How a dispute on basic hours can lead to an unlawful deduction of wages
A recent case highlights the importance of clearly worded employee contracts, and the implications for a business if it can be interpreted in more than one way.
A case has reached Tribunal which shows just how complicated holiday calculations are if the employee is not simply salaried with no additional pay / varied hours. In this situation, an employee disputes their basic hours – which could mean their employer has breached National Minimum Wage regulations.
About the case
In January this year, L Lloyd vs Elmhurst School Ltd appeal details were released regarding a part-time term time worker who is paid in 12 equal instalments throughout the year. The claimant, Lloyd, brought a claim against the school for unlawful deduction from wages contending that she was paid below NMW during holidays. She is a salaried worker under the NMW regulations.
The tribunal had dismissed her complaint, holding that her basic hours for the purpose of the NMW regulations were based on 21 hours over 40 weeks, thus she was paid correctly. Lloyd appealed the claim, and the appeal was allowed stating that the claimant’s basic hours for the purpose of regulation 21 (3) were to be ascertained from her contract, and could include hours which were not working hours. On inspection of her contract, it was not on the basis of the hours worked, but on the contractual reference.
Within the summary the judge says: “Had the Tribunal applied the correct test, only one conclusion was possible: that the claimant’s basic hours were 52 weeks x 21 hours each year.” This is why the appeal was accepted, as this calculation would mean a breach of her contract.
The judge went on to say the Tribunal failed to take into account the provisions of NMWR, which recognises that non-working hours can count towards basic hours. The judge also says that the Tribunal had erred in focusing on the weeks the claimant had in fact worked, and had then added her statutory leave entitlement to paid annual leave, rather than ascertaining her basic hours from her contract alone.
The Tribunal heard that Lloyd’s salary was made up of a basis for 40 weeks: 36 weeks during term time and 4 weeks in relation to section 13. The Tribunal went on to refer to a complaint raised by the claimant that she was not paid the NMW and a decision of HMRC that all other employees at the school were paid for a 40-week period (with one exception), with the consequence there was no under-payment of the NMW. It also referred to new employment contracts which the school asked staff to sign following the HMRC investigation.
The school’s response was that the claimant’s basic hours were 21 hours a week during the 36 weeks of term, not 21 hours a week across 52 weeks of the year, as the 12 weeks outside of term time were not worked by this employee. Across the 36 weeks she was in receipt of a wage above NMW, but if the calculation took into account the 52 weeks of the year, then this would be a breach of NMW. This will be the basis of the Employment Tribunal to ascertain.
However. the appeal court have said that it seems the initial Tribunal addressed a different question, rather than examining the contract.
They said: “In that light, I do not accept that the effect of the Tribunal’s reasons was to decide that, as a matter of contractual interpretation, the claimant was engaged on a term-time only contract… That is not what the contract said and it is inconsistent with clause 3(b) as well as clause 4. That she and the school understood she would only work term times did not resolve what were her basic hours ascertained from her contract to which clause 4 was of central relevance. But rather than seeking to interpret the meaning of clause 4 as a matter of contract, the Tribunal discounted it on the basis that the claimant was not working during the school holidays.”
They go on to talk about Working Time regulations, and the link with this regulation and the contractual wording.
What this case tells us
National Minimum Wage regulations are very complex, and this case clearly shows that it is down to the wording of the contract to ascertain how and what calculations are used.
So, from a payroll processing perspective it is imperative that HR professionals review and advise on their contracts. The less detail the contracts contain, the more chance of a breach of contract, which could result in a claim. If a Tribunal can rule on their ‘interpretation’ of the wording, the verdict may become more personal to an individual’s understanding rather than what’s intended – which is all the more reason to ensure employment contracts are set out clearly so that no unwanted interpretation is made.