Law Report: No unauthorised deduction of wages

3 April 1999 New Century Cleaning Co v Church Court of Appeal (Lord Justice Beldam, Lord Justice Morritt and Lord Justice Sedley) 26 March 1999; Friday Law Report

A PERCENTAGE reduction in the piecework rates paid to members of a team and divided proportionally between them was not an unauthorised deduction of wages within the meaning of section 13 of the Employment Rights Act 1996.

The Court of Appeal (Sedley LJ dissenting) allowed the employer's appeal against a finding that an authorised deduction had been made from the employee's wages.

The employer provided contract window-cleaning services. It was accepted that its window cleaners were employees and not independent contractors. They were organised into teams, each with a leading hand, and each team was paid collectively on a piecework system.

The leading hand would collect the workbill for the day, which gave details of the job to be done and a code which showed the gross amount to be paid by the employer to the team. The team had a choice whether or not to do the work, but the price was not negotiable. Within the team it was agreed how much each member would receive as a proportion of the amount payable for the job, and the employer paid the employees on the basis of information provided by the leading hand as to the relevant proportions.

Because of falling profits, the employer decided that as from 1 April 1996 all work-bills for regular jobs would reduced by about 10 per cent. The employee complained to an industrial tribunal that a reduction of 10 per cent in part of his gross wages was an unauthorised deduction under section 13(1) of the Employment Rights Act 1996. The tribunal found in favour of the employee.

The employer's appeal to the Employment Appeal Tribunal was dismissed, and it appealed to the Court of Appeal on the ground, inter alia, that the tribunal had not been justified in holding that the employer could not reduce the amount of the rate offered for regular jobs by 10 per cent without contravening the provisions of section 13 of the Act.

Nicholas Underhill QC (Nabarro Nathanson) for the employer; Linda Goldman (Alexander Johnson) for the employee.

Morritt LJ said that at the end of each fortnight the individual employee expected to receive a wage made up of the share appropriate to him of the workbill amounts of all the jobs done by his team in the previous two weeks. The amount he expected might be described arithmetically in respect of each job by the equation w = a% x b, where "b" was the workbill amount for that job and "a%" was the share of the workbill amount attributable to that employee. The wage would thus be the aggregate of "w" for each job done in the pay period.

Plainly the reduction of b by 10 per cent constituted a reduction by that proportion of an essential ingredient in the calculation of the wage, but did it give rise to a deduction from the wage?

The only legal entitlement on which the employee relied was his contract of employment. There was nothing in that contract which entitled him to or his team to do the same jobs each week for the same price, and there was, therefore, no obligation on the employer to maintain b at a fixed amount.

It was clear that the amount due to each employee in respect of each job was dependent upon the agreement reached by him with the members of his team. Thus a% was not a fixed proportion, nor was it objectively ascertainable; it depended upon the agreement made by the employee with a third party. The uncertainty as to a% prevented the ascertainment of a wage properly payable on the first pay day after 1 April 1996. It all depended on the agreement as to what should be paid on that day in respect of each job going to make up the overall wage.

It followed that the reduction of the workbill amount for each job by 10 per cent was not a deduction from the wage payable but a change in one of the components necessary to its calculation, and that the employer had not, in so reducing the workbill amounts, contavened section 13(1) of the Employment Rights Act 1996.