Can an unauthorised deduction of wages claim be made if an employer makes no payment at all, underpays, or pays late? Yes, yes, and yes.
Fully Unpaid?
For a while there was some uncertainty whether a non-payment of wages (bearing in mind the restrictive scope of what is and is not “wages” definition of wages in s.27(2) of Employment Rights Act 1996) which was settled by the Court of Appeal’s judgment in Delaney v Staples [1991] IRLR 112 (if a payment is a ‘wage’ and is payable then a complete non-payment is still a ‘deduction’). The Court put it in this way:
“Non-payment of wages due to an employee is a deduction from wages within the meaning of the Act. The Industrial Tribunal can entertain any claim by an employee that, in contravention of the Act, his employer failed to pay him at the appropriate time the full amount of the wages, as defined in the Act, which he ought then to have been paid.”
The Delaney v Staples case went on to be heard by the House of Lords but on a different (but important) point of law about notice pay which I will post on shortly but the decision on full non-payment being a deduction was not challenged in that later hearing.
There are quite a lot of circumstances where a deduction of wages complaint is possible but in most cases the complaint is of the type covered by Court of Appeal’s Delaney v Staples: For example, “I was due a 10% pay rise in September but didn’t receive any pay rise at all”, or, “my salary for August was £2,000 but I was not paid this.”
Partly Paid and Underpaid?
Sometimes an employer will only pay part of the wages that are due. For example, where an worker is owed £2,000 for a month’s salary but only paid £1,500 – this is still covered by the Delaney v Staples case; because as the court said, and employment tribunal “can entertain any claim by an employee that, in contravention of the Act, his employer failed to pay him at the appropriate time the full amount of the wages” owed at that time.
But what about where there has been a change of hours worked so the employer only pays for those hours worked. For example, suppose a worker has a contract for forty hours a week pay at £15 per hour; that would equal a weekly wage of £600. Now the employer only offers the worker twenty hours of work, so the worker is paid only £300, which is £3,000 less than the worker thinks should be paid. Can she make an unauthorised deduction of wages claim then?
For a while that was hotly debated because to determine the case an ET would need to interpret contract of employment which some felt the ET did not have jurisdiction to do. This was necessary because if our worker’s contract allowed an employer to unilaterally reduce hours of work then any claim would be defeated but if not then this would suggest the employer was required to pay the worker £600 per week for 40 hours work, even if the number of hours worked was less than this. This concern was settled by the Court of Appeal in Agarwal v Cardiff University [2019] IRLR 657. If interpretation of a contract was required to resolve a unauthorised deduction of wages case then the ET could do this.
An example of how this can be applied can be seen in International Packaging Corporation (UK) Ltd v Balfour [2003] IRLR 11. In that case the employer unilaterally reduced worker pay when it did not have a contractual right to do so. The amount of the unilateral reduction of pay was found to be an unauthorised deduction of wages.
The Agarwal decision is an especially important case for trade union representatives as it provides opportunity to raise collective issues on a collective basis where, for example, a unilateral change of contract is imposed by employers (something that may become more common after reforms to fire and re-hire in the Employment Rights Bill). While workers remain employed, they have no right to bring breach of contract claims in the ET (they can in the civil court but that is expensive). Where a failure to adhere to an employment contract results in a loss of wages then, post Agarwal, an unauthorised deduction of wages claim offers an opportunity for a collective claim on behalf of members.
Lately Paid?
Nearly all unauthorised deduction of wages concern an amount of money that remains unpaid. The claimant wants an order to require the employer to pay money owed to the worker – but is this an absolute requirement?
This question was considered in the context of an automatic unfair dismissal case in Francis v Elizabeth Claire Case Management Ltd [2005] IRLR 858. The claimant complained to her employer that it was often paying her late. There was no dispute all money owed had been paid, but simply the payments were later than they should be. She alleged that because of those complaints she was dismissed and that this was because of her asserting a statutory right (the right not to suffer unauthorised deductions of wages). The EAT therefore had to decide whether a failure to pay on time was itself capable of being an unauthorised deduction of wages? The EAT found that it was, stating [at paragraph 30] that the:
“true position is that where an employee is not paid any of his or her salary on time, this failing by the employer constitutes a breach of ‘a relevant statutory right’ of that employee.
Of course, it is unlikely to be reasonable to complaint to an ET on the basis that an employer made a payroll a day late and there is no financial impact upon a claimant unless part of a broader case. However, it is not hard to see that a failure to pay on time might cause a worker financial loss.
For example, suppose a worker is due to be paid on the first day of every month but an employer does not in fact pay the worker until a week later. For that first week, the worker has insufficient money to pay their credit card, loan payments, mortgage etc (maybe all three!) and, as a result they are charged additional fees for their late payments. Because, in addition to ordering unpaid wages be paid, the ET can award additional sums for financial losses caused by the deduction (section 24(2) Employment Rights Act 1996) making a claim that an employer made deductions of wages simply by paying them late is an option reasonably open to a worker to recover that additional outlay caused by the employer’s breach.
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