Appeal No.	 EAT/182/01

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
	On 7 March 2002
Judgment delivered on 10 April 2002

Before
THE HONOURABLE MR JUSTICE HOLLAND
MRS A GALLICO
MR D NORMAN

BALFOUR BEATTY POWER NETWORKS LTD	APPELLANTS

MR B R TUCKER & 11 OTHERS	RESPONDENTS

Transcript of Proceedings

JUDGMENT

Revised

	APPEARANCES

For the Appellants	MISS MELANIE TETHER
(of Counsel)
Instructed By:
Mr R L Dobie
Tods Murray WS
66 Queen Street
Edinburgh
EN2 4NE	
For the Respondents	MR ANDREW HOGARTH
(of Counsel)
Instructed By:
Mr B A Smith
Messrs O H Parsons & Partners
Solicitors
3rd Floor Sovereign House
212-224 Shaftesbury Avenue
London 
WC2H 8PR

MR JUSTICE HOLLAND:

Introduction

1.	This is an appeal from the decision of an Employment Tribunal sitting at Cardiff, which decision together with Extended Reasons was sent to the parties on the 20th December 2000.  The issues are as to unlawful deductions from wages.

The Law

2.	Statutory provisions relevant to this appeal are as enacted in the Employment Rights Act 1996:

Section 13(1).  An employer shall not make a deduction from wages of a worker employed by him …

(3).  Where the total amount of wages paid on any occasion by an employer to a worker employed by him is less than the total amount of the wages properly payable by him to the worker on that occasion (after deductions), 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.

27(1).  In this Part ‘wages’ in relation to a worker means any sums payable to the worker in connection with his employment including
	(a) any … bonus …

3.	In New Century Cleaning Co. Ltd v. Church (2000) IRLR 27 the Court of Appeal considered Section 13(3), holding that the reference to “wages properly payable” invoked sums to which the employee had some legal entitlement, whether referable to contract or otherwise.

The Facts

4.	The Applicants before the Employment Tribunal were thirteen in number, all operatives employed by Respondents, Balfour Power Networks Ltd., formerly Balfour Kilpatrick Ltd.  At all material times prior to June 1998 their wages reflected a conglomeration of ingredients, such including basic rate, overtime, plus rate and what was colloquially christened ‘Ghost Hours’.  Adverting to the latter, it relates to a practice adopted by the Respondents (in common with many other construction and engineering employers) of crediting to workers for payment purposes hours additional to those in fact worked, that is, ‘Ghost Hours’.  The object of this practice was to pay in excess of basic rate to an extent needed to retain workers when market conditions were good and labour was in demand.  Whilst payment for such hours was sufficiently regular so as to be a matter of expectation, it is conceded that it reflected discretion on the part of the employers as to the number of hours allotted to an individual employee – further, if market conditions declined it was within this discretion to stop altogether this additional mode of payment, and this had in fact been the case from time to time.

5.	Payment of employees in this part of industry reflects the Working Rule Agreement currently in force.  Such Agreements are arrived from time to time by way of negotiation between representatives of the relevant employers and unions.  One such, the Working Rule Agreement of the Construction Industry Joint Council, was negotiated and published so as to be effective from the 29th June 1998 and to provide for the next two ensuing years.  There are three material features of this Agreement.  First, the previous factors bearing upon pay were simplified.  Former ingredients such as plus rates were abandoned and six effective grades were agreed for pay purposes: General Operatives, Skilled Operatives (in four categories) and Craft Operatives.  Second, pay increases were agreed, including increases for the year beginning 28th June 1999 in a range 7.5% to 10%.  Third, there was no provision by way of this Agreement for output or productivity bonuses.

6.	As an individual employer the Respondents drafted a memorandum of the 27th July 1998 for circulation to all employees:

“You may be aware that new rates of pay, classification of skills and changes to the old Working Rule Agreement came into force on 29 June 1998.
The changes are such that new Contracts of Employment will be issued to each employee.  These will be produced within four weeks.
The previous rates of pay in Balfour Kilpatrick were enhanced by an additional payment or bonus.
The 1998 pay agreement significantly increases the hourly rate of pay for everyone.  In order to remain competitive in what is becoming an increasingly difficult market, these increases in the hourly rates have required a reduction to the discretionary enhancement after allowing for the changes in the new agreement relating to overtime and travel pay.  The rest of the civil contracting industry is having to do the same.
The overall effect of these changes is that nobody will be worse off.  It should also be noted that there is the possibility of improvement with the higher hourly rate being used in overtime working.
Each employee has been allocated a classification of skill level based on his training record.  Your Engineer has a list of all employees, their skill level and new hourly rate.  If you disagree with our assessment of your skill level please inform your Engineer.”

By 10th August 1998 a minute of an internal meeting served to set out the Respondents approach to implementation of the Agreement:

“P. Elliott advised the changes on the Working Rule Agreement (Construction Industry Joint Council) new rates of pay and the method for implementation within BK Cardiff.  The main principles of which are: -
1.1.  No employee would be any worse off under the new rule.
1.2.  Based on 39 hours week.
1.3.  Only hours worked to be booked.
1.4.  Operatives required to work at a higher skill level for a short period of time are to 
         be paid for the rate appropriate to that skill factor for the period of time that they 
         work at the higher level ONLY – and they then return to their designated rate.
1.5.  Where operatives would be worse off under the new scheme they will be paid a
        daily bonus equal to the difference in remuneration between new and old scheme.
1.6.  Any bonus paid as item 5 would only be paid for attendance Monday to Friday 
         inclusive – it “will not” apply to Saturday and Sunday working.”

7.	For the purposes of the hearing before the Tribunal attention focussed upon a representative Applicant and Mr. Tucker, a Craft Operative was put forward as such.  In evidence he said that he had not received the memorandum of the 27th July 1998 but, as foreshadowed in such, the changes initiated by the new Working Rule Agreement did result in the provision to him of a fresh statement of particulars of employment as required by Section 1 Employment Rights Act 1996.  It was expressed to be as at 29th June 1998 and so far as material provided:

“Remuneration
4 (a) (i)	Your rate of remuneration will be that applicable to the job you are required to undertake at any time in accordance with the CIJC Working Rules Agreement.  Your basic/ordinary hourly rate of pay (which is used for the purposes of overtime, night work or shift work calculations) at the date of this statement is £5.50p per hour.  Your rate of pay can vary depending on the job you are engaged on at any time, and will be shown on your pay slip which will constitute an amendment to this statement.  In certain circumstances you may be entitled to other payments the method of calculation of which will be in accordance with the CIJC Working Rule Agreement.
(ii)	It shall be open to employers and employees on any job to agree a bonus scheme based on measured output and productivity for any operation or operations on that particular job.
(b)		Your remuneration is paid weekly in arrears by credit transfer to your nominated bank or building society account.”
Additionally this statement provides: “The collective agreement which applies to you at the date of this statement is the Working Rule Agreement of the Construction Industry Joint Council (CIJC).”

8.	In June 1998 and pursuant to the foregoing the Respondents carried out an exercise seeking a comparison between that which Mr. Tucker (along with other like employees) would have been entitled to by way of weekly gross income under the hitherto prevailing Agreement and what he would now be entitled to by reference to the new Agreement.  That comparison appears in detail in document R26.  What it demonstrates is that in his case the termination of the extraneous factors which had contributed materially to his former gross income – principally Ghost Hours – gave rise as at that date to a deficit of an average £72.80p per week.  Accordingly for the next ensuing year his weekly gross income was incremented by that sum, such being identified on his itemise pay slip as ‘bonus’.  This step provoked no protests.

9.	A year later Mr. Tucker (again along with his fellow employees) became entitled to the increase in his basic hourly rate.  There is no finding as to the actual increase but there is a finding, sufficient for present purposes, that it was in the range 7.5% - 10%.  If the Respondent employers had maintained the weekly payments of bonus (or ‘site allowance’, as it is otherwise described in the papers) then Mr. Tucker’s weekly income would have increased as provided for by the basic rate increase.  In the event the Respondents indicated that for the next ensuing year there would be a weekly bonus (or site allowance) but in a lesser sum, thus serving to reduce the rise in his gross weekly income to one of 3%.  It is apparent that as further basic rate rises were honoured then there could be further pro rata decreases in these supplementary payments if not their eventual termination.

The Employment Tribunal

10.	By way of his ET1 of the 10th April 2000 Mr. Tucker raised a complaint of unlawful wage deduction:

“With effect on and from Monday 28 June 1999, new and increased basic rates of pay, allowances and additional payments were applicable as permitted by the terms of that Agreement.
The Respondent sought to offset the cost of the basic pay increase by reducing the level at which bonus payments were made to myself and other operatives.  This action was explained by reference to the need to ensure that the Company would remain able to tender competitively for contracts that may be let in the future.
I would confirm that, at no time, did the Company seek to achieve, or achieve, my consent to any reduction in bonus payment entitlement and that a continuing series of deductions have occurred since 9 July 1999.
I consider these deductions to be unlawful and seek recovery of the sums deducted.”

11.	In the event the Employment Tribunal found in his favour.  The essential reasoning starts with the proposition that “the old Ghost Hours practice had been an entrenched entitlement by 1998, as it was of such long duration.”  Accordingly, the subsequent bonus (or site allowance) acquired a similar status so that “the Applicants were entitled to regard that compensatory bonus as their legal entitlement and therefore part of their wages.”  In the overall result the Applicants “were entitled to presume that it was a contractual bonus payable in perpetuity.”

12.	The complaints having been upheld, the Respondent employees appealed, contending that the decision reflected error of law.

The Submissions

13.	On behalf of the employers and Appellants, Miss Melanie Tether draws attention to the employees’ need to prove that the deduction complained of is a deduction in “the total amount of wages properly payable”, that is, in the wages to which they had a legal entitlement, see Century Cleaning Co. Ltd v. Church, op. cit.  Here, she submits, the only possible basis for ‘legal entitlement’ is the contract of employment, nothing else being relied upon.  Turn then to the statement cited above – and indeed to all the relevant documentation – and there is nothing express to create any entitlement to this bonus.  Given then an absence of any express term sufficient to create an entitlement, was there a basis for the implication of any such term?  She would submit: ‘No’.  Her particular points can be summarised:

a.	Payment for Ghost hours was not the subject of legal entitlement but was discretionary – as was common ground before the Tribunal.

b.	What is at stake is what is being paid to compensate for the termination of that which was discretionary: it would be remarkable, and wholly dependent on express terms if there came into being a legal entitlement to that which is paid to replace that which was discretionary.

c.	The fundamental flaw in the reasoning of the Tribunal is to be found in paragraph 25 of the Extended Reasons: “Our view is that it cannot be inferred or implied that the compensatory bonus was to be discretionary or annually reviewable in the absence of any express term to that effect.”  This, she submits, reverses the burden of proof and amounts to a serious misdirection.  It is not for the employers expressly to disavow legal entitlement; it is for the employees to prove such.

d.	Having found in paragraph 15, “the purpose of the site allowance or daily bonus is purely to bring the basic week’s pay into line with what it had been in the previous year under the Ghost Hours Scheme,” there were arguably contradictory findings in paragraph 25 of the Extended Reasons, viz., “there is no doubt that when the Respondent introduced the compensatory bonus it intended to draw a line under past practices.  For that reason we have not been persuaded by arguments that the compensatory bonus should have the same characteristics as the Ghost Hours system which it replaced …”

c.	Finally, Miss Tether queries why any legal entitlement (none being admitted) should be in perpetuity to the sum that was appropriate in 1998 to ensure no overall income loss; why not to the sum as computed for ensuing years as being necessary to achieve the same object.

14.	On behalf of the employees as Respondents, Mr. Hogarth, pointed out that concurrent with the weekly payments of £72.80 to Mr. Tucker was his continued provision of consideration, that is, his continuation at work.  In a sense each payment was an ‘offer’, each response in terms of continued working was an ‘acceptance’.  Adverting to that ‘offer’ it was not demonstrated to have been qualified as reflecting an exercise of discretion: Mr. Tucker was in a position to regard it as an unequivocal component of that remuneration to which he had entitlement.  As he put the point in his skeleton argument: “An employer gives his employee a pay rise.  In a sense it is discretionary as the employer may be under no obligation to give the rise.  The employee is no doubt happy to receive it.  In what circumstances does it become a contractual entitlement?  It is submitted that it does so as soon as it is paid, sometimes when it is announced.  The conventional and correct conclusion is that the employee gives consideration as soon as he continues to work and by implication foregoes his right to terminate his contract of employment.”  Accordingly he submitted that the reasoning of the Tribunal could and should be sustained.

15.	Both counsel drew out attention to a passage in the judgment of this Tribunal sitting in Edinburgh in Quinn v. Calder Industrial Materials Ltd (1996) IRLR 126 at 128.  Having cited Browne-Wilkinson J. in Duke v. Reliance Systems (1982) IRLR 347 to the effect, “A policy adopted by management unilaterally cannot become a term of the employees’ contracts on the grounds that it is an established custom and practice unless it is at least shown that the policy has been drawn to the attention of the employees or has been follow without exception for a substantial period,” this Tribunal said:

“In a case such as the present, the factors to which Browne-Wilkson J. referred are likely to be among the most important circumstances to be taken into account, but they have to be taken into account along with all the other circumstances of the case.  Thus, for example, in our view, the question is not whether the period for which policy has been followed is ‘substantial’ in some abstract sense, but whether, in relation to the other circumstances, it is sufficient to support the inference that that policy has achieved the status of a contractual term.  Again, with regard to communication, the question seems to us to be not so much whether the policy has been made or become known directly to the employees or through intermediaries, but whether the circumstances in which it was made or has become known support the inference that the employers intend to become contractually bound by it.”

Judgment

16.	We find that the decision of the Employment Tribunal reflects errors of law and cannot be sustained.  Thus,

a.	For the Tribunal the factual matrix included the proposition that Mr. Tucker received £72.80 per week for one year as ‘bonus’ or ‘ site allowance’ without any other explanation as to its genesis.  On that footing there can be no basis whatever for the implied development of a legal entitlement to the sum: what else is it in such circumstances but an uncovenanted gratuity?  Contrast that which Mr. Hogarth postulated: an uncovenanted rise in basic rate of pay.  Once described as such, there is no scope for regarding it as a weekly gratuity: its very description and nature postulates a contractual obligation on the part of the employers to maintain payment of this enhanced pay rate as a contractual entitlement.

b.	Let it be supposed that Mr. Tucker did have knowledge as to how and why the £72.80p. had been calculated and paid: the notion of a continuing legal entitlement to such sum or any other sum subsequently to be calculated for a like purpose is plainly untenable.  The explanation has to be grounded on the premise that this is a discretionary payment temporarily to compensate for that which has hitherto been enjoyed, again on a discretionary basis.

c.	Finally let it be supposed that there came to be legal entitlement: how can it possibly be to £72.80p. in perpetuity as distinct from the product from time to time of the machinery that served to produce £72.80p. as at 1998?  The proposition to be found in paragraph 31 of the Extended Reasons, “they were entitled to presume that it was a contractual bonus payable in perpetuity” is, we have to say, obviously untenable – indeed so untenable that it serves to categorise the reasoning which led to it as wholly unsustainable.

Conclusion

17.	We accept Miss Tather’s submission that there is no need to remit this matter for a further hearing.  We allow the appeal and we direct that for the Tribunal’s present decision there be substituted the decision that all the complaints are dismissed, there having been no unlawful deductions from wages.