that stage upon a satisfactory performance by the employee or any other specified conditions. It was not specifically linked to the profitability of the company. The withdrawal of the bonus was announced in January 2012, after the relevant six-month period, to take effect from 1 April 2012. The worked six-month period bonus was payable in June 2012. The respondent submits that notwithstanding these important elements of the contract and bonus scheme, the employer retained an absolute discretion to withdraw payment at any time.
58. The financial reality with which the employer was faced led to a review of the bonus scheme. I accept that the employer had a wide discretion under the terms of the contract and scheme to withdraw the scheme which must be exercised reasonably. If the discretion is exercised unreasonably the employer will be in breach of contract if no reasonable employer would have exercised the discretion in that way. This imposes a very high onus on an employee who claims that the discretion was unreasonably exercised (per Hedigan J., in Lichters & Hass v Depfa Bank Plc [2012] IEHC 10). Having regard to the fact that the respondent was obliged to seek examinership and that it was clearly in a very difficult financial situation, the decision to withdraw the bonus could not be regarded as unreasonable. The respondent submits that this ground was not advanced to, or considered by, the Tribunal and should not be entertained. I am satisfied that this is so, but even if it had been advanced, it is clear that it could not have succeeded.
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59. If the employer had grounds upon which to exercise its discretion to withdraw the scheme, a further question arises; under the terms of the bonus scheme, was the employer, on a proper construction of the contract and scheme, entitled to withdraw it both prospectively and retrospectively? It seems to me that the employer was entitled to withdraw the bonus scheme prospectively. However, it is claimed that though the contract states it may be withdrawn “at any time” this should not be interpreted literally and applied retrospectively in the circumstances of this case. The phrase must be understood in the context of the other terms of the scheme as operated by the employer as set out above. In that regard, the Tribunal noted that a letter from the employer to each of the appellants on 1 April 2012 sought an acknowledgement of receipt of notice of its intention to discontinue the bonus as of that date, as an amendment to the terms and conditions of employment. The Tribunal’s decision is rooted in the finding that the employee’s handbook provides a consistent clause common to each contract to the effect that “all bonus schemes are discretionary and are subject to scheme rules. They may be reviewed or withdrawn at any time”.
60. Finnegan v J&E Davy [2007] IEHC 18; [2009] 1 I.R. 48 concerned the deferral of a quantified bonus for a period of two years which involved a change in the terms of employment unilaterally imposed upon the plaintiff by his employer. Smyth J. held that the plaintiff had a legitimate and reasonable expectation that if the firm thrived and his efforts were fruitful he would be awarded a bonus. This was discretionary in respect of each year’s trading and dependent upon an annual personal assessment by the employer. Smyth J. was satisfied that (p.6):
“… the plaintiff could reasonably expect as a matter of principle built up from a number of years of consistent conduct in the payment of bonuses and the matter of discretion never having been mentioned to him at any stage that some bonus would be payable — the amount only dependent on the trading activities of the firm and his own performance.”
The parties did not have the benefit of a written contract. The case was decided on a consideration of the substance and effect of the deferral of the payment of the bonus. The court determined that the unilateral imposition of the deferral constituted a particularly onerous and unusual condition which was not made known to the plaintiff for a period of six years and operated as a restraint of trade (because the bonus would not be paid if the plaintiff took up employment with a rival). This is materially different from the more extensive discretion exercised under the contract in this case, the terms of which are said to be set out in the employee’s handbook. In this case the amount of the bonus and the periods for which it would be payable to the appellants were clearly set out in advance and completely unrelated to performance by the employee, however, the bonus scheme could be withdrawn at any time. This case is therefore of little *136 assistance in the interpretation of the terms of this bonus scheme save insofar as it acknowledges that a legitimate expectation of payment of a bonus may arise under a contract where it has been promised and quantified in respect of a defined work period.
61. The literal interpretation adopted by the Tribunal suggests that if the employees were not content with the terms of the contract and the bonus scheme “they should not have entered the contract” and that the discretion retained by the employer to withdraw the scheme was absolute. However, the use of the word “discretionary” is not always determinative of whether a contractual entitlement arises under a bonus scheme.
62. In Small v Boots Co Plc [2009] I.R.L.R. 328 a number of warehousemen were in receipt of performance-related bonuses which were not given over a three year period. The employees brought an action for unlawful deduction of wages, claiming a contractual entitlement to the bonuses. Slade J. (delivering the judgment of the Employment Appeals Tribunal) considered the interpretation of the word “discretionary” in bonus schemes as follows in a way which I regard as helpful and persuasive (at p.332):
“18. In my judgment the extent of an employer’s discretion in relation to a bonus scheme is relevant to the determination of the question of whether, and, if so, to what extent the scheme has contractual content. The Employment Judge erred in failing to determine the meaning of the term ‘discretionary’ in the documentation upon which he relied.
19. As is illustrated by the observation of Potter LJ in Horkulak, the use of the term discretionary in a bonus scheme may be attached to the decision whether to pay a bonus at all, its calculation or its amount. No doubt there are other factors to which discretion may be attached. In determining whether the reference to a discretionary bonus conferred any contractual entitlement, the Employment Judge should have decided to what aspect of the scheme the term discretionary was attached. In the context of this case, the possible interpretations include discretion attached to the provision of an overarching bonus scheme, to a decision each year to operate a bonus scheme, to the method of calculation of bonus or to the threshold which triggers a bonus or to whether and if so what percentage of salary will be paid.”
Slade J concluded that the employment judge had not engaged with the question of whether the employer’s discretion had any contractual content and if so what it was, and by regarding the use of the word “discretionary” in relation to the bonus scheme as determinative, I consider that the Tribunal, in this case, made a similar error.
63. The employees worked the relevant period pursuant to the terms of the contract and scheme, thereby accruing a bonus entitlement under the scheme. I am not satisfied that the terms of the bonus scheme properly interpreted, allow for the unilateral withholding of a bonus payment in respect of a period worked *137 by the employee during which the workers had a legitimate expectation that the bonus was accruing and would be paid. I am satisfied that the bonus for August 2011 to January 2012 was properly payable in June 2012 notwithstanding the withdrawal of the scheme in January 2012. I am satisfied that in the circumstances of this case the overall discretionary nature of the bonus scheme does not extend to a withholding of the bonus due, in respect of that period, in respect of which the bonus was quantified and payable under the scheme, subject to compliance with the eligibility provisions. I am satisfied that the contract of employment and bonus scheme must be interpreted reasonably. The discretion to withdraw the bonus scheme at any time, in my view, was always intended to apply in futuro and attached to the conferring of bonuses, as yet unaccrued, under the terms of the scheme. The payment of the bonus crystallised as a contractual obligation once it was “earned” in accordance with the terms of the scheme as operated. I am satisfied that the Tribunal erred in law, in interpreting the discretion vested in the employer to withdraw the bonus scheme at any time as being applicable or attaching to this period.
64. I am therefore satisfied that notwithstanding the employer’s difficult financial circumstances in this case, it bore a contractual obligation to pay the three per cent bonus accrued to each employee during the relevant six month period and that this was a bonus properly payable as “wages” under s.5(1) of the 1991 Act.
Decision on zone allowance
65. Section 1(1)(i) provides that any payment “in respect of expenses incurred by the employee in carrying out his employment” is not to be regarded as “wages” under the 1991 Act. The zone allowance in this case is clearly not a payment in respect of expenditure by an employee in carrying out the duties of his or her employment which is then to be recouped from the employer nor did the employer ever claim that it was. It is claimed by the employer and was so found by the Tribunal, that the zone allowance was paid separately from the amount paid for basic salary for the purpose of “compensation for working in a particular area” and is properly to be regarded as an expense based upon a wider definition than that of the more familiar “vouched” expense.
66. In London Borough of Southwark v O’Brien [1996] I.R.L.R. 420 Mummery J. considered the equivalent provision of English law contained in s.7(2)(b) of the Wages Act 1986. At issue was the withdrawal of a mileage allowance payable to an employee which, he claimed, was an unlawful deduction of wages under the Act. The Industrial Tribunal determined that the allowance constituted wages because it provided benefit over and above an expense actually incurred. Mummery J., delivering the judgement of the Employment Appeal Tribunal overturning the decision stated (at p.422): *138
“…when asking ‘Is the payment in respect of expenses incurred by the employee?’, it is not necessary for the payer to show that what he has paid is precisely a reimbursement of the sum expended by the worker. ‘In respect of’ means ‘referring to’ or ‘relating to’ or concerning in a general way, whereas the expression used by the chairman in his decision, ‘payment of expenses’, would appear (wrongly, in our view), to equate the statutory provision with reimbursement of a precise amount”.
The EAT concluded that the mileage allowance was an expense under s.7(2) (b). I am satisfied to adopt the same approach to the interpretation of s.1(1)(i).
67. There may be cases in which a payment designated by an employer as an expense may be properly regarded as part of the wage payable to an employee. For example in Mears Ltd v Salt UKEAT/0522/11/LA the English Employment Appeals Tribunal held that a travel allowance paid as a daily allowance to employees, irrespective of whether travel expenses had been incurred, constituted wages rather than expenses because in fact no expense was incurred. It was accepted that at first instance it is open to a decision-maker “as a matter of fact and degree, to conclude that, neither in its original form, for its original purpose, nor in its modern form, could it sensibly be said … to be a payment in respect of expenses…” However, on this appeal, it is not open to the court to enter upon a hearing de novo of the facts of the case. I am satisfied that there was a sufficient evidential basis upon which the Tribunal was entitled to make its findings of fact in respect of whether the payment was an expense or not and it has not been established that these findings are unsustainable. The Tribunal heard extensive evidence on the matter. It adopted the correct interpretation of the nature and extent of expenses covered by s.1(1)(i) which is similar to that applied by Mummery J. in the O’Brien case already quoted. I do not consider that the Tribunal erred in law by so doing. I acknowledge that the nature and extent of the types of payment made to employees vary widely and the decision in this case, on this issue, has very limited value as a precedent: each case will be decided on its own facts. However, disputes of fact which arise in the course of determining whether any particular payment designated by an employer as an expense is in fact part of “wages” payable under the Act will undoubtedly fall to be considered in the future by the Commissioner and the Tribunal who have the expert knowledge in this area, with which the court will be slow to interfere.
68. The court has also been referred to McKenzie v Minister for Finance [2011] E.L.R. 109 in which Edwards J. held, inter alia, that a cabinet decision to reduce the rates of expense allowances for motor travel and subsistence payable to public servants was taken in the public and urgent national interest, and that in the exceptional circumstances of the banking crisis, the government was entitled to act as they did. I am not satisfied that this decision is relevant to the issue in this case. If the zone allowance was payable as part of the appellants’ wages pursuant to contract, the withdrawal of the allowance would clearly be *139 an unlawful deduction under the Act. If it is an expense it may be withdrawn or reduced in accordance with the terms of the contract dealing with expenses, but is not properly the subject of a claim for relief under the 1991 Act as a deduction from wages.
69. Edwards J. also indicated, obiter dicta, that the reduction of the motor travel allowances and subsistence payments in that case were not a “deduction” from wages for the purposes of the Payment of Wages Act 1991, which had no application to those reductions. I am satisfied that the 1991 Act has no application to issues arising from a reduction of an allowance properly classified as an expense because it is clearly not a deduction from “wages” and I do not consider that conclusion to be in conflict with that part of the judgment.
70. I am not satisfied that the appellants are entitled to the relief claimed in respect of the zone allowance.
Conclusion
71. I am satisfied that the Tribunal erred in law in holding that the withholding of the bonus payment for the period August 2011 to January 2012 was lawful and did not constitute a deduction from the wages of the relevant appellants. The bonus is payable to the employees up to the conclusion of that period. I am satisfied that the employer was entitled to terminate the bonus scheme from January 2012 and that it was lawfully withdrawn and was no longer payable from the six month work period commencing in February 2012.
72. I am satisfied that in the circumstances of this case the Tribunal did not err in law in treating the zone allowance paid to the appellants as an expense under s.1(1)(i) of the 1991 Act. Its withdrawal was therefore not a deduction from wages under the 1991 Act.
Department of Defence (Minister for Defence) v Brendan Lane
PWD1819
Labour Court
19 April 2018
[2018] 29 E.L.R. 310
(Faherty J.)
Subject
1. Appeal of an Adjudication Officer’s Decision.
Background
2. The claimant appealed the Decision of the Adjudication Officer in accordance with s.7(1) of the Payment of Wages Act 1991. A Labour Court hearing took place on 28 March 2018. The following is the determination of the court:
Determination
This is an appeal by Mr Brendan Lane against a decision of an Adjudication Officer in which it was decided that a weekly deduction from his pay made by the Department of Defence did not constitute an infringement of the Payment of Wages Act 1991. The complainant appealed against that decision to this court.
Mr Lane is a member of the Defence Forces. He submits an amount of money is deducted from his pay each week for services that he does not receive. He submits that the deduction infringes s.5 of the Payment of Wages Act 1991.
The relevant regulations and law
Defence Forces Regulations S.3 Pay and Allowances (Permanent Defence Forces) para.34 states:
“(1) There shall be deducted from the pay of a soldier the sum of 24p per week, which he is required to contribute towards meeting the following expenses incurred by the appropriate welfare authorities as prescribed in Defence Force Regulations Q.11:
1) The expenses of haircutting;
2) Administrative expenses in connection with arrangements made for personal laundry services where feasible; and
3) The provision of sports equipment and such other articles and services as may be provided for his welfare, recreation and comfort.
This deduction does not cover the actual cost of laundering which shall be a matter for arrangement directly between the welfare authority and a soldier availing of the service.
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(2) This deduction shall cease as from the payday following that upon which the soldier proceeds on leave pending transfer to the Reserve Defence Force or discharge.”
Section 5 of the Payment of Wages Act 1991 states:
“5.—(1) An employer shall not make a deduction from the wages of an employee (or receive any payment from an employee) unless—
(a) the deduction (or payment) is required or authorised to be made by virtue of any statute or any instrument made under statute,
(b) the deduction (or payment) is required or authorised to be made by virtue of a term of the employee’s contract of employment included in the contract before, and in force at the time of, the deduction or payment, or
(c) in the case of a deduction, the employee has given his prior consent in writing to it.
(2) An employer shall not make a deduction from the wages of an employee in respect of—
(a) any act or omission of the employee, or
(b) any goods or services supplied to or provided for the employee by the employer the supply or provision of which is necessary to the employment,
unless—
(i) the deduction is required or authorised to be made by virtue of a term (whether express or implied and, if express, whether oral or in writing) of the contract of employment made between the employer and the employee, and
(ii) the deduction is of an amount that is fair and reasonable having regard to all the circumstances (including the amount of the wages of the employee), and
(iii) before the time of the act or omission or the provision of the goods or services, the employee has been furnished with—
(I) in case the term referred to in subparagraph (i) is in writing, a copy thereof,
(II) in any other case, notice in writing of the existence and effect of the term, and
(iv) in case the deduction is in respect of an act or omission of the employee, the employee has been furnished, at least one week before the making of the deduction, with particulars in writing of the act or omission and the amount of the deduction, and
(v) in case the deduction is in respect of compensation for loss or damage sustained by the employer as a result of an act or omission of the employee, the deduction is of an amount not exceeding the amount of the loss or the cost of the damage, and
(vi) in case the deduction is in respect of goods or services supplied or provided as aforesaid, the deduction is of an amount not exceeding the cost to the employer of the goods or services, and
(vii) the deduction or, if the total amount payable to the employer by the *313 employee in respect of the act or omission or the goods or services is to be so paid by means of more than one deduction from the wages of the employee, the first such deduction is made not later than six months after the act or omission becomes known to the employer or, as the case may be, after the provision of the goods or services.
(3)(a) An employer shall not receive a payment from an employee in respect of a matter referred to in subsection (2) unless, if the payment were a deduction, it would comply with that subsection.
(b) Where an employer receives a payment in accordance with paragraph (a) he shall forthwith give a receipt for the payment to the employee.
(4) A term of a contract of employment or other agreement whereby goods or services are supplied to or provided for an employee by an employer in consideration of the making of a deduction by the employer from the wages of the employee or the making of a payment to the employer by the employee shall not be enforceable by the employer unless the supply or provision and the deduction or payment complies with subsection (2).
(5) Nothing in this section applies to—
(a) a deduction made by an employer from the wages of an employee, or any payment received from an employee by an employer, where—
(i) 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 employee in carrying out his employment,
made (for any reason) by the employer to the employee, and
(ii) the amount of the deduction or payment does not exceed the amount of the overpayment,
or
(b) a deduction made by an employer from the wages of an employee, or any payment received from an employee by an employer, in consequence of any disciplinary proceedings if those proceedings were held by virtue of a statutory provision, or
(c) a deduction made by an employer from the wages of an employee in pursuance of a requirement imposed on the employer by virtue of any statutory provision to deduct and pay to a public authority, being a Minister of the Government, the Revenue Commissioners or a local authority for the purposes of the Local Government Act 1941, amounts determined by that authority as being due to it from the employee, if the deduction is made in accordance with the relevant determination of that authority, or
(d) a deduction made by an employer from the wages of an employee in pursuance of any arrangements—
(i) which are in accordance with a term of a contract made between the employer and the employee to whose inclusion in the contract the employee has given his prior consent in writing, or
(ii) to which the employee has otherwise given his prior consent in writing, and under which the employer deducts and pays to a third person amounts, *314 being amounts in relation to which he has received a notice in writing from that person stating that they are amounts due to him from the employee, if the deduction is made in accordance with the notice and the amount thereof is paid to the third person not later than the date on which it is required by the notice to be so paid, or
(e) a deduction made by an employer from the wages of an employee, or any payment received from an employee by his employer, where the employee has taken part in a strike or other industrial action and the deduction is made or the payment has been required by the employer on account of the employee’s having taken part in that strike or other industrial action, or
(f) a deduction made by an employer from the wages of an employee with his prior consent in writing, or any payment received from an employee by an 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 employee to the employer, or
(g) a deduction made by an employer from the wages of an employee where the purpose of the deduction is the satisfaction (whether wholly or in part) of an order of a court or tribunal requiring the payment of any amount by the employer to the court or tribunal or a third party out of the wages of the employee.
(6) Where—
(a) the total amount of any wages that are paid on any occasion by an employer to an employee is less than the total amount of wages that is properly payable by him to the employee on that occasion (after making any deductions therefrom that fall to be made and are in accordance with this Act), or
(b) none of the wages that are properly payable to an employee by an employer on any occasion (after making any such deductions as aforesaid) are paid to the employee,
then, except in so far as the deficiency or non-payment is attributable to an error of computation, the amount of the deficiency or non-payment shall be treated as a deduction made by the employer from the wages of the employee on the occasion.”
Complainant’s case
The complainant acknowledges that the deduction at issue is made pursuant to a statutory instrument or an instrument made under statute namely Defence Forces Regulations S.3 Pay and Allowances (Permanent Defence Forces) Second Edition. He acknowledges that those Regulations are made under the Defence Act 1954.
He submits however that he receives no benefits from those deductions and submits that as a consequence the deduction is contrary to s.5 of the Payment of Wages Act 1991.
*315
Respondent’s case
The respondent submits that the deductions are made under an instrument made under the Defence Act 1954 and accordingly comes within the scope of s.5(1) of the Payment of Wages Act 1991.
It further submits that this is not a deduction made in respect of goods or services supplied to or provided for the employee by the employer, the supply or provision of which is necessary to the employment.
It submits that the purpose of the deduction and the application of the monies deducted are irrelevant and it is not a matter for the Labour Court under the 1991 Act to enquire into the purpose of the deduction or the application of the monies deducted.
It submits that the deducted monies constitute a contribution to the expenses incurred by the appropriate welfare authorities under sub-paras (i), (ii) and (iii) of para.34 of s.(3) of the Defence Forces Regulations.
It submits that the deducted monies do not constitute a contribution to the expenses incurred by Non-Commissioned Officers or Privates but expenses incurred by the appropriate welfare authorities. It further submits that the regulation does not provide each Non Commissioned Officer or Private must in fact receive benefits referred to at sub-paras (i),(ii) or (iii). It submits that the Air Corps Welfare Board has utilised the monies to defray expenses incurred by the Board in respect of laundry facilities and the provision of sports equipment and other articles and services provided for the welfare, recreation and comfort of members stationed in Baldonnell, including the claimant, as contemplated by sub-paras (ii) and (iii) of para.34.
Findings of the court
The court finds that the deductions at issue in this case come within the scope of s.5(1) of the Act being deductions authorised by an instrument made under statute, namely Defence Force Regulations S.3 Pay and Allowances (Permanent Defence Forces), para.34 made under the Defence Act 1954.
The court finds that the deduction is not made in respect of goods or services supplied to or provided for the employee by the employer the supply or provision of which is necessary to the employment.
The court further finds that the deduction at issue in this case comes within the scope of s.5(5)(c) of the Act of 1991 which states:
“c) a deduction made by an employer from the wages of an employee in pursuance of a requirement imposed on the employer by virtue of any statutory provision to deduct and pay to a public authority, being a Minister of the Government, the Revenue Commissioners or a local authority for the purposes of the Local Government Act, 1941, amounts determined by that *316 authority as being due to it from the employee, if the deduction is made in accordance with the relevant determination of that authority.”
In this case the deduction is made in accordance with the Defence Forces Regulations that are made by the Minister under the Defence Act 1954. The deducted monies are paid to the Minister who transfers them to the Welfare Board to provide services to members of the Defence Forces in accordance with the terms of the Regulations.
It is not for this court to enquire into the expenditure of those monies. The only matter for this court is to determine whether the deductions that are made contravene s.5(1) of the Act of 1991.
Determination
Having considered the information before it the court decides that the deductions at issue in this case do not contravene s.5(1) of the Act of 1991 and determines accordingly.
The appeal is not allowed. The decision of the Adjudication Officer is affirmed.
The court so determines.
Don McDonagh v Shoreline Taverns Limited
trading as Daly’s of Donore and Shoreline Taverns Limited trading as Daly’s of Donore (respondents):
PW674/2012
Employment Appeals Tribunal
15 November 2013
[2014] 25 E.L.R. 98
(
This case came before the Tribunal by way of an appeal by an employee (appellant) against the decision of the Rights Commissioner ref (r-123040-pw-12/JW) under the Payment of Wages Act 1991.
Summary of case
The appellant was employed as a full-time bar and restaurant manager by the respondent from April 1996. He was placed on lay off from February 6, 2012 and was not paid during this period of lay off. He accepted that there had been a downturn in the respondent’s business from 2010 onwards. He was never contacted by the respondent after February 2012 with any offer of work. In May 2012 he sought his redundancy entitlement and this entitlement was conceded by the respondent at the Tribunal hearing.
During his tenure of employment with the respondent he was never provided with a contract of employment. It is the appellant’s case that he is entitled to payment for the period of lay off as he did not consent to a deduction from his wages. He told the Tribunal that he has worked in the industry since his teens and he has never heard of lay off without pay for full-time employees. He believed his lay off in February 2012 was a ruse and a genuine lay off situation did not exist.
The Tribunal heard evidence from the owner of the respondent’s business that the appellant was well aware of the company’s financial position. He laid off the appellant in February 2012 in the hope that the business wold grow again and recover. He also reduced the working hours of other employees at this time. The business had not recovered sufficiently enough by April/May to re-employ the appellant. He told the Tribunal that the appellant was well aware that he would not be paid during his period of lay off.
Determination
The Tribunal have carefully considered all of the evidence together with the documentation handed in during the hearing.
The appellant was placed on temporary lay off from February 6, 2012. He was not paid during that lay off period. He did not contact the respondent nor did the respondent contact him prior to lodging his claim with the Tribunal in May 2012. The appellant did not have a written contract of employment nor was he given any terms of his employment. The appellant states that he is entitled to his pay for the period he was on lay off as he did not consent to the deduction either verbally or in writing. He also stated that there was no custom and practice in the industry in relation to lay off as opposed to payment during lay off. Furthermore, he states that the deduction made to his wages was unlawful. The Tribunal notes that the appellant did not know anyone in the industry who had been put on lay off in the past and therefore by extension could not have known anyone who had been paid during a period of lay off.
*100
The Payment of Wages Act 1991 prohibits the employer from deducting the wages of an employee unless specifically provided for by statute or where has been by prior agreement of parties. Lay off is a creature of statute.
Wages are defined in the Payment of Wages Act 1991 as:
“‘Wages’ in relation to an employee, means any sum payable to the employee by the employer in connection with his employment, including-
(a) Any fee, bonus or commission or any holiday, sick or maternity pay or any other emolument referable to his employment whether payable under his contract of employment or otherwise…”
Lay off is defined by s.11 Redundancy Payments Act 1967 as follows:
“(1) Where an employee’s employment ceases by reason of his employer’s being unable to provide the work for which the employee was employed to do, and—
(a) it is reasonable in the circumstances for that employer to believe that the cessation of employment will not be permanent, and
(b) the employer gives notice to that effect to the employee prior to the cessation, that cessation of employment shall be regarded for the purposes of this Act as lay off.”
“Wages” arise in connection with the employment, and lay off arises for the period of the “cessation of employment”. The Tribunal finds that it would not be absurd to suggest that a lay off which gives rise to a cessation of work must by implication also give rise to a cessation of wages.
It is clear from the facts submitted that the respondent was of the belief that the cessation of employment would not be permanent. That in fact was the case. From the accounts submitted it was clear that the period after Christmas until late spring was traditionally quiet. It always picked up in late spring/early summer and continued until the end of the year. Therefore, s.11(1)(a) is satisfied. The respondent did give notice to the appellant prior to the period of lay off, however that notice was not in the usual form. The appellant was not issued with an RP9. He was told that the cessation would not be permanent and he was told that his employer would contact him when things picked up. It should also be noted that appellant was very familiar with the company’s accounts and was fully aware that there was always a quiet period after Christmas. Therefore s.11(1)(b) is satisfied.
The question the Tribunal must answer is whether or not by virtue of the employer having invoked s.11 of the 1967 Act the employee’s contractual and statutory right to pay during that period of lay off is suspended.
At common law there is no general right to lay off without pay. However it has always been accepted that there are some limited circumstances wherein there will be such a right. This right has been implied in the past in cases such as Browning and Others v Crumlin Valley Collieries [1926] 1 K.B. 698. In that *101 case the court found that there was an implied term that a mine owner could lay off miners without pay while repairs are effected through no fault of the mine owners. Furthermore, it is a well-established practice in this jurisdiction that lay off without pay is operable where an employer can demonstrate it has been the custom and practise of the trade and/or workplace and that the custom must be reasonable, certain and notorious
The appellant relied on a precedent from the Tribunal PW 426/2011 wherein the case of Industrial Yearns v Greene [1984] I.L.R.M. 15 was opened to the Tribunal. The factual situation that existed in the Industrial Yarns case is different from those in the appellant’s case. That case primarily focused on the right of an employee to be given statutory notice of the termination of his employment or to be paid in lieu in circumstances where the company, knowing that the employees where going to claim redundancy, used the statutory lay off legislation to force its employees to invoke their rights under s.12 of the 1967 Act. All of the parties were fully aware that the lay off period would be permanent and that the sole purpose for putting the employees on lay off was so that they would invoke their right to claim redundancy. The company then used that to avoid its legal obligation to pay notice, based on the fact that it was the employee who sought redundancy. That was clearly an improper use of the legislation and was not its intended use. In the case before the Tribunal s.11 of the 1967 Act was used for its intended purpose and the respondent clearly satisfied s.11(1)(a) and (b).
It would seem from the appellant’s submissions to the Tribunal that he too was relying on Costello J. when he stated that “It is clear that the employer in operating this section is not terminating the contract of employment – there is a cesser of employment, but the contract still subsists”. The appellant went on to argue that by virtue of the fact that the contract still subsists together with the fact as per Costello J. “there is no contractual power (express or implied) in the contract of employment to suspend the operation of the contract for a limited period than by ceasing to employ an employee and refusing to pay him wages the employer is guilty of a serious breach amounting to repudiation of it” that the respondent’s failure to pay him during the lay off period was unlawful. If one reads on, Costello J. states correctly that repudiation does not automatically bring the contract to an end. The employee is free to accept that the repudiation has brought the contract to an end or not as the case may be. The learned judge in that section of his judgment was specifically referring to the employer’s erroneous use of s.11 and the legal position that followed from it. His comments are inextricably linked to the factual situation that existed in that case and cannot be applied to the appellant’s case. Furthermore, whilst there may not be a “contractual power in the contract of employment to suspend the operation of the contract for a limited period of time” there is a statutory one, s.11 of the 1967 Act, and that statutory power takes precedence over a contract regardless of whether the contract is silent on the issue or not. Once s.11 is invoked there *102 is a temporary cessation of employment but the contract of employment still existed but in a state of temporary suspension. There can be no breach of contract in these circumstances.
In the case of Lawe v Irish Country Meats Limited [1998] E.L.R. 266 White J. quoted from Hanley v Pearse & Partners [1915] 1 K.B. 698 “Absent a term in the contract, the employer’s fundamental obligation is to pay the agreed remuneration for the times of work during which the employee is prepared to work. Ordinarily an employer is free to lay off workers for any reason provided he continues paying them”. The Tribunal note that White J. relied heavily on authorities from the United Kingdom. Whilst they are helpful in some respects one must take note of the fact that the United Kingdom’s statutory position in relation to layoff differs from ours in that the legislation specifically refer to the employee “being employee under a contract on terms and conditions …” Our equivalent legislation is silent in relation to the contractual terms. Section 147 Employment Rights Act 1996 (U.K.) provides:
“(1) For the purposes of this Part an employee shall be taken to be laid off for a week if—
(a) he is employed under a contract on terms and conditions such that his remuneration under the contract depends on his being provided by the employer with work of the kind which he is employed to do, but
(b) he is not entitled to any remuneration under the contract in respect of the week because the employer does not provide such work for him.
(2) For the purposes of this Part an employee shall be taken to be kept on short-time for a week if by reason of a diminution in the work provided for the employee by his employer (being work of a kind which under his contract the employee is employed to do) the employee’s remuneration for the week is less than half a week’s pay.”
Furthermore, British common law seems to rely on the employee “being prepared to work”. No such legal test exists in this jurisdiction. What is noteworthy about the Lawe case is that, as in the Industrial Yarns case there seems to have been an unlawful use of s.11. The plaintiff contended that the lay-off was not justified and was done to put pressure on the workforce to accept the new practices and that it was essentially a lock out situation. Also White J. found that the lay-off was not temporary but formed part of the winding down of the company and its workforce. The Tribunal find that it would be wrong to apply principles of law established in circumstances where a party attempted to avoid its legal obligation by wrongly invoking legislation for a purpose for which it was never intended. To apply such principles generally could lead to an injustice.
White J., based on the specific set of circumstances that were before him, found that in that situation the employees are entitled to pay during the period of lay-off. Interestingly White J. did state that a right to lay off without pay could exist where the lay off was temporary and where a custom and practice *103 existed. Such custom must be reasonable, certain and notorious. No evidence was produced before the Tribunal in relation to the custom and practice of the respondent. However, it can be said that generally throughout this country the custom and practice is that lay off will be without pay. That custom and practice has existed since the coming into force of the Redundancy Payments Act.
The Tribunal find that when s.11 is genuinely invoked and the employer satisfies s.11(1)(a) and (b) then the contract of employment is temporarily suspended and there is no right to payment during that period. Furthermore, the Tribunal finds that there is a notorious custom and practice in this jurisdiction that employees will not be paid during a period of lay off. Lay off itself is an instrument of statute.
The appellant’s appeal under the Payment of Wages Act must fail and the decision of the Rights Commissioner is upheld.
Ryanair Limited v Alan Downey
PW6/2005
Employment Appeals Tribunal
23 February 2006
[2006] 17 E.L.R. 347
Full text of the Tribunal determination:
This case came before the Tribunal by way of appeal, under s.7 of the Payment of Wages Act 1991 (hereinafter referred to as “the Act”), from a decision of the Rights Commissioner which awarded the respondent/employee (hereinafter referred to as the respondent) the sum of €3,336.46 for breach of the Act. The claim by the appellant/employer hereinafter referred to as the appellant) lodged the appeal in accordance with the Act. At the commencement of these proceedings counsel for the appellant requested that the Tribunal set aside the decision of the Rights Commissioner on the basis that the respondent was not present before the Tribunal to give evidence. Counsel contended that the hearing before the Employment Appeals Tribunal constituted a hearing de novo and that the Tribunal should dismiss the claim as the respondent was not present to give evidence. The Tribunal rejected this submission on the basis that it could not set aside a decision of the Rights Commissioner without hearing the evidence. The authority for this is found in s.7(1) of the Act, which provides that:
“A party concerned may appeal to the Tribunal from a decision of a Rights Commissioner under s.6 and, if he does so, the Tribunal shall give the parties an opportunity to be heard by it and to present to it any evidence relevant to the appeal, shall make a determination in writing in relation to the appeal affirming, varying or setting aside the decision and shall communicate the determination of the parties”.
This section places a clear duty on the Tribunal to hear the evidence of the parties and to hear any evidence relevant to the appeal.
Counsel for the appellant then opened the contract of employment to the *349 Tribunal (hereinafter referred to as the “employment contract”) and in particular Clause 6 thereof which states:
“A training bond will be applicable for any aircraft engineer type training courses that you complete during your employment with Ryanair. Details of the bond applicable to your course starting on January 27, 2003 are as follows:
1. You acknowledge that Ryanair will incur costs in the sum of €2,500.00 in providing you with the training course ‘Aircraft Engineer’s Type Training’ and that in the event that your contract is terminated before the end of your first two years service after completion of the training course Ryanair will suffer loss in the amount of all of that sum.
2. If your employment with Ryanair is terminated before the end of two years service after completion of the training course other than:
a) On the grounds of redundancy or
b) Where Ryanair agrees in writing to the contrary
you will become liable to repay to Ryanair the costs incurred by Ryanair in providing you with this training.
3. You agree that if you have failed to gain full CRS approval on the type for which training was provided within 12 months after completion of the course, then you will become liable to repay to Ryanair the costs incurred by Ryanair in providing you with the training (applicable to certifying staff only).
4. You agree that Ryanair’s loss in respect of the costs incurred in providing you with training and your liability to repay costs will be; €5,000 for the duration of the two year period.
5. You agree that Ryanair may deduct from any sum due to you from Ryanair (including salary) all or part of the sum repayable by you in accordance with this contract or by any order of the court.
6. Definitions:
‘Costs’ include:
a) The cost to Ryanair of providing you with external training.
b) Facility costs
c) The cost to Ryanair of the provision of staff in connection with training.
d) Your salary and social insurance contributions paid during training.
e) Accommodation provided during training, if applicable.
f) Per diem allowances paid during training if applicable.”
*350 Counsel stated that clause 6 of the employment contract allowed the appellant to make deductions from the respondent’s wages because the respondent had given notice of his intention to leave the employment on June 23, 2004 which was within the two-year period of the commencement of the employment contract. Clause 6.1 of the employment contract provides that since the appellant will incur costs of €5,000 in providing an “Aircraft Engineer’s Type Training” course for the respondent and that if his employment contract terminated within two years of the completion of the training course then he must pay back the “loss and amount of all that sum”.
The appellant’s former personnel manager gave evidence that she “along with the deputy director of engineering” interviewed the respondent on January 15, 2003. This witness gave evidence that there was a procedure followed for interviews and that it was she who brought the candidate through the terms and conditions of the job. The witness stated that the training bond “would have been referred to” by which she meant the training bond at clause 6 of the employment contract and later confirmed to the Tribunal that it was actually referred to by her. This witness further stated that the position the respondent applied for was new. It was therefore important to him that if he was offered the job that the training course was required and the bond referred to at clause 6.1 of the employment contract applied. In addition the witness gave evidence that the respondent came to the job with basic skills and the training course had a lot of benefits for him. When questioned by the Tribunal this witness stated that she was on maternity leave and did not deal with the respondent’s wages at the time he left.
The second witness called to give evidence was the outstation engineer at the time of the respondent’s employment. This witness gave evidence that the respondent was sent on the “Aircraft Engineer’s Type Training” course which he needed to enable him to certify work carried out on an aircraft operated by the appellant company. The witness stated that the course was beneficial to the respondent as he joined with basic qualifications. Once the course was completed the respondent would be suitably qualified to work for any other company dealing with the same aircraft. This witness stated that he thought it fair and reasonable that the deduction of the cost of the training bond was made from the respondent’s salary and the respondent was aware of the position in relation to the training bond. The witness further gave evidence that the respondent made it clear that just before he left his employment he confirmed that he would not be repaying the €5,000 in respect of the training bond. The witness said that he passed on this information to the personnel department. In response to the questions from the Tribunal this witness gave evidence that the deduction from the respondent’s wages was not made within six months of the completion of the training course.
The appellant’s third witness gave evidence that she was the personnel officer *351 for the appellant. She stated that most employees would be in employment for some time before being sent on a training course. In the case of the respondent it was unusual that his first day of employment was the first day of his course. This witness further stated that she was not in employment with the appellant at the time that the respondent was hired. In response to the questions from the Tribunal the appellant’s third witness stated that she had consulted the respondent’s employment file and that it did not give one week’s notice in writing of its proposal to make a deduction from the respondent’s wages in accordance with s.5(iv) of the Act.
This concluded the evidence for the appellant.
Counsel for the appellant made the following submissions.
The appellant was entitled to make a deduction from the respondent’s wages because it was provided for at clause 6 of the employment contract. The respondent had left the employment within the two years from the date of the commencement of the employment contract and had consented by virtue of his signing the contract to the appellant deducting the cost of the training bond from his wages. Counsel then quoted from s.5(1)(b) and (c) of the Act and contended that once the appellant complied with s.5(1) of the Act then the Tribunal was not entitled to examine the rest of that section because the respondent had consented to such deduction by virtue of signing the employment contract.
The Tribunal rejects this submission. It is quite clear that s.11 of the Act not only entitles the Tribunal to consider if the employment contract complies with the Act but it places a strict obligation on it to do so. Section 11 of the Act reads:
“A provision in an agreement (whether a contract of employment) or not and whether made before or after the commencement of this Act) shall be void in so far as it purports to preclude or limit the application of or is inconsistent with, the provisions of this Act”.
Counsel for the appellant further submitted that even if there were an unreasonable term in the contract that it must be challenged elsewhere and not before the Tribunal. She further stated that the appellant had brought proceedings in the District Court which ruled that he employment contract was enforceable and that the Tribunal must take account of this. The Tribunal considered this matter and rejects the submission on the basis that the appellant’s proceedings in the District Court related to the enforceability of the s.6 of the employment contract. This is a separate issue. This Tribunal is charged with the responsibility of ensuring that the Act is complied with and is satisfied that for the reasons given the appellant has not so complied.
Counsel for the appellant also submitted that the training course provided *352 by the employer could not be described as “goods and services” as referred to in s.5(2)(b) of the Act and further contended that since the training course was not a good or did not constitute “any goods or services” then the appellant did not have to comply with the conditions set out in s.5(2) of the Act.
The Tribunal rejects counsel’s submission. The appellant provided training for the respondent so that he could certify work carried out in accordance with airworthiness requirements. This enhanced the qualifications and remuneration of the respondent. In the view of the Tribunal this constituted a provision of a service by the appellant to the respondent within the meaning of s.5(2)(b) of the Act.
The Tribunal then considered whether the appellant was in breach of any other sections of the Act and came to the unanimous conclusion that it clearly was for the following reasons.
Section 5(2)(iv) also requires the employer to give one week’s notice before the making of a deduction from the employee’s wages. Clause 5(2)(iv) states “in case the deduction is in respect of an act or omission of the employee, the employee has been furnished, at least one week before the making of a deduction, with particulars in writing of the act or omission and the amount of the deduction”. As previously stated, the third witness for the appellant stated that one week’s notice of the appellant’s intention of deducting the cost of the training bond from the wages was not given. Indeed the third witness stated that she was “quite sure it (the one week’s notice) wasn’t done”.
Section 5 (2) states “an employer shall not make a deduction from the wages of an employee in respect of …
(i) any goods or services supplied to or provided for the employee by the employer the supply or provision of which is necessary to the employment unless
(ii) the deduction is of an amount that is fair and reasonable having a regard of all the circumstances (including the amount of wages of the employee).”
The Tribunal holds that the deduction from the respondent’s wages was not fair and reasonable and therefore was in breach of this section. The deduction from the respondent’s wages had the effect of paying the respondent no wages in respect of his final period of service, and the appellant failed to give the respondent any notice in writing of this deduction. This was not fair and reasonable behaviour on the part of the Appellant.
Section 5(2)(vii) of the Act obliges the employer (in this case “the appellant”) to make the deduction within six months after the provision of the goods or services. Section 5(2)(vii) reads “the deduction or, if the total amount payable to the employer by the employee in respect of the act or omission or the goods *353 or services is to be paid by means of more than one deduction from the wages of the employee, the first such deduction is made not later than six months after the act or omission becomes known to the employer, or as the case may be, after the provision of the goods or services”.
It is clear that the respondent’s training course was completed by the respondent in January 2003 and the deduction wasn’t made from the wages until June 2004. It is without question therefore that the appellant was in breach of this section.
Counsel for the appellant furnished the Tribunal with two cases. These cases were Pename Ltd v Patterson [1989] I.C.R. 12 and Potter v Hunt Contracts Ltd [1992] I.C.R. 337 (the Tribunal cannot see how these assist the appellant).
Essentially, the appellant is relying on the fact that a clause in the employment contract provides for a deduction and therefore the deduction cannot be unlawful. This is not the law as the Tribunal understand it. The appellant company, in order to make a lawful deduction, must comply with the provisions of the Act. In fact, in Potter v Hunt Contracts Ltd [1992] I.C.R. 337, it was held that an employee’s written promise to repay a loan does not of itself entitle the employer to deduct repayments from the employee’s wages.
For the reasons outlined above the Tribunal is satisfied that the appellant is in breach of the Act and accordingly affirms the decision of the Rights Commissioner.
Carr v. Minister for Education
[2000] IESC 73
Judgment of Mr. Justice Geoghegan delivered the 23rd day of November 2000 [Nem. Diss.]
INTRODUCTORY
1. By an order made by the High Court (Morris P.) on the 25th of August, 1999 the Court granted the applicant orders of certiorari in respect of decisions made by both
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respondents on the 27th of November, 1997 suspending payment of the salary of the applicant as an officer of the second-named defendant, and the Court also made declaratory orders to the same effect, and a consequential order directing the first-named respondent to authorise and the second-named respondent to pay to the applicant all arrears of salary owing from the second-named respondent to the applicant from the 1st of December, 1997 to date. Both respondents have appealed to this Court from these orders.
THE FACTS
2. This case has had a long and complex pre-history and history. To understand the issues involved in this appeal it is necessary to give a brief summary of relevant events before the decisions complained of in relation to suspension of salary were made. The starting point is the appointment of the applicant to be Principal of St. Anne’s Post-Primary School, George’s Quay, in the City of Limerick. This appointment was made in the month of November, 1970. The appointment was governed by written contract a term of which was that the appointment was terminable by three month’s notice in writing from either side. The appointment, however, was not exclusively governed by the written contract as there are statutory provisions in the Vocational Education Acts limiting the power of the Vocational Education Committee to remove appointed officers, and I will be referring to these provisions later on in the judgment. The school in question was permanently closed down in 1976 but as was made clear in a previous judgment of the Supreme Court to which I will be referring, that event of itself and by itself did not bring the employment to an end, in that not only were there statutory limitations on removal but the contract itself provided that the second-named respondent could transfer the applicant as Principal to another school under that respondent’s jurisdiction. Before St. Anne’s school was actually closed in 1976 the applicant was
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suspended in that year under s. 7 of the Vocational Education (Amendment) Act, 1944 pending an inquiry into allegations of insubordination by her. Some four years later by letter of the 25th of July, 1980 the applicant was informed by the second-named respondent that the first-named respondent had decided that the suspension should be terminated and that she should be paid remuneration withheld from her.
3. It is not necessary to go into all the problems which then arose and which eventually led to a case in the High Court and an appeal from there to this court. But in summary, the VEC adopted the approach that the school having been closed down, they could comply with the contract by requiring the applicant to revert to being an ordinary teacher, but giving her the salary which she would have received as Principal if St. Anne’s school had remained in being. When the applicant did not report for duty on a specified date the VEC treated her as having repudiated the contract and refused to pay her from then on. As I have mentioned, she instituted proceedings which ended up in the Supreme Court. The effect of the Supreme Court’s decision was that under the applicant’s contract the obligation of the VEC was either to employ her as Principal of the school to which she had been appointed or:
“whether she liked it or not, unilaterally employ her as the Principal to another school under the Committee’s jurisdiction with the appropriate allowance applicable to such school”.
4. In the judgment of Finlay C.J. it was pointed out that under the written contract there was a power to direct her to revert to her previous status as a teacher but only if her work as Principal was deemed unsatisfactory. It followed from the decision of the Supreme Court therefore that her contract had not been lawfully terminated and she was entitled to full salary up to the date of that decision. The former Chief Justice, however, in delivering the judgment of the Court, observed that if it was impossible for the VEC to offer the applicant an equivalent job
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as Principal because of the absence of a suitable vacancy, then with the consent of the Minister for Education she could be made redundant. It is obvious that Finlay C.J. was not using the word “redundant” in the special context in which the word is used in the Redundancy Acts. He was referring simply to the statutory power of removal of an officer, presumably for good reason with the approval of the Minister. The Supreme Court made a declaration that the applicant was still an officer of the Vocational Education Committee in the position of a principal of a school which was within their jurisdiction and a declaration that she was entitled to be paid the salary from the date on which she was originally suspended giving credit for any payments of salary or in lieu of salary that had been made since that time.
5. It is what happened after that decision that has led to the further proceedings which are now before this court on appeal. Following on the earlier Supreme Court decision of the 17th of October, 1991 Limerick VEC reviewed the position. The following letter was written by their Chief Executive Officer to the Minister for Education on the 16th of July, 1992.
“Re. Supreme Court decision – 17th of October, 1991
Miss L. Carr v. VEC and Others
Dear Minister,
The City of Limerick VEC has been considering the above Decision (copy enclosed) in recent months in consultation with its Legal Advisors.
The Committee, at a Special Meeting held on the 10th of July, 1992 decided unanimously to request your approval to remove Miss Carr from office in accordance with the provisions of s. 23(4) of the Vocational Education Act, 1930.
We enclose copy of Ms. Carr’s signed conditions of service.
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In accordance with the Committee’s decision, I hereby request your approval.
Yours sincerely”.
6. Somewhat strangely the letter was addressed to the then Minister personally, Mr. Séamus Brennan, T.D. and his private secretary replied on his behalf with what might generally be regarded as a holding letter. This was followed up by a letter of the 19th of August, 1992 from the relevant Principal Officer in the Department of Education requesting on behalf of the Minister more details as to the basis for the request for the removal. In particular, the Chief Executive of the VEC was requested to provide details of the duties assigned to Miss Carr since her restoration to the City of Limerick VEC since the 1st of November, 1991 together with confirmation that she had been reporting for duty and an assessment of her performance to date. The Chief Executive replied to the effect that the Committee’s decision was taken after several meetings considering the Supreme Court decision and pointing out that the Minister already had copies of the minutes of those meetings, but nevertheless further enclosing such copies. After some further relatively immaterial correspondence passing between the Department and the Committee a detailed letter was written to the Minister by the Chief Executive of the VEC on the 30th of November, 1992. It is not necessary to set out this rather lengthy letter in full but referring to the “assumption” of Finlay C.J. that a termination of the contract under its terms was equivalent to “removal of an officer” under s. 23(4) of the 1930 Act and therefore required the Minister’s approval. The Chief Executive went on to observe as follows.
“It is by reason of this assumption of the Chief Justice that approval was sought in my letter of the 16th of July ‘to remove Miss Carr from office in accordance with the provisions of
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section 23(4) of the Vocational Education Act, 1930’. I am now advised that my request would have been more correctly stated as ‘to terminate Miss Carr’s appointment in accordance with the terms of her conditions of service or alternatively to remove her from office in accordance with section 23(4) etc.’
7. The Committee’s present position is as follows:-
1. The Committee has no vacancy at present for a position equivalent to that held by Miss Carr prior to her suspension.
2. Even if the Committee had such a vacancy, it feels that it would be very difficult at this time to re-establish a harmonious employer/employee relationship with Miss Carr in view of the events which have happened. She has not, moreover, made any approach to the Committee with a view to resumption of her duties since the date of the Supreme Court judgment.
3. Nevertheless, under the Supreme Court decision, she continues to be an officer of the Committee and will be entitled to salary as such, unless and until her appointment is lawfully terminated.
8. I emphasise that this request of the Committee is not based on any ground of misconduct or unfitness, such as must be established under sections 7 or 8 of the 1944 Act. No such requirement is contained in section 23(4) of the 1930 Act, nor in the relevant provision of Miss Carr’s conditions of service, nor does it appear that any particular reason must be assigned by either party to the contract for the exercise of their contractual rights. However, having regard to the observations of the Chief Justice mentioned above, the approval of the Minister is now sought for exercise by the Committee of the aforementioned contractual rights.
Mise le meas”.
9. A follow-up reminder was sent by the Chief Executive and a holding reply was returned by the Department. A further more urgent follow-up letter was written by the Chief Executive on the 20th of September, 1993 making it clear following a perusal of the Local Government Auditor’s Report that the members of the Committee agreed with the auditor’s comment that “it is imperative that this matter be finalised without further delay”. Again a
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holding letter was written by the Department. A proper reply was, however, finally written on the 4th of November, 1993. That letter read as follows.
“Dear C.E.O.
I refer to your letter of the 30th of November, 1992 concerning your Committee’s request to terminate Ms. Carr’s appointment in accordance with the terms of her conditions of service or alternatively to remove her from office in accordance with section 23(4) of the Vocational Education Act, 1930.
The Minister is advised that If your VEC propose to remove Miss Carr from office pursuant to section 23(4) of the 1930 Act then there must be a ground or reason for the removal. That reason should not be one of the statutory grounds of removal specified in section 8 of the Vocational Education (Amendment) Act, 1944.
If there is no vacancy for a position equivalent to that held by Miss Carr as suggested in your letter of the 30th of November, 1992 then it would be advisable for your VEC to warn Miss Carr in advance of this fact and to request her to take up some alternative position, if that was available.
The Minister is also advised that it would be prudent to engage in a measure of consultation with Miss Carr in advance of a decision being made by your VEC so as to enable her to make submissions in relation thereto.
The Minister is prepared to examine any proposal which your VEC may wish to submit to her in relation to Miss Carr’s continued employment provided that the procedural matters referred to in the preceding paragraphs are adhered to.
In any event a removal from office should allow for the three months time limit stipulated by the contract.
Yours sincerely
Camillus Hogan
Assistant Principal”.
10. That letter elicited a reply from the Chief Executive of the VEC which set out with admirable clarity and impeccable reasoning the position adopted by the Committee. The
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letter mistakenly dated 24th of January, 1993 but obviously intended to be dated 24th of January, 1994 read as follows:
“Re: Lucy Carr v. City of Limerick VEC and Others
A Chara,
I refer to your letter of the 4th of November, 1993 and confirm that the Committee has considered the contents of same in detail and has instructed me to respond as follows:
It is noted that the Minister has been advised that there must be a ground or reason for Miss Carr’s removal pursuant to section 23(4) of the 1930 Act. While the relevant subsection of the Act does not state that a reason is required, the Committee considers the following grounds constitute sufficient reasons for Miss Carr’s removal:-
A) There is no vacancy for a position equivalent to that held by Miss Carr available at the moment.
B) It is felt that the employer/employee relationship between the Committee and Miss Carr has deteriorated to such an extent over the years, as a result of litigation and otherwise, that even if such a position were available it would not be realistically workable.
C) The Committee being a public body, did not, nor does it, consider it just or equitable that it should be continuing to pay Miss Carr’s salary as an officer of the Committee, as effectively there is no job available to her and she is not working.
The Committee is not prepared to request Miss Carr to take up ‘some alternative position’ for the following reasons:
(I) That such an alternative position is not available and
(II) even if it were available it would not be realistically workable for the reasons set out above.
It is quite evident that all attempts to consult with Miss Carr have failed Many years ago both land the Committee’s legal advisor met with Miss Carr briefly in an attempt to consult with her, and the meeting itself was a total non-starter. Evidence was produced in court, showing that Dr. O’Regan, an officer of the Department also made unsuccessful efforts to consult with her. Miss Carr wrote to the Committee, indicating that no effort should be made to consult with her. The Committee considers that the suggestion contained in the fourth paragraph
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of your letter under reply is totally impracticable. Furthermore it is up to Miss Carr to minimise her own losses.
It has always been the Committee’s decision that if the Minister agrees to the Committee’s proposal to remove Miss Carr from office in accordance with section 23(4) then the Committee would give Miss Carr the three months notice of the termination of contract in accordance with the conditions of service agreed between Miss Carr and the Committee. However, if the Department feels that Miss Carr should be formally advised of the Committee’s proposal at this stage then the Committee has no suggestion to the Department informing Miss Carr accordingly.
The above represents the Committee’s firmly held view in this matter and I must point out that unless the Minister’s consent is obtained to remove Miss Carr from office, then the Committee must continue to pay Miss Carr’s salary, which position it finds totally untenable.
Mise le meas”.
11. Apart from a holding letter no response came from the Department until by letter of the 11th of May, 1994, the Chief Executive Officer was informed as follows:
“The Minister is advised that before a final decision is made by your VEC to remove Ms. Carr from office (which decision would then have to receive the approval of the Minister) that Ms. Carr be informed of what is proposed and the reasons for same and requested to make submissions within a reasonable period of time (which period of time should be stated).”
12. There then followed lengthy letters passing between the Chief Executive and the Department to which it is not necessary to refer. The respective respondents got into argument as to the interpretation of the relevant statutory provisions. In fairness to the Department, the Vocational Education Committee, having been crystal clear as to the stand they were adopting and the basis for it up until their letter of the 30th of May, 1994, seemed to lose its way in that letter and as correctly pointed out by the Department turned the legal
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position into confusion. After some further holding correspondence the Committee wrote a letter to the Department on the 24th of July, 1995 more or less acknowledging that the legal position was as stated by the Department. But the Committee went on to emphasise the point which it had always made namely, that there was no vacancy for an equivalent position to Miss Carr’s former office of Principal of St. Anne’s Post-Primary School. They pointed out that it was clear from the judgment of the Supreme Court that in that situation the Committee was entitled to consider the applicant to be redundant and to apply to the Minister for consent to her removal. It would be pointless to review the further correspondence which then took place. It suffices to state the Minister did not give his consent to the removal.
13. Instead the Department decided that the Committee should enter into negotiations with the applicant “with a view to arriving at an agreed solution”. In order to achieve this purpose the Department suggested that there be an agreed facilitator. That suggestion seems to have been made for the first time in a letter of the 6th of September, 1996 from the Department to the Chief Executive. I will return to what happened about this suggestion in due course, but at this stage I think that I should temporarily digress from the correspondence between the Department and the VEC to explain the history up to that point of communications with the applicant herself. The Chief Executive of the VEC sent a letter dated the 24th of July, 1995 by registered post to the applicant warning her of the Committee’s decision to consider removing her from office under section 23(4) of the Vocational Education Act, 1930 and inviting her to make representation. The letter set out the grounds upon which the Committee proposed to consider seeking the applicant’s removal from office by three month’s notice in the following terms:-
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“1. It is impossible for the Committee to offer you a position equivalent to that of Principal of St. Anne’s Post-Primary School because the Committee do not have a vacancy in such a position and
2. Having been requested by the Committee, as directed by the Minister, to resume duty from the commencement of the school year 1980/81 you failed to do so. The Committee for its part has decided not to invite negotiations in relation to its 1980 request referred to above. The reason for this is that the Committee feel that the employer/employee relationship between the Committee and you have deteriorated to such an extent over the years that the re-establishment of a working relationship would be very difficult. Accordingly, the Committee feels that it would not be in the best interests of its schools to attempt to persuade you to take an appointment to an alternative vacancy in a position other than that of Principal which you are not legally bound to accept and which the Committee is not legally bound to offer.”
14. That letter was answered by the applicant by way of a very short reply dated 29th of July, 1995 which read as follows:-
“Dear Sir,
I cannot imagine why you wrote to me on the 24th inst. to tell me what the VEC MIGHT DO, and such a long letter too!
Yours faithfully”
15. It was following on that exchange of correspondence that the VEC sought the consent of the Minister to the termination of the applicant’s employment and as I have already explained the Minister’s ultimate response was to encourage negotiations with the assistance of a facilitator.
16. It is not necessary to cover all the correspondence and documentation relating to the facilitator. It is sufficient to state that the applicant ignored all overtures in this regard. Ultimately, the Minister appointed Mr. Jack Marrinan, former General Secretary of the Garda Representative Association, to perform the function of facilitator. He made strenuous
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efforts to contact the applicant but to no avail. The applicant ignored all communications. Mr. Marrinan ultimately prepared a report. It concluded that the VEC wanted to secure a settlement in the case and that the Committee was prepared to make major concessions for this purpose. But the facilitator pointed out that nothing could be done without the applicant’s co-operation and he effectively concluded that that was never likely to be forthcoming. The tenor of his report was to the effect that the applicant was wholly unreasonable in the attitudes which she was adopting. The report was dated the 12th of March, 1997.
17. I now move to a most important letter written by the Department to the applicant and dated the 30th of July, 1997. The letter read as follows:
“Dear Ms. Carr
You will be aware that for some time now, this Department and the City of Limerick Vocational Education Committee have sought to enter into discussions with you about your return to active employment with the Committee at a level commensurate with the salary you were receiving. You must be aware of a growing concern that you have been and are being paid your salary, yet you omit for whatever reason to enter into any correspondence with your employer.
So that this impasse might be resolved, the Department of Education requested an independent facilitator to try and establish a viable means of communication with you. To this end, Mr. Jack Marrinan, former General Secretary of the Garda Representative Association, agreed to act in this capacity. The enclosed dossier of correspondence illustrates the efforts he made all of which were unsuccessful. For your convenience a list of the said correspondence is included itemising each letter. The report we received from Mr. Marrinan is also included with this letter.
So far, all our efforts have met with total silence on your part. In our letter of the 8th of May, 1997 it was pointed out that your continued non-co-operation may be regarded as misconduct and may be treated as such.
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In the continued absence of any response from you to any of our letters or other efforts to make contact with you, it is the opinion of the Minister for Education that, by making yourself unavailable for discussions on your return to active employment, you have misconducted yourself in relation to your office and you have failed to perform satisfactorily the duties of your office.
In accordance with section 7 of the Vocational Education (Amendment) Act, 1944 the Minister must now consider what disciplinary action to take against you. In these circumstances, and if the Minister must take disciplinary action, it is likely to take the form of suspension of your salary until such time as you enter into constructive discussions about your return to active employment with the Committee. You can be assured that no final determination has been made by the Minister. Before reaching any final conclusion, either on the fact of your misconduct or failure or on the disciplinary action to be taken, the Minister wishes to give you a further opportunity to respond to our request for discussions on your return to work Alternatively, you may wish to make representations on why the Minister should not conclude that you have misconducted yourself or have failed to perform your duties and on why disciplinary action should not be initiated.
Any response or representation to this letter must be made within fourteen days of the date of this letter and addressed to either the writer (Mr. S. O Breacáin, Principal Officer) or to the Secretary of the Department of Education at the above address.
Yours sincerely,
S. O Breacáin,
Principal Officer”.
18. That letter was sent by registered post but delivery was not accepted. Subsequently, it was sent to the applicant’s solicitors who did not respond. Eventually the Department arranged that the VEC would send the letter enclosed with a salary cheque. It would appear therefore that ultimately the applicant did in fact receive that letter.
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19. No response was received by the Department or the VEC to that letter and the following key letter dated the 3rd of November, 1997 was then sent to the applicant with a copy being sent to her solicitors. This is the letter notifying the applicant of the decision of the Minister sought to be impugned in these proceedings and it read as follows:-
“Dear Ms. Carr
I refer to previous correspondence.
As you will be aware, this Department and the City of Limerick Vocational Education Committee have made strenuous efforts to engage you in meaningful discussions in relation to your return to active service for the Committee. None of these efforts have been successful and you continue to ignore the request of your employer and this Department to enter into discussions.
Further to this Department’s letters of July 30th and August 28th, 1997 and in the absence of any reply from you, the Minister has now decided to take disciplinary action against you by suspending payment of your salary until such time as you are prepared to enter into meaningful discussion with the Committee and the Department on your return to work in an appropriate position.
Please also note that if you persist in what appears to be a refusal to discuss your return to work the Minister will have to consider further disciplinary action, including your possible removal from office.
Yours sincerely
S. Ó Breacáin
Principal Officer
Department of Education and Science”.
20. Although that particular letter does not set out the legal basis on foot of which the Minister was purporting to suspend payment of the salary as a disciplinary measure it will be recalled that in the letter of the 30th of July, 1997 cited above it is made perfectly clear that
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the Minister was regarding section 7 of the Vocational Education (Amendment) Act, 1944 as authorising him to suspend salary as a disciplinary measure. I am quite satisfied that at all material times the applicant was entitled to assume that that was the purported legal basis on which the Minister was suspending the salary and that in so far as the VEC thereafter failed to pay the salary it was doing so pursuant to directions from the Department following upon such purported suspension.
21. The letter of the 3rd of November, 1997 at last led to correspondence between the Department and the solicitors for the applicant. It is not necessary to set out this correspondence. It is argumentative both as to the facts and as to the law. The factual arguments, are not relevant to this appeal. For the purposes of these proceedings the importance of the correspondence is the contention by the solicitors for the applicant that as a matter of law the Minister had no power to suspend the applicant’s salary, and in particular had no power to do so under section 7 of the 1944 Act. If the applicant’s solicitors are correct in their contentions then prima facie the applicant is entitled to the orders sought in this judicial review proceeding. I use the word expression “ prima facie ” advisedly in that even if the applicant does have the prima facie entitlement the Court must consider certain other arguments which were made before it as to whether as a matter of discretion such orders ought to be refused and also certain novel arguments relating to the withholding of the salary made by Mr. Crosbie, counsel on behalf of the VEC.
THE LAW
22. There would seem to be no doubt whatsoever but that section 7 of the Vocational Education (Amendment) Act, 1944 conferred no power on the Minister to do what he did in
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suspending the salary of the applicant. The parts of the section which are relevant to these proceedings are subsection (1), (3) and (5). These read as follows:-
“(1) Whenever in respect of the holder of an office under a Vocational Education Committee there is, in the opinion of such Committee or of the Minister, reason to believe that such holder has failed to perform satisfactorily the duties of such office or has misconducted himself in relation to such office or is otherwise unfit to hold such office, such committee or the Minister (as the case may be) may suspend such holder from the performance of the duties of such office while such alleged failure, misconduct, or unfitness is being inquired into and the disciplinary action (if any) to be taken in regard thereto is being determined and such inquiry shall be held as soon as conveniently may be after the date of the suspension.
(3) The Minister may terminate a suspension under this section and every such suspension shall continue until so terminated.
(5) The holder of an office who is suspended under this section shall not be paid any remuneration in respect of such office during the continuance of his suspension and, upon the termination of his suspension, the remuneration which he would, had he not been suspended, have been paid during the period of suspension shall be wholly or partly forfeited, or paid to him, or otherwise disposed of as the Minister shall direct.”
23. It is perfectly obvious from a reading of those subsections that whereas in certain circumstances relating to performance of duties, the Minister may suspend an officer of the VEC pending an inquiry into the matters complained of in which event the salary is suspended, there is no power whatsoever under the section merely to suspend the salary whether on the grounds of unreasonable behaviour by the officer or otherwise. In fairness,
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counsel for the Minister, Mr. O’Reilly, did not really attempt an interpretation of the section that would have permitted suspension of salary only. He merely emphasised that that was how the Minister himself interpreted it originally when he made the decision. He did, I think, also make an argument that suspension of an officer was a more serious disciplinary measure than suspension of the salary and that in some way or other the power to impose the greater penalty impliedly authorised the imposition of a lesser penalty. He did not, however, seriously press that argument nor could he. To rely on a statutory power to suspend salary only it is necessary to point to a statutory provision which expressly permits it. Mr. O’Reilly did also argue that independently of the Act there might have been a common law right to withhold salary. This argument was more fully developed by Mr. Kerr. That argument, however, formed the major submission at the hearing of the appeal by Mr. Crosbie counsel for the VEC and I will consider it in more detail in that context. It would seem quite clear that the Minister cannot possibly for the purposes of this appeal rely on a common law right to suspend salary. At all material times he relied on the statutory power and that continued in the pleadings in the proceedings. But at any rate, it is difficult to see how a common law right to direct withholding of salary could arise. The salary was payable by the VEC under contract even though the Minister funded it. Any rights deriving from the ordinary law of contract cannot avail the Minister whatever about the V.E.C.
24. It was not seriously argued by the VEC that there was any statutory power in the Minister to do what he did. I am satisfied that he had no such power and that subject to the other matters which I have mentioned the orders sought under judicial review would have to be granted.
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25. But Mr. O’Reilly has strongly urged upon the Court that certiorari and mandamus are discretionary remedies and that this Court ought to exercise its discretion by refusing the orders notwithstanding the illegality committed by the Minister because of what he submits was the wholly unreasonable behaviour of the applicant in refusing to co-operate with finding a solution and in failing to enter into any meaningful negotiations. The applicant is particularly criticised for her neglect to co-operate in any way with the facilitator or even to suggest an alternative facilitator or any alternative method of mediation. I do not think that this is a suitable case for this Court to review or restate the principles applicable to the exercise of this discretion. I say this, because I am satisfied that whatever may be the correct formulation of the principles this is a clear case where the court ought not to exercise its discretion against making the orders of certiorari and declarations sought. I will return to the question of whether there would be any basis for refusing to make the order for the payment of the back salary. This was a case where the Minister purported to suspend salary on the basis of the section of an Act which could not conceivably be construed as giving him that authority. It was a decision which by its nature was to have fundamental effects for the applicant in depriving her of her salary. It might be an entirely different matter if there was such a power conferred by the section but the Minister did not adopt completely fair procedures in the exercise of the power or in some other way rendered his exercise defective and capable of being judicially reviewed. There could be circumstances where the unreasonable behaviour of an applicant in that situation would justify the Court in refusing the orders as a matter of discretion. But this is not such a case. This is a case where the decision to suspend had no conceivable statutory basis.
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26. Counsel for the Minister rely on The State (Abenglen Properties Limited) v. Corporation of Dublin [1984] IR 381. O’Higgins C.J at p. 393 of his judgment made the following observation:-
“In the vast majority of cases, however, a person whose legal rights have been infringed may be awarded certiorari ex debito justitiae if he can establish any of the recognised grounds for quashing; but the Court retains a discretion to refuse his application if his conduct has been such as to disentitle him to relief or, I may add, if the relief is not necessary for the protection of those rights. For the Court to act otherwise, almost as of course, once an irregularity or defect is established in the impugned proceedings would be to debase this great remedy.”
27. In this connection I think it instructive to cite also a passage from the judgment of Henchy J. in the same case at p. 401.
“It was strenuously argued on behalf of Abenglen on the basis of certain dicta in The State (Vozza) v. O’Floinn that, if the respondent’s decision was made in excess of jurisdiction, certiorari should issue ex debito justitiae and not as a matter of discretion. I cannot accede to that argument.
The distinctive feature of Vozza’s case is that it was a criminal case which resulted in the conviction of Vozza in peculiarly unfair circumstances which amounted to a breach of his constitutional rights and of the requirements of natural justice.”
28. Henchy J. goes on to recite the facts in Vozza’ s case and to draw the conclusion that the order which was quashed was a conviction for a criminal offence. He went on to say that the reasoning in the relevant judgments had no bearing on the Abenglen case where the decision questioned was that of a planning authority purporting to exercise a civil jurisdiction of an administrative nature. He expressed the view that as a matter of discretion certiorari should be refused for two reasons. His first reason was that its only purpose, namely, a
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development permission by default, was in fact an unattainable object and his second reason was that the applicant ought to have gone the route of appeal rather than certiorari. It would seem to me that these are essentially procedural matters. In so far as the applicant was acting unreasonably it was procedural unreasonableness. In this case, counsel for the Minister is invoking alleged substantive unreasonableness. It may well be that there are circumstances where that type of unreasonableness could deprive an applicant of the discretionary remedy but this is not one of them. For the Court to refuse certiorari would be to condone an open illegality by the Minister in the face of the wording of the statute. Put otherwise, the antecedent unreasonable behaviour of the applicant of which the Minister was fully aware, would confer on the Minister a statutory power which was not established by the section upon which the validity of his decision depended.
29. If one was just to rely on the head note counsel for the State might be on stronger grounds in relying on Aherne v. The Minister for Industry and Commerce (No. 2) [1991] 1 IR 462. That was a decision of the High Court (Blayney J.) The unreasonableness relied on in that case was in a sense procedural also. It certainly was very different from this case. But anything that Blayney J. had to say about it would appear to be obiter dicta. The actual basis of his refusal of certiorari was that “even if the legal rights of the applicant were infringed in the present case, the order sought is not necessary for the protection of those rights.” (See p. 470)
30. I now turn to the arguments made by Mr. Crosbie, counsel for the Vocational Education Committee. Mr. Crosbie makes the ingenious argument that the applicant was in a contractual relationship with the Vocational Education Committee and that under the implied terms of that contract the VEC was not obliged to pay salary if the applicant was not
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performing her side of the contract. Mr. Crosbie acknowledges, of course, that she could not perform the functions of Principal of St. Anne’s School as that school was long ago closed, but he said that in those circumstances it was an implied term of her contract that she should leave herself open to reasonable negotiations with her employer as to alternative arrangements for her if her contract was not to be terminated. One can argue backwards and forwards as to who should have started these negotiations but I think that for the purposes of Mr. Crosbie’s argument it is sufficient to rely on the applicant’s total non-co-operation with the facilitator or even the suggested appointment of a facilitator. There is undoubtedly authority to the effect that in some circumstances an employer may. under the terms of the contract, withhold pay if the corresponding dependent obligations of the employee are not performed. This is separate from and independent of any possible right of counterclaim, cross-action or setoff on the part of an employer in respect of breaches of contract by the employee. Before I refer to any authority on this matter I should point out that Mr. Crosbie’s cogent and impressive arguments do not appear to be based on any formal ground of opposition set out in the statement of opposition delivered and filed on behalf of the VEC. However, well-founded the arguments may be they cannot, for that reason, be accepted as a substantive answer to the application. But this does not mean that they are irrelevant because they might arguably form a basis on which the Court, as a matter of discretion, would refuse the order for payment of the back-monies for salary even if the order of certiorari was granted.
31. No relevant Irish authority on Mr. Crosbie’s argument was cited to the Court and of the other authorities it would seem to me that it is only necessary to refer to one, that is to say, Miles v. Wakefield Metropolitan District Council [1987] AC 539 . This was a decision of the House of Lords and the unanimous view of their Lordships was expressed in the
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speeches of Lord Templeman and Lord Oliver of Aylmerton. But it is to the speech of the latter which I will refer because it is in that speech that there is a closely reasoned analysis of the rights of an employer to deduct pay for non-performance by an employee independently of any right of counterclaim or set-off. Counsel for the plaintiff, a Mr. Sedley, in that case had argued before the Appellate Committee that there were a number of authorities in support of the proposition that an employer under a contract of employment had no right to withhold any part of salary for non-performance by an employee. He submitted that in a case where an employee was in breach of the terms of his employment, the employer had only two options. Lord Oliver at p. 566 of his speech then sets out counsel’s development of that submission.
“He may, if the failure to carry out contractual duties is sufficiently serious, treat it as a repudiatory breach of contract and accept the repudiation, thus bringing the contract to an end and excusing himself from further performance of his own obligation to pay the contractual wage or salary. Alternatively, he may affirm the contract and sue for damages for the breach which has occurred. That claim is one which, if he is sued by the employee for wages, he can exert by means of a counterclaim or setoff so that effectively he can, in practice, make a deduction from the employee’s wages. If he does, however, he must be prepared to justify the deduction by reference to the damage which he has suffered”.
32. The counsel went on to cite authorities which he said supported that proposition.
33. However at p. 574 of the report Lord Oliver sets out the submission in this regard of counsel for the defendant in the following terms:-
“Thus it is Mr. Irvine’s submission on behalf of the Council that there is no necessity to engage in a tortuous process of seeing whether the Council can establish by way of set-off some valid counterclaim for damages quantified so as to equal or exceed the amount of the plaintiff’s claim. The plaintiff, he
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submits, fails at an earlier stage because he simply is not able to aver and prove that he was ready and willing to perform the services which formed the consideration for the payment claimed and on the performance of which it depended His claim simply fails for want of proof of an essential allegation.”
34. Lord Oliver then observed on the same page that:
“the essential question is whether what Mr. Irvine has termed the theory of interdependent obligation is consistent with the authorities relied upon by Mr. Sedley in support of his proposition that, short of accepting the employee’s breach as a repudiation determining the contract altogether, there is no way in which an employer can resist a claim for the full contractual remuneration other. than the establishment of a counterclaim for damages.”
35. Lord Oliver, while conceding that he did not find the question an easy one came down in favour of Mr. Irvine’s submissions.
36. It is certainly open to argument that the Court should imply a term in the contract of employment between the VEC and the applicant requiring reasonable openness to negotiation as suggested by Mr. Crosbie. If the Court were now to consider that matter and find in favour of Mr. Crosbie’s argument it might be tempting to refuse as a matter of discretion the consequential order for the payment of the back salary and allow that matter to be litigated as part of an ordinary civil action for the recovery of that salary. The VEC could then make the defence suggested by Mr. Crosbie and additionally or alternatively claim set-off or counterclaim for damages for breach of contract. However, I have come to the conclusion that it would not be desirable for this Court to succumb to that temptation. It is of paramount importance that the Court should vindicate the applicant in her correct allegation that the Minister acted wholly ultra vires the statute in suspending her salary and merely to
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quash that decision without making the consequential order for the payment of the salary due would not be a proper vindication of the applicant’s rights.
37. However, even if the order for the payment of the back salary made by the High Court is affirmed by this Court, I see no reason why the Limerick VEC would be precluded from suing the applicant in the ordinary civil courts for damages for breach of her contract if the Committee is advised that she was guilty of such breach. The effect of the orders of the High Court which I suggest should be upheld will be that the Committee will be permanently precluded in relation to the back salary from making the kind of defence discussed by Lord Oliver of Aylmerton in Miles v. Wakefield MDC but this in no way precludes the Committee from instituting its own action for damages for breach of contract. Furthermore it will be open to the Committee to consider whether it might be entitled to withhold future salary on the principles recognised in Miles v. Wakefield MDC .
38. Although it does not directly arise, I think that I should also make clear that nothing in this judgment is in any way intended to contradict or modify the view of this Court in the earlier appeal as expressed by Finlay C.J. that the applicant can effectively be made redundant and her employment with the VEC terminated with the consent of the Minister using the machinery of s. 23(4) of the Vocational Education Act, 1930. I should also add in this connection as there was some confusion about it in court that s. 8 of the 1944 Act would seem to be irrelevant. That section concerns removal from office by the Minister himself for certain statutory grounds set out in the section.
39. For the reasons, therefore, which I have indicated, I would dismiss the appeal and affirm the order of the High Court.
Histon -v- Shannon Foynes Port Company
[2006] IEHC 190 (15 June 2006)
Judgment of Ms. Justice Finlay Geoghegan delivered the 15th day of June, 2006.
Background to motion
The plaintiff is the former harbour master of the Foynes Port Company. The Harbours (Amendment) Act, 2000 amalgamated the former harbours of Foynes Port Company and Shannon Estuary Port Company. The defendant is the harbour authority for the new amalgamated harbours. One office of harbour master of the amalgamated harbours was created. This was advertised and the former harbour master of the Shannon Estuary Port Company was the successful applicant. Pursuant to the provisions of the Harbours (Amendment) Act, 2000, the plaintiff transferred into the employment of the defendant. His subsequent position within the defendant was then governed by s. 43(4)(c) of the Harbours Act, 1996, as inserted by s. 1 of the Harbours (Amendment) Act, 2000, which provides:
“Where the chief executive or the harbour master of a transferor company transfers into the employment of the transferee company, then nothing in paragraph (a) or in the provisions applied by that section shall be construed as requiring their appointment as chief executive or harbour master, respectively, of the transferee company but this paragraph shall not otherwise be construed as affecting the scales of pay, conditions of service and terms of office of the persons concerned.”
A dispute then ensued between the plaintiff and the chief executive of the defendant which culminated in the defendant purporting to dismiss the plaintiff on the 21st September, 2001.
The plaintiff commenced plenary proceedings (2001 No. 14243P) on the 24th September, 2001, against the defendant essentially challenging the validity of that purported dismissal and seeking declarations, injunctions and other consequential relief.
In the High Court, by order of the 20th November, 2003, Smyth J. dismissed all of the plaintiff’s claims save a claim in relation to arrears of salary up to the 21st September, 2001, and a claim in relation to pension entitlements. Judgment by Smyth J. was delivered on Tuesday, the 15th July, 2003, and a transcript of same is available.
The plaintiff appealed so much of the judgment and order of the High Court as dismissed the plaintiff’s claims. The defendant cross-appealed from that part of the judgment and order which granted reliefs to the plaintiff. It is not clear to me whether the defendant’s appeal proceeded and nothing turns on that for the purposes of this motion or judgment.
On the plaintiff’s appeal the Supreme Court, on the 13th January, 2005, made the following order:
“IT WAS ORDERED AND ADJUDGED that the said Appeal be allowed and that so much of the said Judgment and Order of the High Court as dismissed part of the Plaintiff’s case be set aside and in lieu thereof the Court DOTH DECLARE that the Plaintiff has not been validly removed from office in the employment of the Defendant.”
A single judgment was delivered by Geoghegan J. (with whom Fennelly and Kearns JJ. agreed). In that judgment Geoghegan J., having referred to the particular reliefs sought by the plaintiff, stated at p. 6:
“However, having regard to the way the case was argued both in the High Court and in this Court, I have come to the conclusion that the real issue is whether the appellant is still in office in the Company or not. It is that issue which I intend to address.”
One of the arguments put forward on behalf of the plaintiff was that, pursuant to the relevant statutory provisions, he could not be removed from office without the consent of the Minister for the Marine and that no such consent was sought or obtained. On that issue Geoghegan J. concluded at p. 14:
“Having regard to the view which I have taken on the interpretation of section 39 of the 1996 Act, it necessarily follows that notwithstanding that the appellant ceased to be a harbour master he continued to have officer status and continued to be in a position from which he could not be dismissed without the sanction of the Minister for the Marine. It seems clear, therefore, that he has never been validly removed and is still in office.”
At the conclusion of the judgment at p. 21 he further stated:
“I would allow the appeal in the sense that I would set aside the order of the High Court and substitute for it a declaration that the appellant has not been validly removed from office in the employment of the respondent. I would not grant any other relief.”
The matter was listed again before the Supreme Court on the 13th January, 2005. Primarily it would appear to deal with the issue of costs. Whilst there is some dispute between the parties as to precisely what took place on that day, it appears common case that counsel for the plaintiff tried to raise, in addition to costs, the entitlement of the plaintiff to pay after the date of purported termination of employment. However, following submissions on behalf of the defendant, the Court indicated that they were not expressing any view on the plaintiff’s entitlement to such pay and that this could be pursued in new proceedings.
The present proceedings are summary proceedings commenced by the plaintiff on the 15th February, 2005. In the special endorsement of claim it is pleaded:
1. At all material times the Plaintiff is and was an officer in the employment of the Defendant.
2. Arrears of salary are due and owing to the Plaintiff by the Defendant in the sum of in or about €376,458-57 in respect of the period 22nd September, 2001, to 16th December, 2004, inclusive, full particulars of which have been furnished to the Defendant.
3. The Plaintiff has requested payment of the said sum but the Defendant has failed, refused and neglected to pay the same.
And the plaintiff’s claim is for:
Judgment in the sum of €376,458.57 being a debt due and owing to the Plaintiff by the Defendant;
Interest pursuant to the Courts Act, 1981;
And the cost of the proceedings;
I was informed by counsel in the course of the hearing that the reason the plaintiff’s claim is limited to the period up to the 16th December, 2005, is that in respect of the period subsequent to the Supreme Court judgment the defendant has recommenced paying to the plaintiff his salary.
The affidavit of the plaintiff seeking liberty to enter final judgment is short and simply states that he is and was at all material times an officer in the employment with the defendant and that there are arrears of salary due in respect of the amount and dates already set out above.
A replying affidavit to the application for liberty to enter judgment was sworn on behalf of the defendant by its Chief Executive, Mr. Byrne. Having set out a history he stated at para. 6:
“I say and believe and am advised by Counsel that the position in this case is as follows:-
(a) While the Plaintiff succeeded in setting aside the Order and Judgment of the High court, as I have recorded aforesaid, the Supreme Court made no pronouncement one way or the other in relation to any alleged entitlement on the Plaintiff’s part to arrears of salary from the date of his dismissal although this is the basis for the Plaintiff’s present claim before this Honourable Court. Moreover, when the Plaintiff’s Counsel sought directions as to the Plaintiff’s entitlement to arrears of salary when the matter came before the Supreme Court for mention on the 13th of January 2005, the Supreme Court made it clear that this was not a matter for adjudication by them. I beg to refer to the Defendants Solicitors note of the exchanges on this occasion upon which pinned together and marked with the letter “B”, I have endorsed my name prior to the swearing hereof. I say further and am advised by Counsel that the (sic) predicated on the judgment of Mr. Justice Smyth and in particular his express finding that the Plaintiff was 75% responsible for his dismissal.
(b) Furthermore, it is my belief that the Judgment of the Supreme Court does not assist the Plaintiff in any respect in relation to his alleged claim for arrears of salary having regard to his conduct as chronicled in the Judgment of Mr. Justice Smyth. However even if I am incorrect in his assertion, I believe that this matter should be sent forward for Plenary hearing so that the Plaintiff’s alleged entitlements, if any, can be definitely ascertained. I would repeat that the Supreme Court’s attitude towards the Plaintiff’s alleged claim for arrears of salary is exemplified by the exchanges which took place on the 13th of January 2005 while I am advised by Counsel that the refusal of the Court to accede to the application made by Counsel for the Plaintiff for the discharge of arrears of remuneration by the Defendant is the strongest possible indicator of the views of that Court to the Plaintiff’s alleged entitlements.
(c) I say and believe and am so advised that the Defendant has a full bona fide defence to the Plaintiff’s alleged claim herein.”
The application for liberty to enter a final judgment came on before MacMenamin J. in the High Court on the 17th February, 2006. It appears that on such application counsel characterised the defence sought to be made as one of contributory negligence. An issue then arose as to whether, as a matter of law, contributory negligence was capable of being a defence to the plaintiff’s claim in the summary proceedings. MacMenamin J. directed the trial of that question as a preliminary issue. A notice of motion was then issued seeking the determination of more than one issue. When the matter commenced before me it was agreed that the issue which was to be determined as a preliminary issue pursuant to the order of MacMenamin J. was:
“As a matter of law, is contributory negligence capable of being a defence to the plaintiff’s claim?”
At the commencement of submissions it appeared that there was some dispute as to what was the nature of the contributory negligence being alleged by or on behalf of the defendant. Accordingly, I directed that the defendant should set out the particulars of contributory negligence which they submitted were, as a matter of law, capable of being a defence to the plaintiff’s claim in the summary proceedings. The defendant delivered particulars on the next morning, the 26th April, 2006, which commences with the following:
“The plaintiff’s several acts and omissions as particularised hereunder contributed to the Defendant’s breach of statute. This breach of statute was impugned in the judgment of the Supreme Court. Since the Plaintiff’s loss of salary derived from the termination of his appointment, his alleged entitlement to arrears of salary is inextricably bound up with his removal from office. In the premises, the Defendant relies on the several matters set out hereunder as evidencing the Plaintiff’s contributory negligence which said matters are recorded inter alia – ”
The defendant then cited certain correspondence, the contents of the judgment of Smyth J., the judgment of the Supreme Court and the pleadings in the earlier proceedings and then listed specific matters in sixteen paragraphs. Counsel accepted that the more general matters referred to were not appropriate and that the defendant should be confined to relying upon the matters referred to in paras. 1 to 16. It was then agreed that the issue which was to be determined on the hearing of the preliminary issue should be:
“As a matter of law, is contributory negligence as alleged in paragraphs 1 to 16 of the defendant’s particulars dated 26th April, 2006 capable of being a defence to the plaintiff’s claim.”
Paragraphs 1 to 15 inclusive of the particulars set out allegedly negligent behaviour (some of which is stated to be so found by Smyth J. in his judgment) in the period prior to the plaintiff’s purported dismissal on the 21st September, 2001. Paragraph 16 is an allegation of a failure to mitigate after the “date of his removal from office to the conclusion of his proceedings in the Supreme Court”.
The defendant in its submissions before me sought to continue to rely on certain findings in the judgment of Smyth J. and in particular a finding at p. 20 of the judgment in the following terms:
“The Plaintiff’s conduct amounted to a repudiatory breach of a kind that amounted to such total non-performance that the Defendant was entitled to terminate it. Even if I am wrong in the views hereinbefore expressed and the issue were one of negligence, I do not conceive of any circumstance on the evidence before me that the Plaintiff could not be held to be ever less than 50% guilty of contributory negligence and, in my judgment, could not even be said to liable (sic) for any less than 75% of contributory negligence for the fate that befell him.”
Insofar as the above are findings, they form part of the justification for the dismissal of the plaintiff’s claim by Smyth J. and, as such, have been set aside pursuant to the order of the Supreme Court of the 13th January, 2005. However, having regard to my conclusions as set out below nothing would appear to turn on this.
Defence of contributory negligence
Contributory negligence is governed by s. 34(1) of the Civil Liability Act, 1961. This provides:
“34. —(1) Where, in any action brought by one person in respect of a wrong committed by any other person, it is proved that the damage suffered by the plaintiff was caused partly by the negligence or want of care of the plaintiff or of one for whose acts he is responsible (in this Part called contributory negligence) and partly by the wrong of the defendant, the damages recoverable in respect of the said wrong shall be reduced by such amount as the court thinks just and equitable having regard to the degrees fault of the plaintiff and defendant: provided that—
…”
The essence of the plaintiff’s submission is that s. 34(1) does not apply to the plaintiff’s claim in these proceedings. The plaintiff’s claim is a claim for salary due and owing to him in respect of a period for which he was an officer of the defendant (as so declared by the Supreme Court) and for which he has not received his salary which he asserts is an incidence or benefit of the office. It is submitted that the plaintiff is not making any claim in these proceedings in respect of damage suffered by him in respect of a wrong alleged to have been committed by the defendant.
Counsel were unable to find any existing authority precisely on point. The submission made on behalf of the plaintiff that s. 34(1) is confined to claims made in respect of damage allegedly suffered by a plaintiff by reason of alleged wrongs (i.e. a tort, breach of contract or breach of trust in accordance with s. 2 of the Act of 1961) is correct. It is of the essence of s. 34(1) that the damage allegedly suffered by the plaintiff is caused partly by the negligence or want of care of the plaintiff and partly by the wrong of the defendant. This presupposes that the claim must be on in respect of damage allegedly suffered by the plaintiff by reason of an alleged wrong (as defined) of the defendant.
The present claim of the plaintiff is brought on a summary summons and is a claim for a debt allegedly due by the defendant to the plaintiff. The plaintiff is not making any claim for damages in respect of loss or damage suffered by him by reason of an alleged wrong (i.e. tort, breach of contract or breach of trust) of the defendant. In so proceeding, the plaintiff may have limited his claim but it appears to me to follow that in making such claim against the defendant he has excluded the application of s. 34 of the Act of 1961 to the claim made.
Counsel for the defendant sought to rely on a number of authorities and in particular referred the Court to the decision of Gavin Duffy J. in Cox v. Electricity Supply Board (No. 3) [1944] I.R. 81, McCord v. Electricity Supply Board [1980] I.L.R.M. 153 and Myles v. Wakefield Metropolitan District Council [1987] AC 539. It does not appear to me that any of these judgments assist the respondent in relation to the only issue which has to be determined on this preliminary issue.
I was also referred by counsel for both parties to the decision of the Supreme Court in Carr v. City of Limerick V.E.C. [2000] E.L.R.57 and in particular to an extract from the judgment of the former Chief Justice, Finlay C.J., at p. 77. Again, it does not appear to me to assist on the single issue before me.
Counsel for the defendant laid particular emphasis on the decision in McCord v. E.S.B. As appears from p. 155 in the judgment of O’Higgins C.J., the claim of the plaintiff in those proceedings was a claim for damages for breach of contract and hence the reference to contributory negligence of the plaintiff is unsurprising having regard to the terms of s. 34(1) of the Act of 1961.
Accordingly, I would answer the agreed question to be determined as a preliminary issue as follows:
Contributory negligence, as alleged in paras. 1 to 16 of the defendant’s particulars dated the 26th April, 2006, is not, as a matter of law capable of being a defence to the plaintiff’s claim herein.
I wish to add an observation in relation to the particulars of failure to mitigate in not seeking alternative employment at para. 16 of the particulars delivered by the defendant. Section 34(2)(b) of the Act of 1961 provides:
“A negligent or careless failure to mitigate damage shall be deemed to be contributory negligence in respect of the amount by which such damage exceeds the damage which would otherwise have occurred.”
It is presumably by reason of this sub-section that the defendant included as a particular of contributory negligence the failure to mitigate by not seeking alternative employment. This decision only pertains to the absence of a defence of contributory negligence under s. 34 of the Act of 1961. On this motion, I am not determining either the entitlement of the defendant at this stage in the proceedings to seek to raise any other objection to the plaintiff’s application for liberty to enter a final judgment or its entitlement to raise any other defence to the plaintiff’s claim for the debt alleged to be due to him.
Daniels & Anor v Lloyds Bank Plc & Anor
Amend Bonus Scheme
[2018] EWHC 660 (Comm) (27 March 2018)
Mrs Justice Cockerill:
Introduction and Route Map
In this application two former executive directors and employees of the Defendants, Mr Daniels and Mr Tate, seek summary judgment on their claims against the Defendants in relation to Integration Awards under the Bank’s Long-Term Incentive Plan (the “LTIP”). They say that they met the targets specified in the awards made to them, that shares therefore vested in early 2012 but that the Defendants did not (as they should have done) transfer the shares to them.
The Defendants have pleaded defences that they were permitted to withhold the shares because of a discretionary rule in the rules of the LTIP and that either they exercised the power under this rule validly or that, if they did not, an exclusion clause in the rules means that the Claimants cannot claim for any loss.
I will consider the issues under the following headings:
i) Factual Background: Paragraphs 4-46
ii) The Issues: Paragraph 47
iii) Legal Tests for Summary Judgment: Paragraphs 48-49
iv) Issue 1 – Was the addition of Rule 6.4 to the LTIP Rules pursuant to Rule 17 valid?: Paragraphs 50-117
v) Issue 2 – Did the Integration Awards vest?: Paragraphs 118-154
vi) Issue 3 – Was the discretion under Rule 6.4 unlawfully exercised?: Paragraphs 155-171
vii) Issue 4: Does Rule 15.7 prevent the Claimants seeking relief?: Paragraphs 172-184
viii) Issue 5: The Claimants’ Agreements: Paragraphs 186-207
ix) Conclusion: Paragraph 208.
Factual Background
The Parties and their roles
The First Claimant (Mr Daniels) was employed as Chief Executive Officer of the Second Defendant (then known as Lloyds TSB Group Plc) in October 2001. On 20 September 2010, the First Claimant and the Second Defendant entered into Heads of Terms relating to the retirement and cessation of his employment (“Heads of Terms”). He retired as Chief Executive Officer in March 2011.
The Second Claimant (Mr Tate) was originally employed by the First Defendant in August 2003 as Managing Director, Corporate Banking. He later became Acting Group Director, Wholesale & International Banking, in April 2004, and was appointed Group Executive Director, Wholesale & International Banking, on 1 August 2004. On 2 February 2012 he and the First Defendant entered into a Compromise Agreement in relation to his employment. Pursuant to the terms of that agreement, he retired from his position on 31 January 2013.
In 2006, the Second Defendant introduced a new long-term incentive plan (the “2006 LTIP”). The purpose of the 2006 LTIP was to deliver shareholder value through linking the receipt of shares to an improvement in the performance of the Second Defendant over a three-year period. The 2006 LTIP was amended on several occasions following its introduction; inter alia to implement regulatory changes. Only one of those amendments is relevant here. The 2006 LTIP was amended on 22 February 2012 (the “2012 Amendment”). A rule introduced by this amendment “Rule 6.4” is at the heart of the dispute before me.
The Defendants say that this amendment was to reflect the changing regulatory landscape within the financial services industry, following the financial crisis of 2008. The Financial Services Authority (now the Financial Conduct Authority) introduced a remuneration code (the “Remuneration Code”) which sought to reform the approach of financial institutions to risk and performance. The Remuneration Code was updated on 1 January 2011 to reflect the Capital Requirements Directive III (2006/48/EC and 2006/49/EC) which imposed obligations preventing the rewarding of excessive risk-taking by introducing concepts of performance adjustment and malus. By the 2012 Amendment provisions were included to allow for forfeiture of Awards and under Rule 6.4 “Other Adjustments”.
The relevant rules
The rules of the LTIP (the “LTIP Rules”) provided for the grant of “Conditional Awards” of shares (a conditional right to acquire shares granted under the Plan), which would vest in the employee participant if specified “Performance Conditions” were satisfied. In particular:
“Rule 1.4:
Performance Conditions
When granting an Award, the Company may make its Vesting conditional on the satisfaction of one or more conditions recommended by the Committee linked to the performance of the Company. A Performance Condition must be objective and specified at the Award Date and may provide that an Award will lapse if a Performance Condition is not satisfied.
Rule 1.5:
Other conditions
The Company may impose other conditions when granting an Award. Any such condition must be objective, specified at the Award Date and may provide that an Award will lapse if it is not satisfied.”
The “Award Date” is defined as the date which “the Committee” sets for the grant of an Award. “Committee” is defined as “a duly authorised committee of the board of directors of the Company”.
Where an Award was subject to a Performance Condition, the Committee would determine whether that Performance Condition had been satisfied as soon as reasonably practicable after the end of the Performance Period. Rule 6.1 (as amended in 2012 – amendments in underline) provided:
“Where an Award is subject to a Performance Condition, as soon as reasonably practicable after the end of the Performance Period, the Committee will determine whether and to what extent any Performance Condition or any other condition under rule 1.5 (Other conditions) has been satisfied and if any adjustment is to be made under rule 6.4.”
If the Committee determined that the Performance Condition was satisfied, the Conditional Award vested in the employee participant (Rule 6.2).
“Where an Award is subject to a Performance Condition, [omitted], an Award Vests, to the extent determined under rule 6.1 above, on the date on which the Committee makes its determination under rule 6.1 or, if on that date a Dealing Restriction applies, the first day following the date on which the Dealing Restriction ceases to apply”.
“Vesting” is defined as “a Participant becoming entitled to have the Shares transferred to him subject to these rules.”
The consequence of this provision was that (at least prior to 2012) the employee participants’ entitlement to the Conditional Award depended solely on the satisfaction of the Performance Conditions: neither the Remuneration Committee, nor any other body at the Bank, had the discretion to refuse to honour a Conditional Award if the Performance Condition had been satisfied.
However, in February 2012 the new Rule 6.4 was adopted which provided:
“The Committee may adjust downwards (including to nil) the number of Shares in respect of which an Award Vests if in their discretion they determine that the performance of the Company, any Member of the Group, any business area or team and the conduct, capability or performance of the Participant justifies an adjustment.”
Once an Award had vested, the LTIP Rules provided at Rule 7.1 that:
“the Company will arrange … for the transfer … or issue to or to the order of the Participant of the number of Shares in respect of which the Award has Vested”.
Thus prior to 2012 there was no discretion in the Board, the Remuneration Committee or anyone else to decide that shares should not be transferred or issued to the employee participant once the Award had vested. It was ultimately common ground that nothing changed in this respect by virtue of the 2012 Amendment.
The LTIP Rules also contained an exclusion at Rule 15.7 in the following terms:
“15.7 No Employee has any right to compensation for any loss in relation to the Plan, including any loss in relation to:
15.7.1 any loss or reduction of rights or expectations under the Plan in any circumstances…
15.7.2 any exercise of a discretion or a decision taken in relation to an Award or to the Plan, or any failure to exercise a discretion or take a decision.”
Finally – and very importantly for the argument which has been deployed before me – Rule 17.1 provided:
“17 Changing the Plan and termination
17.1 Committee’s powers
Except as described in the rest of this rule 17, the Committee may at any time change the Plan in any way.”
The rule then goes on to provide in Rules 17.2 and 17.3 that changes to the advantage of participants must be approved by the Company in general meeting, that “minor changes” to benefit the administration of the Plan to comply with or take account of any proposed or existing or changed legislation or for tax purposes need not be approved by the Company in general meeting and that “the Committee may give written notice of any changes made to any Participant affected.”
The factual backdrop
In or about January 2009, the Bank acquired HBOS plc (“HBOS”). As can be readily imagined, integration of HBOS into the Defendant was a major undertaking, requiring extensive strategic planning and managed execution. In April and May 2009, the Second Defendant made conditional awards of shares under the 2006 LTIP to 217 employees, including both Claimants, in relation to performance of the on-going integration of HBOS plc within the Second Defendant’s business (the “Integration Awards”).
Thus, on 8 April 2009, the Bank wrote to Mr Daniels, informing him that he had been granted two awards under the LTIP. One was an LTIP award of 1,714,522 shares geared to the Bank’s financial progress and profitability (which forms no part of this claim and which need not be considered further) and one was the Integration Award which was of 1,143,014 shares under the LTIP. The letter stated (as material):
“The receipt of shares under these awards, in 2012, is subject to the satisfaction of performance conditions and these are summarised in the attached appendix.
The more detailed performance conditions, including the performance condition metrics and thresholds for vesting, will be sent to you, in due course, when the detail has been agreed by the Remuneration Committee…”
The Performance Conditions appended to that letter stated that the release of 50% of the shares would be “dependent on the achievement of target run-rate synergy savings in 2009 and 2010 as well as the achievement of sustainable synergy savings of £1.5 billion by the end of 2011” and the release of the remaining 50% of the shares would be “dependent on the outcome of a Balanced Scorecard of non-financial measures of the success of the integration in each of 2009, 2010 and 2011”.
A certificate headed “2009 Integration Award Certificate” stating the date of award and the number of shares awarded under the 2006 LTIP was duly issued to each Claimant. It stated that the participation in the Plan was subject to the rules of the Plan which could be amended, suspended or terminated at any time and that there was no entitlement to compensation or any other benefit in respect of the plan. It also stated: “Receipt of the shares is conditional upon satisfaction of the performance conditions which are summarised in the booklet accompanying this certificate”.
Mr Tate, who was conditionally awarded 706,791 Integration Award shares, received materially identical documentation.
The Performance Conditions were set out in greater detail in a document entitled “Performance Conditions for Integration Awards made on 29 May 2009” (the “Detailed Performance Conditions”). This document specified that:
i) The 50% of the Award that was dependent on a balanced scorecard of non-financial measures would be broken down into three equally weighted annual tranches. The employee participant would “bank” each tranche if, in the relevant year, the Bank had satisfied certain specified metrics designed to measure the synergies achieved as a result of the acquisition of HBOS.
ii) The 50% of the Award that was dependent on financial measures of synergy would also be broken down into three annual tranches. The employee participant would “bank” each tranche if:
a) for 2009 and 2010, the Bank satisfied “individual cumulative run rate targets based on the trajectory to meet the 2011 targets”;
b) for 2011, the Bank had achieved cumulative synergies of £1.5bn by the end of 2011 as a result of the acquisition. The Award would vest at the maximum level if £2bn of synergies had been achieved by the end of 2011.
On 8 July 2009, the Bank wrote to Mr Daniels to inform him that his Award had been increased to 1,496,843 shares (Mr Tate’s Integration Award was adjusted to 925,583) in order to compensate for the dilutive effect of a rights issue. The letter further stated that “The awards are still subject to the performance conditions, as agreed by the remuneration committee, so the adjusted number of shares shown above is the maximum number of shares that you would receive if the performance conditions were to be met in full and you are still employed within Lloyds Banking Group at the time of vesting”. The Bank subsequently further increased Mr Daniels’ Award to 2,304,135 shares to compensate for further dilution. Mr Tate’s Award was adjusted to 1,424,778 shares.
On 25 February 2010, the Bank’s Remuneration Committee determined that the Performance Conditions for the 2009 tranche of the Award had been satisfied. This was communicated to the Claimants in April 2010.
In September 2010, it was announced that Mr Daniels would retire as chief executive in a year’s time.
On 20 September 2010, Mr Daniels agreed heads of terms for his retirement with the Bank (the “Heads of Terms”). The Heads of Terms stated that certain of their sections (not including the LTIP section) were not legally binding. They said that in relation to LTIP the summary was “subject to the rules of [the] plan”. They also said that:
“in relation to the LTIP … the summary of the treatment that will apply to the Executive’s options and awards under these plans as set out in these Heads of Terms is subject to the rules of each plan and assumes that the Executive retires on the terms set out in these Heads of Terms and that no other circumstances apply. If the Executive leaves for any other reason, the summary treatment in these Heads of Terms will not apply and the treatment will follow the rules of the plans”.
The LTIP section read materially as follows:
“-The Executive to be treated as a ‘Good Leaver’ (Rule 8.2 ‘retiring with the agreement of LBG’) in respect of existing but unvested awards as at the retirement date.
-Awards will therefore not lapse on cessation of employment but continue until the end of the relevant performance period. Shares will be released in line with the normal vesting dates at the end of the relevant performance period if and to the extent that conditions have been met and must be pro-rated for service (up to the cessation of employment) during the relevant performance period. Assuming a retirement date of 30 September 2011, the vested pro rata amount of the Executive’s LTIP awards, assuming all performance conditions are achieved, will be as follows:
Award Vested Amount
2008 36/36
2009 33/36
2010 21/36″
On 26 January 2011, the Bank’s Remuneration Committee determined that the Performance Conditions for the 2010 tranche of the Award had been satisfied. Again, this was communicated to the Claimants in April 2011.
On 28 February 2011, Mr Daniels retired as Chief Executive. In September 2011, he retired from the Bank altogether. On 12 September 2011, the Bank wrote to Mr Daniels to “formally confirm” arrangements. The letter said that:
“Your awards remain subject to the performance conditions which were advised to you when the awards were made, and the number of shares you will receive at the end of the relevant 3-year performance measurement period will be determined by that performance. If the relevant performance conditions are not met the associated elements of that award will lapse.”
Under the LTIP Rules, any Award would be reduced pro rata in the event that the employee participant left the Bank before the expiry of the Performance Period to which it was subject. Since Mr Daniels was retiring shortly before the expiry of the three-year Performance Period, the letter confirmed that there would be a pro-rated reduction to his Award to take this into account.
On 24 January 2012, a meeting of the Bank’s Remuneration Committee took place (the “January 2012 Meeting”). The constitution of the Remuneration Committee was a sub-set of the Board. Pursuant to its terms of reference, only non-executive directors were permitted to serve on the Remuneration Committee. At that meeting, the Remuneration Committee considered whether the Performance Conditions had been satisfied. The minutes record that:
“the Committee agreed that the decision in respect of the Integration award was straightforward. The awards should be made in full … the 2009 integration awards should vest at 100% with a vesting date of 2 March 2012 or as soon as practicable thereafter subject to the Company Secretary confirming that nothing had changed to affect the performance levels and the resulting payouts.”
On 2 February 2012, Mr Tate signed a compromise agreement (dated on the face of the document 2 March 2012), agreeing terms for the termination of his employment (the “Compromise Agreement”). Clause 6.4 of the Compromise Agreement provided that any entitlement to the receipt of shares under the LTIP “shall be determined in accordance with the rules and conditions of the Plan” and “You hereby waive all other rights (including rights to compensation) in relation to the Plan.”
On 15 February 2012 Mr Daniels had a telephone discussion with the then Chairman of the Bank’s Board, Sir Win Bischoff. Mr Daniels’ case is that in that conversation Sir Win told Mr Daniels that if he did not agree to waive the Award, the Board would not agree to pay him.
A further meeting of the Remuneration Committee took place on 22 February 2012 (the “February 2012 Meeting”). At that meeting, the Remuneration Committee approved or purported to approve certain amendments to the LTIP rules pursuant to Rule 17.1 (the “2012 LTIP Rules”.)
It was at this point that the new Rule 6.4, introducing the discretion to amend or reduce an LTIP award was introduced. The meeting notes state that “Pending further consultation … it was agreed that the decision reached by the Committee on 24 January 2012 regarding the vesting of the Integration LTIP following discussion with UKFI should be deferred”.
On 14 March 2012, at 5pm a full Board meeting took place (the “March 2012 Meeting”). All of the members of the Remuneration Committee (apart from Sir Julian Horn-Smith who was absent from both the Remuneration Committee and the Board meetings and Mr Ryan who expressly recused himself from the Board’s decisions) participated in the decision-making at this meeting.
The minutes of the meeting reveal that the Board considered the legal and reputational risks that could arise in connection with the Integration Awards, particularly in the context of a consultation exercise that had been conducted with significant shareholders of the Second Defendant’s Group as well as with the Association of British Insurers and the National Association of Pension Funds.
This consultation had apparently revealed that there was little appetite to reward those executive directors (including Messrs Daniels and Tate) who had participated in the decision for Lloyds TSB to acquire HBOS; in particular for them to be rewarded for “one ‘positive’ element of what was now seen as an overall significantly ‘negative’ transaction”. Mr Tony Watson (the chair of the Remuneration Committee) reported to the Board that “one shareholder had expressed significant reservations about the Company deciding not to honour contractual commitments”.
After this discussion, the minutes record that:
“the meeting of the Board was then adjourned pending consideration by the Remuneration Committee of the position with respect to the performance conditions attracting to the Integration Award”.
A meeting of the Remuneration Committee then took place. This was separately minuted. At this meeting, the Remuneration Committee decided that the performance conditions attaching to the Integration Award had been satisfied. It:
“agreed and resolved that the performance conditions attaching to the Integration Award had been satisfied in full”
The full Board meeting then reconvened and the minutes of that meeting resume. As the minutes record, Mr Watson:
“confirmed that the Remuneration Committee had determined that the performance conditions attaching to the Integration Award had been satisfied in full. As a result, under the rules of the Plan, the Integration Award would vest with immediate effect.”
However, the Board then resolved that the Bank would honour all Integration Awards with the exception of those granted to the four individuals who had been executive directors at the time of the acquisition of HBOS, which included Messrs Daniels and Tate. The Board resolved that no shares would be transferred to those individuals. The minutes record that it reached this decision having taken into account the factors discussed earlier at the Board Meeting, the risks or other potential consequences for the Group, that related to or could arise from decisions concerning the Integration Award, on the basis that that it was in the best interests of the Group and its shareholders generally.
On 29 March 2012, Mr Daniels’ solicitors, Fox Williams LLP (“Fox Williams”) wrote to the Bank, demanding that it honour the Award. On 17 April 2012, the Bank wrote back, stating that “the Board concluded that it was in the best interests of the Group, and its shareholders generally, not to release to your client any shares under or with respect to the Award”. The Claimants note in submissions that the Bank did not seek to argue that its decision had been in accordance with the LTIP Rules and that when Fox Williams made that observation in a further letter, the Bank still did not suggest in its reply that its decision had been justified by the LTIP Rules (or any other rules).
Similarly, Mr Tate notified the Defendants in March 2012 that he considered their actions to be breaches of his contract.
There was no further correspondence put before the court until 4 August 2017, when both Claimants commenced proceedings against the Bank, claiming relief that included a declaration that they were entitled to the Award, and an order requiring the Bank to transfer the shares due under the Award to them.
In its Defence to both Claimants’ actions, served on 29 September 2017, the Bank asserted that the Board had been entitled to decide to withhold Mr Daniels’ Award pursuant to Rule 6.4 of the February LTIP Rules.
The Issues
Emerging from this outline of the facts, there are five issues that fall to be determined:
i) Was the LTIP validly amended pursuant to Rule 17.1 so as to include Rule 6.4?
ii) Did the Integration Awards vest either on 24 January or 14 March 2012?
iii) Was the decision not to transfer or issue the Integration Awards to the Claimants an unlawful exercise of discretion?
iv) Does the operation of Rule 15.7 prevent the Claimants from seeking the relief sought in any event?
v) Do the agreements reached by each Claimant with the Defendants preclude an otherwise valid exercise of Clause 6.4?
Legal Tests for Summary Judgment
In each case, of course, the answer at this stage has to be tested against the standard for summary judgment pursuant to CPR 24.2 (a).
The test in question is that of “no real prospect of success”. The relevant principles are well known and have been considered inter alia in TFL Management Services v Lloyds TSB Bank [2014] 1 WLR 2006 and EasyAir Ltd (trading as Openair) v Opal Telecom Ltd [2009] EWHC 339 (Ch). I do not attempt any generalised summary of the principles to be drawn from the various cases but note in particular the following factors:
i) The burden of proof is on the applicant for summary judgment;
ii) The court must consider whether the claimant has a ‘realistic’ as opposed to a ‘fanciful’ prospect of success: Swain v Hillman [2001] 1 All ER 91;
iii) The criterion ‘real’ within CPR 24.2 (a) is not one of probability, it is the absence of reality: Lord Hobhouse in Three Rivers DC v Bank of England (No.3) [2001] 2 All ER 513 [2003] 2 AC 1 at paragraph 158;
iv) At the same time, a ‘realistic’ claim is one that carries some degree of conviction. This means a claim that is more than merely arguable: ED & F Man Liquid Products v Patel [2003] EWCA Civ 472 at [8];
v) The court must be astute to avoid the perils of a mini-trial but is not precluded from analysing the statements made by the party resisting the application for summary judgment and weighing them against contemporaneous documents (ibid);
vi) However disputed facts must generally be assumed in the claimant’s favour: James-Bowen v Commissioner of Police for the Metropolis [2015] EWHC 1249 per Jay J at paragraph 3;
vii) An application for summary judgment is not appropriate to resolve a complex question of law and fact, the determination of which necessitates a trial of the issue having regard to all the evidence: Apovdedo NV v Collins [2008] EWHC 775 (Ch);
viii) If there is a short point of law or construction and, the court is satisfied that it has before it all the evidence necessary for the proper determination of the question and that the parties have had an adequate opportunity to address it in argument, it should grasp the nettle and decide it: ICI Chemicals & Polymers Ltd v TTE Training Ltd [2007] EWCA Civ 725;
ix) However, in reaching its conclusion the court must take into account not only the evidence actually placed before it on the application for summary judgment, but also the evidence that can reasonably be expected to be available at trial. The court should hesitate about making a final decision without a trial, even where there is no obvious conflict of fact at the time of the application, where reasonable grounds exist for believing that a fuller investigation into the facts of the case would add to or alter the evidence available to a trial judge and so affect the outcome of the case: Royal Brompton Hospital NHS Trust v Hammond (No 5) [2001] EWCA Civ 550, Doncaster Pharmaceuticals Group Ltd v Bolton Pharmaceutical Co 100 Ltd [2007] FSR 63;
x) The same point applies to an extent to difficult questions of law, particularly those in developing areas, which tend to be better decided against actual rather than assumed facts: TFL at [27].
Issue 1: Was the addition of Rule 6.4 to the LTIP Rules under Rule 17.1 valid?
The Claimants say that the Bank’s amendment of the LTIP Rules by inserting Rule 6.4 was objectionable in that (1) it was a retrospective amendment of the terms of the Awards; (2) it came after they had completely performed their side of the contract by satisfying the Performance Conditions for about two and a half years; and (3) it purported to make the Awards subject to the discretion of the Remuneration Committee, where previously it had only been subject to satisfaction of the objective Performance Conditions.
They submit that as a matter of law, the purported insertion of Rule 6.4 was ineffective, because, on a proper construction, Rule 17.1 does not authorise the Remuneration Committee to unilaterally make changes to the LTIP Rules that are detrimental to the employee participant with retrospective effect. Such a construction, they say, is consistent with authority, common sense and the language of the LTIP Rules themselves.
The Claimants advanced their argument by reference to six principles.
First, they submit that it is well established that a unilateral power to vary a contract to the detriment of the other party can only be conferred by clear words (see for example Lewison on the Interpretation of Contracts (6th ed.) paragraph 7.18, Treitel on Contract (14th ed.) ed Peel, 2-096). Both Claimants pointed me to the authority of Amberley (UK) Ltd v West Sussex County Council [2011] EWCA Civ 11; (2011) 14 CCL Rep 178, where Aikens LJ (with whom the remainder of the Court of Appeal agreed) said that:
“there is no doubt that, subject to any possible statutory safeguards (which it is not suggested are applicable in this case), parties to a contract can agree that one party shall be able, unilaterally, to vary the terms of the contract to the detriment of another. But, as Staughton LJ said in Lombard Tricity Finance Ltd v Paton, that is an unusual provision in a contract and, in general, clear words would be required to achieve that result” (para 22, emphasis added). (See also Esso Petroleum Company Ltd v Addison [2003] EWHC 1730 (Comm), para 132).”
To similar effect is the dictum of Moore-Bick J (as he then was) in “Esso Petroleum Company Ltd v Addison” [2003] EWHC 1730 at [132]:
“… I do not doubt that parties are free to make an agreement under which one of them effectively puts himself in the power of the other in relation to some aspect of the contract – see the comments of Staughton LJ in Lombard Tricity Finance Ltd v Paton [1989] 1 All ER 918 at page 923 – but it would be an unusual thing to do and I do not think that one should readily accept that it was what the parties intended. In deciding the matter it is, of course, necessary to examine both at the language of the contract and its commercial context”
The Claimants submit that this principle operates with particular force in the employment context where there is an obvious inequality of bargaining power, and where the Court will generally be particularly reluctant to interpret such a clause as allowing an employer to make changes detrimental to an employee’s rights: Wandsworth LBC v D’Silva [1998] IRLR 193 per Lord Woolf, MR.
I was also referred to Khatri v Cooperatieve Centrale Raiffeisen-Boerenleenbank BA [2010] EWCA Civ 397, where the Court of Appeal held that a clause providing that “the bank maintains the right to review or remove this formula-linked bonus arrangement at any time” was not sufficiently clear to allow the employer to unilaterally vary the formula for calculating the employee’s bonus for the present year, as distinct from conveying an indication that everything might change in a subsequent year. Jacob LJ at [39] also said that:
“I reach this conclusion with no regret. If banks decide to reward their employees by means of purely discretionary bonuses then they should say so openly and not seek to dress up such a bonus with the language of entitlement qualified by a slight phrase which does not make it absolutely clear that there is in fact no entitlement at all. If you are to give with one hand and take away with the other, you must make that clear.”
The Claimants submit that words therefore have to be clear – not simply in the sense of being comprehensible – but as being clear and apt to do the job they are called on to do. They say there are no such clear words in the LTIP Rules and that like the wording in Khatri, the wording of Rule 17 is nowhere near clear enough. They argue that if the Bank had intended to be able to unilaterally amend the LTIP Rules with retrospective effect, it could easily have said so in Rule 17.1. They remind me that since the LTIP Rules were drafted by the Bank’s legal advisors, they are to the extent that there is any ambiguity, to be construed contra proferens.
As to the authorities on which the Defendants rely the Claimants submit that they do not, when properly analysed, support the propositions for which they are cited, given the very different contexts in which they arise.
As a second line of argument the Claimants said that the authorities indicated that this kind of “moving the goalposts” was not acceptable against a background where an employee participant can serve the Bank over multiple years in reliance on a contract which specifies that they will receive a substantial award if certain performance conditions are satisfied. This “moving of goalposts” was especially egregious in the context of an argument by the Bank that it was not required to notify the employee participant of any amendments.
In this context I was referred to the judgment of Rix LJ in Mallone v BPB Industries plc [2002] EWCA Civ 126; [2002] ICR 1045, which the Claimants submitted had clear resonances with this case. In Mallone a company used a numerator of zero in a discretionary pro-rata calculation to effectively cancel a former employee’s share options where, on the face of the scheme, the employee had a right to exercise the share option subject to some discretionary pro-rata calculation unless he had been dismissed for misconduct.
Rix LJ considered the objectively ascertainable purpose of the discretionary provision and considered it significant that options were granted as a reward for past performance and vested after three years. He went on to say:
“43. I recognise that such share option schemes can lead to controversy. A poorly performing executive may be represented as leaving in failure but with valuable options. Alternatively the options may not be worth anything or very much at the time of departure, but may subsequently become valuable because of improvements in the performance of his company after his leaving, or because of the re-rating of the market. Thus the scheme can operate in a way which might seem arbitrary.
44. But such possibilities are always present. An executive might be able to exercise his options before his departure, perhaps in anticipation of his employer’s displeasure. Considerations such as these, however, are not, itseems to me, a valid reason for treating the whole scheme as a sort of mirage whereby the executive is welcomed as a participant, encouraged to perform well in return for reward, granted options in recognition of his good performance, led on to further acts of good performance and loyalty, only to learn at the end of his possibly many years of employment, when perhaps the tide has turned and his powers are waning, that his options, matured and vested as they may have become, are removed from him without explanation. “
I was also referred to Norman v National Audit Office [2015] IRLR 634, where the EAT considered it almost inevitable in every case that unilateral variations would be notified to employees [51], although even then that “does not, in our judgment, establish that the employer is therefore establishing the right to make the changes unilaterally and without the consent of the employee.”
The Claimants’ third (related) submission was that if the Bank were entitled to unilaterally amend the LTIP Rules with retrospective and detrimental effect, they would become a mere declaration of the Bank’s intent, rather than a legally-binding contract. The only right that an employee participant would truly possess would be the requirement that the Bank should act reasonably in exercising its discretion to unilaterally vary the LTIP Rules (and such other constraints as might apply to that discretion). As a matter of authority this is wrong: exclusion and other clauses should not be construed so widely that they reduce the contract to a mere declaration of intent. In this regard I was referred to the classic statement of Lord Wilberforce in Suisse Atlantique Societe d’Armement Maritime SA v NV Rotterdamsche Kolen Centrale [1967] 1 AC 361, p.432:
“[An exception clause] must reflect the contemplation of the parties that a breach of contract, or what apart from the clause would be a breach of contract, may be committed, otherwise the clause would not be there; but the question remains open in any case whether there is a limit to the type of breach which they have in mind. One may safely say that the parties cannot, in a contract, have contemplated that the clause should have so wide an ambit as in effect to deprive one party’s stipulations of all contractual force; to do so would be to reduce the contract to a mere declaration of intent.”
The Claimants’ fourth argument focussed on Rules 1.4 and 1.5 of the LTIP Rules. They submitted that the effect of Rules 1.4 and 1.5 of the LTIP Rules was to prevent the Bank from retrospectively subjecting their awards to new conditions, such as Rule 6.4, that had not been specified when the Award was first made. They point to the fact that those rules stipulate that any Performance Conditions or other conditions on the vesting of an Award must be specified at the Award Date (which was April 2009). Rule 6.4 was introduced only on 22 February 2012, after the performance period had ended (and after the Heads of Terms and the Compromise Agreement had been concluded).
They submit that on any fair reading of the Rules, Rule 6.4 was either a Performance Condition (within the meaning of Rule 1.4) or an “other condition” (within the meaning of 1.5) in that:
i) The new rule would create a discretion exercisable by reference to “the performance of the Company, any Member of the Group, any business area or team and the conduct, capability or performance of the Participant ….”. The Claimants submit that it is difficult to see how these are anything other than performance conditions.
ii) Alternatively, Rule 6.4 must be an “other condition” within the meaning of Rule 1.5, since it purported to make the vesting of awards conditional on the discretion of the Remuneration Committee.
As such, the Claimants submit that Rule 1.4 and 1.5 required any Performance Conditions or other conditions to be “objective”. A discretion is necessarily and obviously subjective. Accordingly, Rule 6.4 could not validly be introduced into the LTIP Rules by amendment, since it did not meet the criteria for a valid Performance Condition or “other condition”.
The Claimants’ fifth argument was that as a matter of construction, the language of the LTIP Rules confirms that Rule 17.1 was not intended to authorise the Bank to make unilateral variations with retrospective effect. They point to the fact that the LTIP Rules distinguish between “the Plan” and “the terms of the Award”. So, Rule 1.1 provides that “an Award granted under the Plan, and the terms of that Award, must be approved in advance by the Committee”. Rule 17.1 provides that “the Committee may at any time change the Plan in any way”.
It follows, they say, that this rule does not provide that the Remuneration Committee may change the terms of the Award. Although the definition of “Plan” provides that the LTIP Rules may be “changed from time to time”, there is no similar suggestion that the terms of Awards may be changed from time to time. It follows that, as in Khatri, the Remuneration Committee can only change the LTIP Rules under Rule 17.1 with effect for the future, but cannot change the terms of Awards that have already been made.
This, they say, is consistent with where the Rules do provide for certain narrower powers to change the terms of existing Awards. For example, Rule 1.4 provides for a power to change the Performance Conditions and Rule 7.5 authorises the Remuneration Committee to decline to pay certain dividends under existing Awards.
They also point to Rule 16.4 which provides that “the Committee has the power from time to time to make or vary regulations for the administration and operation of the Plan but these must be consistent with its rules” and submit that that provision only makes sense if there are some circumstances in which the Remuneration Committee cannot amend the LTIP Rules, since there would otherwise be no point in providing that any regulations must be consistent with the LTIP Rules.
They therefore submit that Rule 17.1 should be construed as applying to changes that related to Lloyds’ own obligations, rather than the right to make detrimental changes to the rights of employees.
Finally, the Claimants submit that the effect of what the Bank has sought to do via Rule 17.1 in this case would be outside the scope of Rule 17. That, they say, authorises the Bank to change the existing Plan, not substitute a different type of share scheme altogether. In support of this they cite the judgment of Longmore LJ in Triodosbank NV v Dobbs [2005] EWCA Civ 630; [2005] 2 Lloyd’s Rep 588 at [16]:
“it is important to distinguish between a true variation of an existing obligation and the entering of what is in fact a different obligation even though it may purport to be no more than a variation. In that sense it is perfectly possible (and, indeed, right) to put a ‘limit on the power to vary'”
As for the Defendants’ reliance on regulatory background and in particular the Remuneration Code, they submit that this did not and could not sensibly be construed as requiring or authorising the Defendants to act in breach of contract. They point to the Remuneration Code (as revised on 1 January 2011) itself which makes clear at Rule 19A.1.4 G, that: “Subject to the requirements of SYSC 19A.1.5R, in the FSA’s view SYSC 19A.1.3 R does not require a firm to breach requirements of applicable contract or employment law.”
Thus, the Claimants submit that Rule 17 is either inapt or not sufficiently clearly worded to achieve such an unreasonable outcome. At best they say, even if the Bank was authorised to make unilateral variations with retrospective effect pursuant to Rule 17.1, Rule 6.4 should not be construed as retrospective in effect.
Accordingly, the Bank may not rely on Rule 17.1 to justify the adoption of Rule 6.4 with retrospective effect for the Claimants’ Awards, and the Board was not, therefore, entitled to refuse to honour the Awards.
The Defendants submit that the 2012 Amendment, which was adopted by the Remuneration Committee on 22 February 2012, was the applicable LTIP at the relevant time and that there is no reason why Rule 6.4 should not be applicable.
They point out that the 2006 LTIP was amended several times following its introduction and amended versions were introduced in 2007, 2011, 2012 and 2015. There were no objections to these amendments.
They note that Rule 1 of the 2006 LTIP (contained in each version of the plan) provided that all awards granted under the 2006 LTIP were “Award[s] granted under the Plan…”. “Plan” was defined as “The [Second Defendant’s] Long-Term Incentive Plan 2006 as changed from time to time”. They accordingly submit that the 2012 Amendment comes into play because it was the version applicable at the time that the relevant decisions were made by the Remuneration Committee and the Board on 14 March 2012.
Furthermore, Rule 17 of the 2006 LTIP (contained in each version of the plan) concerns “Changing the Plan and termination” and expressly stated:
“Except as described in the rest of this rule 17, the Committee may at any time change the Plan in any way”.
Rule 17 therefore gave a wide power to the Remuneration Committee to amend the plan “in any way”. The only express limit to that power was set out in the “rest of this rule 17” in the 2006 LTIP (and in each subsequent iteration).
As for the submissions regarding lack of notice, they say that these go nowhere; the only changes that required other approval (in the form of shareholder approval) were changes to the plan which were to the advantage of present or future participants (according to Rule 17.2.1). Consequently, changes to the plan which were to the disadvantage of present or future participants did not require approval. If such approval was necessary then there would have been express provision for this in Rule 17 and there was not. While they entirely accept the principle that clear words are needed they submit that the words of Rule 6.4 are exactly that – clear.
They also submit that the position on the authorities is by no means such a one way street as the Claimants would suggest. In Khatri they submit the term was very different with much clearer indicia of entitlement. They submit that in fact, a unilateral power of amendment is to be construed widely, referring me to British Airways Plc v Airways Pension Scheme Trustee Ltd [2017] Pens L.R. 16 at paragraphs 422 to 423 where it was held that British Airways’ consent to a unilateral power to amend to increase benefits to pensioners was not a requirement.
The Defendants also submitted that although the power of unilateral variation is not unfettered, the courts will only intervene where there is some improper purpose or to prevent capricious or arbitrary action: Paragon Finance v Nash [2002] 1 WLR 685 at paragraph 36 (and also Chitty 22-039; and below generally in relation to contractual discretion).
In this case they said they were as far from an improper purpose as could well be imagined in that the reason for the introduction of the amendments was essentially to comply with the regulatory requirements and the specific exercise of the discretion was made in the light of consideration of the interests of the Group and the views of shareholders.
As regards the “moving the goalposts” submission and the related “declaration of intent” argument, the Defendants submitted that this was simply not the case. As far as concerns Mallone, that case was not analogous because there the question in issue related to an attempt to deprive someone of matured options, not options which had not yet matured. The basis of the decision was therefore not related to the options’ existence but rather to the fact that the employer there had acted in a way no reasonable employer could have done, hence falling foul of the line to be found in cases like Paragon v Nash.
In relation to the “declaration of intent” point the Defendants submitted that this does not amount to a test of principle and that indeed Suisse Atlantique reinforces the respect which must be given to freedom of contract, for example at p.410D:
“So long as one remembers that one is construing a document and not applying some rule of law superimposed upon the law of contract so as to limit the freedom of the parties to enter into any agreement they like within the limits which the law prescribes one can apply one’s mind to each contract as it comes up for consideration.”
Here they submit, in the absence of UCTA or other statutory controls, one is simply looking at the controls imposed by the law for the exercise of contractual discretion.
As regards retrospectivity, the Defendants submit that the answer to this is that Rule 6.4 applies to any shares which had not yet vested; and applied in the Claimants’ case because their shares never, in fact, vested. The critical date, so far as Rule 6.4 is concerned, is the date when the decision-making (including the exercise of discretion contemplated by Rule 6.4) took place which, in respect of the Claimants, was 14 March 2012. Since that date post-dated the date when Rule 6.4 was introduced, Rule 6.4 was in play when the relevant decisions were taken and the relevant discretions exercised.
As to principles, the Defendants again referred me to Paragon Finance v Nash noting that in this case, the relevant decision was made on 14 March 2012 pursuant to the rules that applied at the time. However, even if the rule change was back- dated, that does not, in itself, lead to invalidity: the “touchstone” is fairness: IMG v German [2010] Pens LR 23 at paragraph 147. In this case, the amendment was fair since it reflected the changing regulatory environment.
In relation to the point that Rule 17.1 cannot permit a rule change detrimental to employees that did not have to be notified, they submitted that Khatri is not authority for the proposition that there is a requirement to notify employees of rule changes (whether detrimental or otherwise): it concerned acceptance by conduct on the part of an employee in relation to the terms of an offer. Much will also depend on the terms of the particular contract – in a number of the authorities cited by the Claimants the contracts did have such a requirement – which did not exist in the LTIP Rules.
As regards the arguments on construction, the Defendants submit that the point as regards Rules 1.4 and 1.5 is misconceived. Rule 6.4 (and the discretion contained within it) is not a “condition” in the sense of the Performance Conditions or other conditions: it is a mechanism exercisable via the exercise of a discretion to permit a downwards adjustment after the satisfaction of the performance conditions has taken place.
To the extent that it is argued that Rule 6.4 was ultra vires Rule 17.1 because it imposed an additional condition and he had already rendered performance, the Defendants submit that it is not correct that Rule 6.4 imposed an additional condition – it is a different exercise predicated on performance having already taken place.
On the distinction between amendments to the Plan and to Awards the Defendants say that this is an artificial distinction taken against the reality that there is no absolute entitlement prior to the decision on vesting taking place. “Banking” of parts of an Award means no more than that a preliminary decision has been taken that parts of the performance criteria have been met. This is illustrated by the fact that it could not be argued that there was any right before at the earliest 24 January 2012.
They also submit that the distinction by reference to Rule 16.4 is fallacious; there is nothing which prevents the Rules themselves being amended at any time.
As regards the Claimants’ final argument, that Rule 17.1 only authorises a change to the plan, rather than a wholesale substitution of it, the Defendants submit that is not correct that the plan was substituted: it was merely changed to deal with a new situation, namely the requirements of the regulatory framework.
Discussion
One of the features of the argument was that the parties came at this issue from slightly different perspectives, with the Claimants looking at Rule 17.1 and Rule 6.4 more disjunctively, and with greater focus on the Rule 17.1 arguments (viewed primarily as a question of construction albeit with input from the Rule 6.4 content) while the Defendants elided the arguments under the two rules and placed much more emphasis on Rule 6.4 and the role of the law as to contractual discretion.
It has seemed to me that there is a certain amount of force in taking the bulk of the arguments as to principle together at this stage, not least because the Claimants’ argument as to Rule 17.1 necessarily considered in detail the nature of Rule 6.4; it was not an exercise of Rule 17.1 per se that was objected to, but the exercise of Rule 17.1 so as to produce a rule which had the effects contended for by the Defendant. I will therefore to a certain extent bring the arguments of principle in relation to Rule 6.4 into account in this discussion.
Ultimately what is being said for the Defendants is that Rule 17.1 is a clear broad clause which gave them a contractual discretion to change the rules within the LTIP as to vesting of Awards and to do so (i) in a way which enables them (in the exercise of a discretion within certain parameters) to cancel an Award granted subject to certain performance conditions and whose performance conditions have been met and (ii) to do that without notice to the participant.
If such a discretion exists it is capable of being supervised by the courts only in a very limited range of circumstances. Save in exceptional cases (such as Braganza v BP Shipping [2015] UKSC 17; [2015] 1 WLR 1661) the court’s intervention will only be justified in cases where the discretion has been exercised arbitrarily, capriciously or irrationally (see the cases cited below in relation to the Defendants’ arguments under Rule 6.4).
That limited scope of review however means that one must look carefully first at whether the discretion relied upon exists – just as one would look carefully at the purpose for which the discretion is said to be exercised. Further the question of purpose forms a part of the exercise of contractual construction when determining whether the discretion contended for exists.
It is in essence a contractual construction approach, bearing in mind the nature of the terms contended for, which brings one to the results which one sees in the cases cited in the different limbs of the Claimants’ argument. Parties are of course perfectly free to agree whatever terms they wish, but before concluding that a party has made an agreement which puts him in the power of his contractual counterparty the court will want to look at the wording of the contract and its commercial context. In this context Lord Diplock in Suisse Atlantique referenced the following dictum of Atkin LJ (as he then was) in The Cape Palos [1921] P. 458, 471-472:
“I am far from saying that a contractor may not make a valid contract that he is not to be liable for any failure to perform his contract, including even wilful default; but he must use very clear words to express that purpose…”
The authorities justify the conclusion that where a term has such a result the court will not be very ready to conclude that that was the parties’ intention and will tend to scrutinise both words and context closely. I do not accept the submission by reference to the British Airways case that a unilateral power of amendment is to be construed widely. The authority does not say this, and the case was a very particular one involving a complex clause which permitted unilateral amendment unilaterally by Management Trustees following a vote, and in circumstances where the trustees were equally split between the parties whose interests were likely to differ.
The authorities also show that one part of the context which the Court is entitled to consider, is the nature of the relationship; and the fact that a party is an employee vis á vis his contractual counterparty will tend to increase the Court’s vigilance when considering words and the commercial context. This is natural when one considers the imbalance of power which is often inherent in such a relationship.
One then looks to the words of the relevant clause or Rule. Here it was more or less common ground that clear words are needed; but the debate between the parties was as to what that meant. I do not necessarily accept the submission that the clear words must always be clear in the sense of apt and pointed to the specific discretion sought to be invoked. I see no reason why relatively broad words in the correct context in a tightly drawn agreement might not give the degree of clarity required (see for example Lombard Tricity Finance v Nash [1989] 1 All ER 918).
But it is clear that it will generally be the expectation that broad words are not enough; as appears from the dicta referenced above and was made clear in Paragon v Nash where a term was clear beyond peradventure and the only question could be the fetters on the discretion as a matter of implication of terms. So too is this clear from the approach to the words in Khatri where words which could clearly have encompassed a right to a broad change were held only apt to cover a change for the future.
One can sensibly take stock of the present case at this point. This is a case where a broad power to alter a party’s contractual rights to its detriment is in question. It is also a case where, even if the case does not concern an employment contract per se, it does concern the employment relationship and terms which are put forward by the Defendant employers and not negotiated in a bipartite fashion. While, given Mr Daniels’ and Mr Tate’s positions, the full weight of the “imbalance of power” considerations may not come into play, there is nothing in this case which would make it other than one where the words relied on would have to be very carefully scrutinised.
When one does so, one discerns a distinct parallel to Khatri. While one may not be directly juxtaposing the language of entitlement with a “slight phrase” by way of qualification, the phrase used is very much of the same ilk. The indications therefore are not favourable.
What does one gain from a consideration of the words themselves within the broader commercial context? In my judgment there is quite a lot to say here. Firstly the right which is sought to be extensively qualified is, if not couched in terms of pure entitlement, one which derives from objective criteria – the satisfaction of which give rise to an absolute entitlement. This lends further force to the Khatri parallel.
Second there is a distinction in the wording of the Rules between the Plan and Awards made under the plan. So English Law governs “the Plan and all Awards and their construction” and Clause 1.1 refers to “an Award granted under the Plan”. This is indicative that Awards may be treated as a different category; something effectively completed, subject to satisfaction of conditions, on their grant. There is no absolute entitlement; but there is a contingent entitlement, depending on defined contingencies. This is, I note, consistent with what Rule 1.6 and 2.1 provided for and we actually see in relation to the Claimants’ Awards – the issuance of a formal certificate which is or is supplemented by a deed.
Thirdly there is the structure which is put in place for Awards; in particular as to the timing and type of conditions under Rules 1.4 and 1.5. Whether or not Rule 6.4 would be a Performance Condition or an Other Condition, what is plain is that the plan contemplates objective conditions which are plain at the Award date (so that the recipient knows what he/she has to do). That is on its face inconsistent with change, post grant, particularly change to a discretionary regime. So far as the issue about whether Rule 6.4 would be a Performance or Other Condition, I would conclude that it was not, because it was an ex post facto discretion and did not impose a condition which had to be satisfied. But this only serves to reinforce the incompatibility of Rule 6.4 with the contractual scheme, which is based on a “cards on the table” objective criteria-based approach.
Rule 17 itself is entitled “Changing the Plan …”. It contains no mention of Awards. It has the umbrella section relied on and is then divided broadly into 2 sections. The first relates to what are obviously seen as major changes affecting the Company (benefiting the participants). They all relate to the structure of the Plan. They require approval at a general meeting. The second applies to what are termed “minor changes”, which are broadly of an administrative nature. Again, they relate essentially to the structure of the Plan. It appears that Rule 17.1 is designed as a “catch all” for other changes to the Plan which do not fall into either category.
Accordingly, reading Rule 17 as a whole by itself and also reading it against the broader context of the LTIP Rules (including also the specific provisions for changes elsewhere) I do not consider that its purpose is directed to alterations to Awards, but rather to alterations (probably of a minor nature) to the structure and administration of the Plan which are not caught by the specific regimes in Clause 17.2. Further I do not consider that its wording is apt, taken in context, to permit the introduction of such a Rule. This approach is in my view supported and not undercut by Rule 16.4 which indicates an intention to have a power to micromanage by regulations that which the Plan structured by the Rules (as amended by the relevant part of Rule 17). I would also say that the uneasy fit of the putative Rule 6.4 into the scheme of Rule 6 (to which I refer under the next issue) chimes with this conclusion.
I consider that this approach finds support when one conducts the iterative process referred to in the recent key judgments of the Supreme Court on the topic of contractual construction and particularly the passage from the judgment of Lord Clarke of Stone-cum-Ebony JSC’s in Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900 at [21] which has subsequently been endorsed in the Arnold v Britton [2015] AC 1619 and Wood v Capita [2017] AC 1173:
“the exercise of construction is essentially one unitary exercise in which the court must consider the language used and ascertain what a reasonable person, that is a person who has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract, would have understood the parties to have meant. In doing so, the court must have regard to all the relevant surrounding circumstances. If there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense and to reject the other.”
Does it make better sense that the parties should have intended a fallback power of tidying up or a swingeing power to rewrite the terms of the LTIP Awards? The answer to this is plain: the former is far more coherent with the overall scheme and purpose.
The answer reached above is also supported by the various authorities on which the Claimants relied in the context of their third, fourth and sixth submissions, all of which are essentially saying that when you have an approach which produces a result which lacks sense or completely recasts the obligations under the original contract, the clause which purports to do this (whether exclusion clause, power of variation or discretionary amendment) should not generally be read in that sense.
I do not think that this is the kind of difficult point of law which is dangerous to decide at the summary judgment stage. It is not necessary to decide it by reference to assumed facts and there is no suggestion that the issue of construction will be informed by any factual matrix evidence not before the court. I therefore conclude that Rule 17 did not bestow a power or discretion to alter the Rules as was done by the addition of Rule 6.4. It follows that the Defendants’ reliance on Rule 6.4 is misplaced that they have no real prospects of success on this point and the Claimants are entitled to summary judgment.
It is however appropriate to go on and to consider the other issues, not least because Issue 2 is really at the heart of the dispute and has an impact on the question of remedies.
Issue 2: Did the Integration Awards vest?
The First Claimant’s position is that the Integration Awards vested on either the 24 January 2012 – which is when the Remuneration Committee determined that the relevant performance conditions had been met – or 2 March 2012, which is when the minutes of 24 January 2012 state that the Integration Awards would vest or on 14 March when the Remuneration Committee met again.
The backdrop on which the Claimants rely included the Rules and the booklet issued to them. They say that these speak clearly as to the process of vesting. So they point to that part of the booklet which explains that the Shares would be released subject to the rules of the Plan and to the extent that the Performance Conditions were satisfied and as regards the “scorecard” explains how the award was broken down into three equally weighted tranches, which crystallised and were “banked” each year, to be released at the end of three years, subject to the Remuneration Committee’s assessment of overall performance at the end of the period.
In particular they rely on the passage which says:
“Whether and to what extent the Performance Conditions have been satisfied will be determined by the Committee as soon as practicable after the end of the relevant performance period. The date on which the Committee so determines will (if applicable) be the Vesting Date and the relevant number of Shares (if any) will be released (or the Award otherwise satisfied in accordance with the Plan rules) as soon as reasonably practicable after that date.”
They then also point to the distinction in the Rules between Vesting (dealt with in Rule 6) and Consequences of Vesting (dealt with in Rule 7). The distinction between these two stages is, they say, accepted by the Defendants; pointing to that distinction being drawn in Mr Sinnott’s witness statement and in the Defence.
Rule 6.1, they submit, sets out the rules for determining whether Performance Conditions have been met. As to timing of vesting following that determination, they point to Rule 6.2 which states in terms: “an Award vests … on the date on which the Committee makes its determination under rule 6.1”. Thus, once Performance Conditions are determined to be satisfied, vesting follows automatically. If Rule 6.4 applies, it comes into the equation at the time of and as part of the same exercise as determination of the satisfaction of Performance Conditions (as the reference to Rule 6.4 within the body of Rule 6.1 indicates).
They submit that the second stage, the consequences of vesting, was dealt with in Rule 7, which provided:
“7. Consequences of Vesting
7.1 Conditional Award
As soon as reasonably practicable after the Vesting of a Conditional Award, the Company will arrange…for the transfer (including a transfer out of treasury) or issue to or to the order of the Participant of the number of Shares in respect of which the Award has Vested.”
Accordingly, once the Award had vested, the Second Defendant was obliged (“the Company will arrange”) to arrange for the transfer or issue of the Shares. The only discretion at this stage was as to whether to pay the Award in cash rather than by the transfer or issue of shares, under Rule 7.6 (“The Company may, subject to the approval of the Committee, decide to satisfy… a Conditional Award by paying an equivalent amount in cash…”). That is consistent with the definition of Vesting under the Rules, which provides: “‘Vesting’…in relation to a Conditional Award, means a Participant becoming entitled to have the Shares transferred to him subject to these Rules…”.
In this case the Claimants say that the process worked as follows:
i) In accordance with the Performance Conditions booklet and the Rules, the Committee determined for each of the first two years (2009 and 2010) that the Performance Conditions had been met and the Shares were banked for that year, and in respect of the final year (2011) that the Performance Conditions were met and the Award vested in full.
ii) In respect of the first year, at the Committee’s meeting on 25 February 2010: “It was confirmed that targets for all measures had been achieved or exceeded…, the Committee approved the proposal that the maximum number of shares be banked under the first tranche of the 2009 integration award and that they be released at the end of the performance cycle.”
iii) This was confirmed in the Second Defendant’s Annual Report for 2009: “Performance against the first year of the award has been assessed and all targets have been met or exceeded.”
iv) The same decision was made in respect of the second year, and the maximum number of shares banked.
v) Again, this was confirmed in the Second Defendants’ Annual Report 2010: “Performance for each of the first two years of the award has been assessed and all targets have been met or exceeded.”
vi) For the third and final year (and in respect of the Award as a whole):
a) First, at the 24 January 2012 meeting: “The Committee agreed that the decision in respect of the Integration Award was straightforward. The awards should be made in full…The 2009 integration awards should vest at 100% with a vesting date of 2 March 2012 or as soon as practicable thereafter subject to the Company Secretary confirming that nothing had changed to affect the performance levels and the resulting payouts”.
b) Secondly at the meeting of the Remuneration Committee on 14 March 2012: “The Committee agreed and resolved that the performance conditions attaching to the Integration Award had been satisfied in full”. The Committee confirmed that the Performance Conditions had been met and that the Integration Award would “vest in full with immediate effect”.
That, they say, ends the matter. A determination as to satisfaction of the Performance Conditions was taken, and the shares vested either on 24 January, or on 2 March 2012 or at latest on 14 March 2012.
If the latter, Rule 6.4 never arises even if it was validly introduced, because no adjustment was made at the relevant time. Firstly, the Claimants say that there was no determination by the Committee under Rule 6.4 that: (a) the performance of the Second Defendant, any Member of the Group, any business area or team; and, (b) the conduct, capability or performance of the Claimants justified an adjustment. Indeed, there was no determination in respect of either matter (both having to be satisfied before a discretion could be exercised to adjust the number of Shares in respect of which an Award would vest).
Secondly, they say that in any event no discretion was exercised under Rule 6.4 to adjust the number of Shares that vested in the Claimants’ to nil. On the contrary, the Committee determined that their awards vested in full and that they did so with immediate effect.
They say that this is actually consistent with a fair reading of the minutes: following the decision of the Committee that the Award would vest with immediate effect, the Board decided that no Shares would be “transferred or issued” to the Claimants “in respect of which the Integration Award had vested”. That phrase reflects the real situation, and the Board’s appreciation of the two stage process. They note that the use of the language “transferred or issued” was lifted from the Rules, mirroring the language of the second stage of the process, i.e. the consequences of vesting, which required the transfer or issue of Shares as soon as reasonably practicable after vesting (under Rule 7). The Claimants remind me that it is plain that the Board had the Rules in front of them, as well as having General Counsel and an HR Director present, so there can be no argument that this is imprecision of language.
The Claimants also dispute that the Board, as opposed to the Remuneration Committee, could have been the body making the decision regarding vesting or under Rule 6.4. They submit that on a true construction of the LTIP Rules it is the Committee which was to determine whether the performance conditions had been met, and it is the Committee that was entitled to exercise a discretion as to whether to make some adjustment (and if so the amount of such adjustment) to the number of Shares that would vest.
They point to the fact that the LTIP Rules expressly refer to decisions by “the Committee”, not “the Board”. “The Committee” is defined in the LTIP Rules as “a duly authorised committee of the board of directors of the Company”. It follows that “the Committee” cannot be the Board since it is defined as being a committee “of the Board”. This means that the Committee must be a sub-set of the greater Board. If it had been intended that Rule 6.4 could be invoked by the Board as well as the “duly authorised committee”, the rule would doubtless have said so.
The Claimants also referenced a number of passages in the Terms of Reference which they say are plainly drafted contemplating that “the Committee” means “the Remuneration Committee”. So, the Remuneration Committee was specifically authorised to “determine and approve … all aspects of remuneration in respect of … the Group Chief Executive”. Further, as a matter of Lloyds’ corporate governance more generally, the Remuneration Committee was in relation, inter alia, to the LTIP, to: “determine the design of, eligibility for and targets for, any longer term performance related pay schemes operated by the company. Subsequently review performance against these targets and agree any payments proposed”.
The Claimants also point to the distinction drawn in the Rules between “the Committee” and “the Company”, which is referred to in multiple other places, including in Rule 7. They submit that where the LTIP Rules are intended to confer a discretion that can be exercised by the Board, they refer to “the Company” rather than “the Committee”.
They also point by way of relevant factual matrix to certain corporate governance aspects. The Remuneration Committee was made up of non-executive directors who necessarily would not be potential beneficiaries of awards under the LTIP and who would, therefore, have no actual or potential conflicts of interest in making the relevant determinations and exercising the relevant discretions under the LTIP. This, say the Claimants, is just as matters have to be given the background where “remuneration decisions place the executive directors in a position of acute conflict of interest” (Gower on Principles of Modern Company Law (10th ed.), Davies and Worthington, p.395). This they say is reflected in the UK Corporate Governance Code (“CGC”), which requires the Board to delegate responsibility for setting the remuneration of executive directors to the Remuneration Committee.
They also submit that the structure of the meeting – with the break for the Remuneration Committee to meet – is consistent with this position. If the Board thought it could and was exercising the power under Rule 6.1 there would be no need to convene the Remuneration Committee.
Against this the Defendants say that the reality is that the Integration Awards never vested. The Defendants submit that when it comes to this aspect, the court can only properly give summary judgment if it accepts the Claimants’ case on the March meeting. The Remuneration Committee’s position, as at 24 January 2012, was conditional: the Awards “should” vest subject to “the Company Secretary confirming that nothing had changed to affect the performance levels and the resulting payouts”. There was plainly a contemplation that something further should be done. There was no clear determination. To the extent that the Court is not satisfied this is correct however, they submit the point is plainly arguable.
Once that point is cleared out of the way, they say that the 2 March date cannot assist. That date was named on a hypothesis that “nothing had changed”. But they say, between 24 January 2012 and 14 March 2012 something had changed: a consultative exercise with shareholders was undertaken which revealed shareholders’ dissatisfaction with rewarding the Claimants for one positive element of what was now seen as an overall significantly negative transaction. Further, the LTIP was amended on 22 February to include a power of downwards adjustment in Rule 6.4.
As for the March meeting, the Defendants submit that one needs to look at the minutes sensibly against their background, which includes the fact that the meeting came less than a month after the same committee approved Rule 6.4. In that context they submit it is nonsensical to suggest that Rule 6.4 is not in play simply because it is not expressly name checked in circumstances where it is plain that the Rules were before the Board and the Remuneration Committee. They submit that the reliance on the phrase “would vest with immediate effect” is misplaced because it has been taken out of context and the salient words are “under the Rules of the Plan” which appear next to it. This means that all of the rules needed to be considered and a final decision was not made by the Remuneration Committee because the Remuneration Committee referred the matter back to the Board, who took the final decision. They submit that this is supported by a careful reading of the whole meeting session, in particular bearing in mind the absence of a specific conclusion that the shares did as opposed to “would” vest, the crossover of references to consultations with shareholders and the decision to refer back to the Board (including all members of the Remuneration Committee) after the close of the Remuneration Committee meeting.
All of this, they say, points firmly to a conclusion that what happened was that a final decision regarding vesting was not made by the Remuneration Committee and that the decision of the Board was that the shares did not vest as regards the executive directors, including the Claimants.
On the subject of whether the Board could be the Committee within the meaning of Rule 6, the Defendants submitted that it was illogical to say it could not, since the Board was the fount of authority, which it delegated to committees. The authority in question was therefore effectively that of the Board. As for the corporate governance points, the Defendants submitted that these were hollow in circumstances where, in the first place, all directors had an open invitation to attend the Remuneration Committee meetings, and in the second place effectively all the attendees at the Board meeting were themselves non-executive directors who had a positive right to attend any Remuneration Committee meeting.
Discussion
On this issue I have no difficulty in concluding that the arguments of the Claimants are correct as regards the 14 March meeting, although I accept the submission that as regards the January meeting (and the 2 March date) the question of vesting is at least arguable for the Defendants. The decision in January does read as an “in principle” decision, and that is supported both by the reference to a later date for vesting (which would not cohere with the Rules) and the reference which also exists to consulting with UKFI before the matter was progressed.
However, the scheme under Rules 6 and 7 is clear. The first stage of the process is vesting, under Rule 6. Vesting is, on the clear words of the Rule, inextricably linked to the determination of satisfaction of Performance Conditions. There is no specific provision for a decision to vest at all; Rule 6.2 strongly implies that vesting follows automatically from a determination of the performance condition having been met (at least to the extent of that determination).
How this fits in with the operation of Rule 6.4 (were it valid) is a little opaque; however what is clear is that Rule 6.4 forms part of the vesting process, and that both are decisions for “the Committee”. My own conclusion would be that Rule 6.4 is envisaged as being considered as part of the vesting decision making and no final decision on vesting would be taken (pace Rule 6.2’s wording) until that exercise was complete.
Whether or not the Board could be the Committee in question (to which I shall come below) on the facts here the minutes disclose a threefold process. The first is a discussion of background factors. The second is a deliberately separated meeting of the Remuneration Committee which on its face deals with satisfaction of the Performance Conditions. The context suggests strongly that the reason for the convening of a separate meeting was to determine vesting under Rule 6. This is supported by the way the Remuneration Committee proceeded. It dealt with the satisfaction of the Performance Criteria not informally, but formally and within the conventions of meetings, and specifically with a formal proposal and resolution. It seems absolutely plain on the face of the minutes that a determination was made that the Performance Conditions had been satisfied. Prima facie that indicates that the shares vest.
They would only not do so if there were a determination as part of the same process that an adjustment had to be made under Rule 6.4. There is no sign at all of the Remuneration Committee engaging with this process; indeed it was not suggested that they did.
Further (again leaving aside the question of whether the Board could make a Rule 6 determination) when the Board meeting reconvened what they recorded (again within a formal Board minute) was that a decision had been taken that the shares would vest. I do not see anything in the use of the word “would” which derogates from the consistent picture presented of a determination under Rule 6 by the Remuneration Committee, particularly in the context of the wording of Rule 6.2.
That being the case, the role for the Board would be to deal with transfer of the shares. And again, this is exactly what the minutes on their face record; and entirely consistently with Rule 7, which places transfer as a “Company” i.e. Board role. As to the suggestion that one sees in the exercise which the Board performs an exercise of the Rule 6.4 role, I find this, despite Mr Hochhauser QC’s very skilful argument, utterly unconvincing.
Firstly there is no sense in divorcing the exercise of the Rule 6.1 and Rule 6.4 functions, and no justification in the text which plainly envisages the two being performed by the same group and which, by reference to Rule 6.2, strongly indicates that the two exercises need to be performed at the same time.
Secondly if the Board is to do both, there would be no sense in breaking for a Remuneration Committee meeting.
Thirdly, it is in practical terms impossible to find a Rule 6.1 determination by the Board. It is plain that in fact that decision was taken by the Remuneration Committee.
Fourthly there is practically no material from which one can spell out a Rule 6.4 exercise by the Board. The Board explicitly invoked both Rule 6.1 and Rule 7 wording. But there is no “read across” from Rule 6.4 to the minutes. In terms of substance the majority of the material on which the Defendants were forced to rely sits well before the Remuneration Committee meeting. It does not appear contextually to be likely to be a Rule 6.4 exercise. And in terms of details for the reasons which I set out below, it does not appear that what was considered, even patching bits together from different parts of the minutes, covers the requisite elements of Rule 6.4.
Accordingly I find that the Remuneration Committee did make a decision on vesting at the 14 March meeting, and did decide that the shares should vest in full. They did not purport to exercise Rule 6.4 (and if Rule 6.4 did stand as valid, they would have no obligation to do so (“may adjust” is the wording)). It follows that the shares vested as of 14 March 2012. It was rightly accepted that if this were the case, there was no scope for refusing to transfer some or all of the shares within the Rules. Accordingly the Defendants’ defence on this issue has no real prospects of success.
I should add that I would in any event have found that the Board was not “the Committee” for the purposes of the exercise of Rule 6 powers. The wording of the Rule expressly contemplates the Rule 6 decision being made by a Committee, as opposed to by “the Company”, which is how the Board’s role is apparently usually indicated in the Rules. Internally in the Rules there are other references (for example at Rule 13.3) which make it clear that the Committee contemplated is the Remuneration Committee. Further the Remuneration Committee’s own terms of reference make it clear that they are the committee contemplated.
The plain answer as a matter of construction matches with the surrounding circumstances. It was the Remuneration Committee which decided on the adoption of Rule 6.4. This matches with the org chart which shows the Board’s powers being delegated to the Remuneration Committee as regards such matters. This is itself consistent with the previous role of the Committee, and with the role of the Committee in this case – the convening of a Remuneration Committee meeting part way through the 4 March Board meeting is otherwise nonsensical. It is also consistent with the kind of transparency which was called for both by external and internal corporate governance standards.
Issue 3: Was the decision under Rule 6.4 an unlawful exercise of discretion?
This point is academic, in the light of the findings I have made above. It was entirely correctly conceded for the Defendants that if the shares vested there could be no lawful exercise of the discretion.
However again for completeness I shall consider what the answer would have been if I had found that the shares did not vest.
The Claimants initially concentrated fire on the question of whether, if Rule 6.4 was valid, what was done was within the scope of an adjustment.
The Claimants submit that Rule 6.4 only authorised the Bank to make an “adjustment” to the Awards. On a proper construction of Rule 6.4, the word “adjustment” referred to a slight recalibration of the Award and did not, therefore, permit the Bank to make the swingeing reduction to nil that it ultimately did. They say that the word must be construed narrowly and point to the Concise Oxford English Dictionary (12th ed) definition as to “alter (something) slightly in order to achieve a correct or desired result”. They say that Rule 6.4 authorised a slight reduction to Awards such as those of Mr Daniels, perhaps in the region of 10% at the very most.
As for the wording “including to nil”, they say that this is merely designed to make clear that, if an Award is already very small, a slight adjustment might mean that the employee participant receives nothing at all. It does not authorise the Bank to reduce a large Award to nil, since that cannot fairly be described as a mere adjustment.
Aside from this the Claimants submit that on the facts the evidence is clear that the Defendants did not exercise the discretion in line with its terms. In particular they say there is no hint of consideration having been given to individual performance, as Rule 6.4 required.
The Defendants took an overall “bigger picture” approach submitting that Rule 6.4 encapsulated a discretion and that the limits of review in such cases are effectively where the discretion is exercised in a manner which is arbitrary, capricious or otherwise irrational. So in Clark v Nomura International plc [2000] IRLR 766 at paragraphs 40-41 a proprietary trader was awarded a nil bonus even though he had generated substantial profits for the bank and the Court found such treatment to be irrational.
They also referred me to the judgment of the Court of Appeal in Horkulak v Cantor Fitzgerald International [2005] ICR 402 where Potter LJ giving the judgment of the Court stated at para 30:
“a requirement necessary to give genuine value, rather than nominal force or mere lip-service, to the obligation of the party required or empowered to exercise the relevant discretion. While, in any such situation, the parties are likely to have conflicting interests and the provisions of the contract effectively place the resolution of that conflict in the hands of the party exercising the discretion, it is presumed to be the reasonable expectation and therefore the common intention of the parties that there should be a genuine and rational, as opposed to an empty or irrational, exercise of discretion. Thus the courts impose an implied term of the nature and to the extent described.”
The third main case to which I was referred was Keen v Commerzbank [2007] ICR 623. In that case the claimant was paid substantial bonuses for 2003 and 2004 but contended that they were nevertheless irrationally low. That argument was rejected by the Court of Appeal. Mummery LJ (which whom Jacob LJ agreed) said:
“39 … I must make it clear that it is not the function of the court to usurp the Bank’s exercise of its discretion. It is for the Bank to decide whether to pay a bonus and, if so, how much, when and in what amount and form. The court is not entitled to substitute itself for the Bank. The court is not a bank. It does not employ the staff of the Bank or pay them. The court’s function is limited to deciding whether the Bank acted in breach of the contract term relating to the discretionary bonus decisions in the years 2003 and 2004.
40 Mr Keen agreed with the Bank that it has a discretion to decide whether he is paid a bonus on top of his basic annual salary and, if so, how much. The only function of the court is to decide on the legal limits to the Bank’s contractual discretion and whether the Bank has acted within or outwith the limits. Apart from that consideration the Bank, not the court, is the judge of what it should pay its staff. ….
58. In my judgment, the claim that the bonus pool decisions for 2003 and 2004 were irrational or perverse faces difficulties which Mr Keen is unable to surmount.
59. First and foremost, the Bank has a very wide contractual discretion. Mr Keen has to show that the discretion has been exercised irrationally. It cannot be said that the decisions of the Bank on bonuses for 2003 and 2004 are irrational on their face. The burden of establishing that no rational bank in the City would have paid him a bonus of less than his line manager recommended is a very high one. It would require an overwhelming case to persuade the court to find that the level of a discretionary bonus payment was irrational or perverse in an area where so much must depend on the discretionary judgment of the Bank in fluctuating market and labour conditions”.
Finally reference was made to the rather unusual case of Braganza v BP Shipping [2015] ICR 449 where these authorities were reviewed by the Supreme Court at paragraph 57 of Lord Hodge’s judgment:
“57 In cases such as Clark v Nomura International plc , Keen v Commerzbank AG and Horkulak v Cantor Fitzgerald International [2005] ICR 402 the courts have reviewed contractual decisions on the grant of performance-related bonuses where there were no specific criteria of performance or established formulae for calculating a bonus. In such cases the employee is entitled to a bona fide and rational exercise by the employer of its discretion. The courts are charged with enforcing that entitlement but there is little scope for intensive scrutiny of the decision-making process. …”
In line with these authorities the Defendants submitted that Rule 6.4 creates a discretion and that it is for the Claimants to show that the Defendants’ decision not to transfer or issue the Integration Awards was irrational and that they had not done so.
The Defendants’ position is that its exercise of discretion pursuant to Rule 6.4 was lawful and there was no breach of contract. The factors in Rule 6.4 are a list of individual factors, to be read disjunctively. Accordingly an exercise of the discretion by reference only to factors relevant to the Defendants was perfectly permissible; there needed to be no individual element and an exercise confined to such considerations did not constitute an arbitrary capricious or irrational exercise. But in any event, they submit, a fair reading of the minutes of the 14 March meeting demonstrated consideration both of issues relevant to the Defendants’ interests, but also matters relevant to individual performance. There could therefore be no breach of the requirements of the clause.
Discussion
So far as this topic is concerned, I reach the following conclusions. First, I do not consider that the reading which the Claimants suggested in relation to adjustment was compelling. The word “adjustment” is plainly qualified by the words “including to nil”. There is no qualifying wording such as one would expect if a two layer system, such as that suggested by the Claimants, was to operate. What is more, to regard a change as minor simply because the total “adjusted” is smaller in case B than case A is fallacious. In either event the recipient is being deprived of 100% of his or her entitlement. Furthermore such an approach would involve unacceptable uncertainty as to where the minor effects ceased, such as to preclude an adjustment to nil. One must conclude that the word “adjustment” may not be the most suitable word, but the intent is clear. Rule 6.4 permits on its face an alteration of the shares earned by reference to the defined criteria to any extent deemed appropriate in the light of the relevant circumstances.
It is not however a pure discretion; the limits which the authorities set down in cases of exercise of contractual discretion are to some extent defined by the content of the clause. The authorities to which the Defendants referred were essentially cases of pure discretionary bonuses; the position here, with a parametered discretion sitting atop an objective system is somewhat different. What the Bank must do is exercise the discretion by reference to those parameters (so it cannot act rationally but without regard to these parameters); and within the exercise of those parameters it must not act arbitrarily, capriciously or irrationally (for example by assessing a particular criterion by reference to imaginary evidence). Accordingly the reliance by the Defendants on the pure contractual discretion cases here was to some extent misplaced. It would not be necessary to show arbitrariness or capriciousness or irrationality at large, but only by reference to the criteria of Rule 6.4.
I would, had the matter turned on this question, have been very careful on the question of whether this was a suitable question for summary determination, not least because the argument did seem to emerge at the door of the court. However since it cannot make any difference and the conclusions, even if not determinative alone are of relevance to some of the points above, it is worth dealing with the point.
The first question is whether the rule imported a dual consideration (performance of Company/Member/business area/team plus conduct/capability/performance of the participant) or a single basket of considerations with the “and” being read disjunctively. On this, I cannot see how, in the context of this sentence where it precedes three alternatives, “and” can realistically be read disjunctively. Nor indeed, in terms of the purpose of the Scheme (a relevant factor in considering any contractual discretion), would a set up where an adjustment could be made by reference solely to the performance of any Member of the Group or business area, and without any relevant consideration by reference to the affected individual, seem to make any sense.
The second question is whether there is evidence of consideration of the relevant test in the Minutes. If the test is dual, in my judgment there is not. Even if the test were single, while the minutes plainly do touch on the question of the Group’s performance, they do not on their face suggest that there was separate consideration of whether that factor justified an adjustment. The position would be similar to the Mallone case, where (see [41-42]) the power had to be shown to have been exercised rationally and on the face of the evidence there was no sign of consideration of why it was permissible to take away the earned bonus of an employee who had not committed any misconduct. However this might well be an area where the Defendants would suggest that more evidence was necessary if the outcome were to turn on it.
Issue 4: Whether Rule 15.7 prevents the Claimants from seeking the relief sought
The Defendants rely on Rule 15.7 as a complete answer to the Claimants’ claim even if it is found that there has been an unlawful exercise of the discretion in Rule 6.4, though it cannot bite if (as I have found) Rule 6.4 is itself invalid.
The operation of Rule 15.7 denies Claimants a right to “compensation for any loss” in relation to the Plan in two circumstances:
i) Firstly, where there is “any loss or reduction of rights or expectations under the Plan in any circumstances” pursuant to Rule 15.7.1; and
ii) Second, in relation to “any exercise of a discretion or a decision in relation to an Award or to the Plan” pursuant to Rule 15.7.2.
The Defendants say that the clear words of Rule 15.7.1 cover “reduction of rights or expectations under the Plan in any circumstances”. The exclusion, therefore, is broad and is wide enough to entitle the bank to withhold the transfer of shares. Furthermore, the Unfair Contract Terms Act 1977 does not apply in the employment context.
For the Claimants it was submitted that this is an exclusion clause and, as with the position on Rule 17.1, it is trite law that it “must be expressed clearly and without ambiguity” if it is to be found to be effective – especially so where, as here, it is intended to protect the party who had control of the drafting process and the benefit of sophisticated legal advice (Chitty, 15-008, 012).
They submit that read correctly, Rule 15.7 only excludes the right to “compensation” for any “loss” in relation to the Plan and that the primary relief they seek is not “loss” since they seek (a) a declaration by each that he is entitled to receive his Award and (b) an order that the Bank should transfer or issue to him the shares due under the Award, neither of which remedies can be described as “compensation”.
The Claimants also dispute the efficacy of the clause to exclude claims for damages in that:
i) Whilst Rule 15.7.2 purports to exclude claims relating to “any exercise of a discretion”, their case (ex hypothesi successful) is that the Board had no discretion to exercise.
ii) As to Rule 15.7.1, it is “inherently unlikely” that the parties intended to exclude all damages claims, in that if that were the case the contract would be “effectively devoid of contractual content since there is no sanction for non-performance by the Respondent” (Kudos Catering (UK) Ltd v Manchester Central Convention Complex Ltd [2013] 2 Lloyd’s Rep 270, [19], where the Court of Appeal (Tomlinson LJ) refused to uphold as a general exclusion a term which stated: “The Contractor hereby acknowledges and agrees that the Company shall have no liability whatsoever in contract, tort (including negligence) or otherwise for any loss of goodwill, business, revenue or profits … “).
Further they submit that Rule 15.7.1 does not purport to exclude claims for breach of the LTIP Rules (claims qua participant of the Plan); rather, it purports to exclude claims qua employee such as claims for loss or reduction of rights or expectations e.g. as a result of unlawful dismissal. Where the Bank acts in breach of the LTIP Rules, it cannot be said that the employee participant’s rights have been “lost” or “reduced”; they have merely been breached, and can be enforced by legal proceedings. As such, Rule 15.7.1 does not exclude their claims for breach of their rights under the LTIP Rules.
Alternatively, they say that Rule 15.7.1 (in contrast to Rule 15.7.2) only applies to breach of the Plan, not breach of the terms of an Award. As such, it does not exclude claims by persons (such as Mr Daniels) in whose favour an Award has already been made. Rather, its purpose is to exclude claims by disappointed employees in whose favour an Award was not made.
The Defendants submit that there is nothing in these arguments. They submit that the Claimants’ approach effectively denudes the clause of any meaning and that as part of the Plan the clause is plainly apt to exclude claims under that same plan. The loss of a right to a transfer of shares is still, they say, a loss within the meaning of the clause. There has been an exercise of a discretion, even if not expressly. As for the breach/loss argument Mr Hochhauser QC characterised them as being “like a horse and carriage” – one cannot have loss without breach, and so the argument is fallacious.
The Kudos case is said to be distinguishable in that there it was clear (at least to the Court of Appeal) that the very broad exclusion was a qualification to the indemnity provisions and not a blanket exclusion. Here they submit there is no equivalent yardstick for the operation of the clause and the words are clear, and on ordinary contractual principles (see again Suisse Atlantique) should be made to operate.
Discussion
I do not see here the distinction which the Defendants sought to draw between this case and the Kudos case. That case may be rather more extreme, in terms of the breadth of the blanket exclusion in that case, but there are otherwise similarities. Both deal with an exclusion which taken by itself is wide and might be said to exclude recovery for a potentially surprising range of losses. Both are to be found, not in the context of a heading: “General Exclusion Clause” or some other heading which reinforces that that is what they are aiming to do, but under a sub-heading which points in a different direction. In Kudos the heading was “Indemnity and Insurance”. Here Clause 15.7 appears three quarters of the way down the provisions under the heading “Terms of Employment”.
It is in my view worth reiterating a passage from that judgment, where Tomlinson LJ outlines the kinds of considerations which must assist the construction of broad words in this kind of context – and which demonstrates the crossover between the factors relevant here and in relation to the first issue:
“19. … if the judge’s construction of Clause 18.6 is adopted, [the contract is] effectively devoid of contractual content since there is no sanction for non-performance by the Respondent. It is inherently unlikely that the parties intended the clause to have this effect. … As Lord Wilberforce said in the Suisse Atlantique case [1967] 1 AC 361 at 431–2 … [quoted above]
20 Nonetheless, where language is fairly susceptible of one meaning only, that meaning must be attributed to it unless the meaning is repugnant to the contract in which case it may be necessary to ignore it – see per Briggs J in EU Network Fiber v Abovenet [2007] EWHC 3099 at paragraph 257.
21 But as Lord Clarke of Stone cum Ebony pointed out in The Rainy Sky case, … at paragraph 21:—….. [quoted above]
To similar effect is a passage … from the judgment of Hoffmann LJ, as he then was, in Co-operative Wholesale Society Limited v National Westminster Bank, at page 99. …
“This … does not however mean that one can rewrite the language which the parties have used in order to make the contract conform to business common sense. But language is a very flexible instrument and, if it is capable of more than one construction, one chooses that which seems most likely to give effect to the commercial purpose of the agreement.”
There also in my view comes into play the presumption that neither party to a contract intends to abandon any remedies for its breach arising by operation of law – see per Lord Diplock in Modern Engineering v Gilbert-Ash [1974] AC 689 at 717. Lord Diplock went on to say that clear words must be used to rebut this presumption and the judge plainly thought that the words here used were sufficiently clear for that purpose. The judge should not in my view have reached that conclusion without first examining the context.
22 As I have already observed above, the judge cited some of these passages from the authorities but, in my view, he fell into error in thinking that the ascertainment of the meaning of apparently clear words is not itself a process of contractual construction. He failed to consider the words of the clause in their wider context.”
This passage underlines the importance in this exercise of construing exclusion clauses of both paying due respect to the words used, but also (and particularly where they yield a surprising result) balancing the factors indicated by context and commercial context. It seems to me that the Defendants are in effect inviting me to fall into the same error as was committed by the first instance judge in Kudos – looking at the words without their wider context. Once the context is properly considered, the result is, in my judgment, inescapably the same as that which followed in Kudos.
The clause has to be seen as having special reference to claims which are properly characterised as employment claims and not claims in the context of the Plan generally. In this context the wording makes perfect sense – and indeed the example given (of loss or reduction of rights consequent on lawful or unlawful termination of employment) reinforces that approach. Certainly the words are not sufficiently clear, given the context and the surprisingly extensive effect of such a construction, for the Defendants’ construction of this clause to succeed.
Issue 5: the effect of the Claimants’ agreements
Mr Daniels’ Heads of Terms
On 20 September 2010, Mr Daniels agreed Heads of Terms for his retirement with the Bank. He relies on the fact that the section addressing the LTIP was said to form “legally binding obligations of LBG and the executive” and that the Heads of Terms stated that his Award would be “released in line with the normal vesting dates at the end of the performance period if and to the extent that conditions have been met”. He therefore says that the Bank’s refusal to honour his Award, notwithstanding its admission that the Performance Conditions have been satisfied, is inconsistent with the obligations that it assumed in the Heads of Terms.
Insofar as the Bank relies on the argument that the Heads of Terms were expressed to be “subject to the rules of each plan”, Mr Daniels submits that on a proper construction of the Heads of Terms, Rule 17.1 of the LTIP Rules was not incorporated. He points to Chitty on Contracts (32nd ed) paragraph 13-082 which states that:
“if clauses are incorporated by reference into a written agreement, and those clauses conflict with the clauses of the agreement, then, in the ordinary way, the clauses of the written agreement will prevail. Moreover, the incorporating provision may be so general or wide as to have the effect of incorporating more than can make any sense in the context of the agreement, in which case the surplus may be rejected as insensible or inconsistent.”
He says that such an inconsistency exists here because:
i) The Heads of Terms were cast in terms of “would be entitled” with the sole qualification to that being that he ultimately left the Bank by reason of retirement, and not for any other reason.
ii) The purpose of an agreement in the nature of the Heads of Terms is to achieve certainty and finality (Foskett on Compromise (8th ed.), 6-01). Rule 17.1 cannot, therefore, have been incorporated into the Heads of Terms, since the Bank’s obligations would then have been subject to open-ended, unilateral change. Moreover, a clause providing for unilateral variations in the future has no role in a contract, like the Heads of Terms, designed to bring the parties’ relationship to an end.
He also points to the authorities which say that where standard terms are incorporated into an agreement, “prima facie a reference to standard terms and conditions is a reference to the terms and conditions current at the date of the contract” (Ford Motor Company of Australia Ltd v Arrowcrest Group Pty Ltd [2002] FCA 1156, [6]). Accordingly, he says the Heads of Terms incorporated the LTIP Rules as at the date of the Heads of Terms, namely 20 September 2010, without any subsequent amendments made pursuant to Rule 17.1.
Mr Daniels also submits that the Bank’s reliance on the “no other circumstances apply” provision is misconceived in that it amounts to a submission that this provision gave it an open-ended discretion to refuse to honour the Heads of Terms if “other circumstances” apply which he says cannot be the case; that would mean that the Bank could have repudiated the Heads of Terms for practically any reason; if that had been intended the parties would have specifically provided that the LTIP section was not intended to be legally binding (as they specifically did for the Salary Review, Annual Incentive and Pension sections).
He submits that the correct construction of the relevant sentences is that the Heads of Terms were only applicable if Mr Daniels left the Bank by reason of retirement. In the event that he left in “other circumstances” (i.e. dismissal for misconduct, redundancy etc), the Heads of Terms were inapplicable. However he did leave by means of retirement and is therefore entitled to rely on the Heads of Terms.
Mr Tate’s Compromise Agreement
It was pursuant to this agreement that Mr Tate agreed to the termination of his employment with effect from 31 January 2013.
Mr Tate relies in particular on Clause 6.4 of the Compromise Agreement, which provided:
“A draft letter is appended at Schedule 4, based upon Your Termination Date, giving You further information about Your Executive Share Scheme Options and LTIP awards under the Plan.”
The letter in turn referred to and attached details regarding Mr Tate’s Integration Award at Appendix B, which stated:
“Your Integration Award
Your award currently remains subject to the performance conditions and the number of shares you will receive at the end of the 3-year performance measurement period will be determined by that performance.…The performance for Years 1 and 2 of the 3-year performance period have now concluded, the performance has been measured and the combined maximum payout for 2009 and 2010 has been banked for you. That equates to 58.25% of your original Award. In addition, you will be entitled to any shares banked in respect of year 3.”
Mr Tate says that it is plain that this (in particular the references to “banking” and “will receive” or “will be entitled”) is all the language of contractual entitlement. It is also in marked contrast to such clauses as clauses 3.1 and 3.2 of the contract in relation to bonus awards (rather than LTIP awards), which provided in terms that the awards were “subject to malus provisions”.
He also points to the provisions which indicate finality is intended. He says Recital (A) to the Compromise Agreement made clear that the agreement recorded “the terms on which they have agreed to settle all outstanding claims”. It was not a part of those terms that the Integration Award could be denied on a basis which was not within the Rules or performance conditions for that award. He also points to the fact that Clause 14.1 stated that “the terms of this agreement are in full and final settlement of all claims…”.
Like Mr Daniels he submits that a cross reference to LTIP terms must be a reference to terms at the time of the letter, not later terms. As well as referring back to Khatri at [39] he points to the judgment of Lord Fraser in Smith v South Wales Switchgear Co Ltd [1978] 1 WLR 165 (regarding standard terms of sale), at p.171G:
“It seems to me that the reference to general conditions without any further description must be taken to refer to the edition current at the date of the contract… If the appellants had asked for a copy of the general conditions that is the version which ought to have been sent.”
Mr Tate also refers to the judgment of Christopher Butcher QC (as he then was) in MPloy Group Ltd v Denso Manufacturing UK Ltd [2014] EWHC 2992 (Comm) in support of the proposition that clear words in the Compromise Agreement itself would be required before words of incorporation were effective to incorporate future amendments made to those terms from time to time:
“64…The contract does not contain any wording to the effect that it is MGL’s terms and conditions ‘in force from time to time’ which are applicable, and I do not consider that such words can be read into Clause 1.3… A fortiori, I do not consider that it is possible to read into Clause 1.3 the more elaborate provision that the applicable terms will be MGL’s standard terms from time to time of which notice has been given to DMUK.
65. … it is possible for parties to a contract to agree that terms adopted by one of the parties from time to time will apply to their relationship, or to include an express power on one party to vary the contract. … clear language would be required for a contract to be construed as having such an effect, and a term which would have such an effect will not generally be implied. … I also consider that some support for this approach is provided by Wandsworth v Da Silva [1998] IRLR 193, per Lord Woolf MR at [31], which, albeit obiter, is germane; and by Security and Facilities Division v Hayes [2001] IRLR 81. Both those are cases about employment contracts, but I consider that there is no reason why a similar approach is not warranted in the present context.
66. Applying such an approach to the present case, there was no clear or unambiguous language providing for the application of MGL’s terms of business applicable from time to time. I find this unsurprising, as a provision such as that for which MGL contends would be open to abuse, and would be one which a commercial party such as DMUK would be unlikely to accept.”
He also points to the entire agreement clause which provided that “the terms of this Agreement constitute the entire agreement and understanding between the parties hereto” (clause 18) as reinforcing the argument that the terms of the Compromise Agreement did not include amendments to the Rules which were not made until after it was concluded.
The Defendants’ approach to the agreements
The Defendants rely on the fact that both agreements refer back to the rules of the LTIP. For example clause 6.4 of the Compromise Agreement provided that:
“Any entitlement to the receipt of shares under any subsisting share awards under the Company’s Long-term Incentive Plan (“LTIP”) (the “Plan”) shall be determined in accordance with the rules and conditions of the Plan”.
They say that the language, read overall, is plainly conditional and that there is no sense of entitlement conveyed beyond the right to receive a determination in accordance with the rules of the Plan. They referred to a future determination; there is no reference to accrual, and there is no language of guarantee in the words used (as there could have been). Those rules always included Rule 17 which enabled changes at large, and by the time of the determination of entitlement they included Rule 6.4.
So far as it was suggested that Rule 17 should be read as confined to procedural changes it was submitted that this was inconsistent with Clause 16, which specifically dealt with procedural changes. Accordingly Rule 17 effectively had to have a wide application.
So far as the Ford case was concerned the Defendants pointed to the fact that the terms in that case did not contain a similar power to amend comparable with Rule 17.
So far as concerns the First Claimant’s reliance on the Heads of Terms, which was concluded on 20 September 2010, and the contention that the parties could not have intended that the Second Defendant would be unilaterally entitled to vary them by introducing Rule 6.4 it is submitted that is incorrect in that the rules of the plan expressly contain a power of amendment.
Accordingly, they say, the Integration Awards were made subject to the 2006 LTIP as amended and the relevant amended version at the time the decisions were taken with respect to the transfer or issue of the Claimants’ shares on 14 March 2012 was the 2012 Amendment. This means that the rules in play when the decision-making on 14 March 2012 took place included Rules 6.4, and 17. Nothing in the Second Claimant’s Compromise Agreement nor the First Claimant’s Head of Terms alters that position.
Discussion
This point can be dealt with briefly. While I am not persuaded that the language in either agreement was as such to convey an absolute entitlement, I do consider that the reference to the Rules is, absent any reference to such terms “as are in effect from time to time” or similar clear wording, best read as a reference to the terms then in place. That seems to me to be consistent with the bulk of the authority as outlined above. It is also consistent with the language of the documents, including the reference to “banking” earlier tranches. That language on its face indicates an entitlement subject only to determination of remaining performance criteria, which is itself consistent with the Rules as they existed at the time.
So I do not accept the submission that the Claimants’ rights were firmly “crystallised” at the time of their respective agreements; there was still scope for it to be found that the final Performance Criteria had not been met. However even if Rule 17 would otherwise have been apt to permit the introduction of Rule 6.4, that rule could not have been effective vis á vis Mr Daniels and Mr Tate who signed off on what were intended to be final deals before that clause was ever (purportedly) introduced.
Conclusion
For the reasons given I accordingly find that the Defendants’ defences have no real prospects of success, and that the Claimants’ applications for summary judgment succeed.