Melissa Mones v Lisa Franklin Limited

In this judgment, I refer to the parties as they appeared below. This is an appeal from the judgment of the London Central Employment Tribunal (Employment Judge Nicklin, sitting alone - "the Tribunal"), dismissing the claimant's claim for unauthorised deductions from wages, in the following circumstances.

Between 3 November 2018 and 17 September 2020, the claimant was employed as a part-time receptionist for the respondent, a specialist skincare clinic. Her contract of employment was dated 22 October 2018. By clause 4, the claimant was required to work nine hours per week, normally between 8.45am and 6.15pm on a Saturday. Clause 6 provided that she would be paid a starting salary of £13.00 per hour. From 2020 onwards, the claimant's working hours were varied by agreement, at her request, such that she was instead required to work six hours per week, between 2.00pm and 8.30pm on a Friday.

By letter dated 30 March 2020 ("the Furlough Letter"), the respondent informed the claimant, so far as material (sic):

On 1 April 2020, the claimant replied to the Furlough Letter (sic):

From 3 April until 7 September 2020, when the respondent's clinic re-opened, the claimant remained an employee of the respondent, on furlough, and was paid in accordance with the terms set out in the Furlough Letter. Her last day of employment was 17 September 2020. Amongst other claims set out in the form ET1 which she subsequently presented (with which this appeal is not concerned), she asserted that there had been unlawful deductions from her wages, constituted in the difference between the pay which she had received as a furloughed employee and that which she asserted that she ought to have been paid in accordance with the Coronavirus Job Retention Scheme ("the CJRS"). It was the respondent's case that her pay fell to be calculated as set out in the Furlough Letter, had been correctly calculated and that she had been paid in accordance with, or at least as advantageously as, her contractual entitlement. The hearing before the Tribunal took place on 9 July 2021, at which the claimant represented herself and the respondent was represented, as it was before me, by Mr Dean Franklin, its Commercial Director.

In its reserved judgment, sent to the parties on 9 August 2021, the Tribunal found as follows:

By her notice of appeal, the claimant asserted that the Tribunal had misdirected itself as to section 13(3) of the Employment Rights Act 1996 ("the ERA") because it had not considered that the amount properly payable to the claimant had been governed by the rules of the CJRS which had been an implied term of the contract dated 30 March 2020 (i.e. the Furlough Letter).

In its respondent's answer, the respondent stated:

Before me, the claimant was represented by Mr Adam Riley of counsel. Mr Riley's overarching submissions were that the Tribunal had mischaracterised the status of the applicable Treasury directions (to which the CJRS, as revised from time to time, had been scheduled) and their relevance to the parties' contractual relationship, such that its finding that the claimant's furlough pay had been correctly calculated had been perverse.

Mr Riley submitted that, pursuant to powers conferred by sections 71 and 76 of the Coronavirus Act 2020 ("the 2020 Act"), HM Treasury had issued the Coronavirus 2020 Functions of Her Majesty's Revenue and Customs (Coronavirus Job Retention Scheme) Direction, dated 15 April 2020 ("TD1"). By virtue of section 71 of the 2020 Act, TD1 had constituted a form of delegated legislation. As such, it had been subject to ordinary rules of statutory interpretation. TD1 had comprised three numbered paragraphs, to which a schedule headed "Coronavirus Job Retention Scheme" had been attached. Numbered paragraph 2 had provided (with emphasis added by Mr Riley):

Mr Riley noted that, on 20 May 2020, a second Treasury Direction ("TD2"), had been issued. Paragraph 3 had provided that TD1 continued to have effect, but had been modified so that the scheme to which it related was that set out in the schedule to TD2. That schedule had retained the definitions of "furloughed employee" (paragraph 6); "fixed rate employee" (paragraph 7.6); and "reference salary", for a non-fixed rate employee (paragraph 7.2); and had continued to provide for a maximum reimbursable sum not exceeding the lower of £2,500 per month and 80 per cent of the employee's reference salary (paragraph 8.2). On 25 June 2020 a third Treasury Direction ("TD3") had been issued, modifying TD1 as previously modified by TD2. The attached schedule had been in two parts. Part 1 had made provision for claims as set out in TD1 and TD2 to be made no later than 31 July 2020 in respect of a time no later than 30 June 2020. Part 2 had made provision for the period beginning on 1 July 2020 and ending on 31 October 2020, introducing the concept of a flexibly-furloughed employee. Paragraph 20.1 (read with paragraph 18(b)) had retained the definition of "reference salary" for a non-fixed rate employee. By paragraph 31.3, where the CJRS claim period of a CJRS claim (in each case, as defined) occurred in the CJRS calendar month of September 2020, the maximum reimbursable sum had been reduced to the lower of £2,187.50 per month and 70 per cent of the employee's reference salary. Four further Treasury Directions had been issued, respectively on 2 October 2020; 13 November 2020; 25 January 2021; and 15 April 2021, relating to periods outwith that with which this appeal is concerned. In advance of TD1, on 26 March 2020 the first piece of Government guidance on the CJRS had been published, subsequently updated many times, most recently on 15 October 2021.

Mr Riley submitted that, albeit that the CJRS had related to the mechanics of how employers should be reimbursed for payments made to furloughed employees, the retention of such employees had been its paramount purpose, a matter apparent from the scheme as a whole and, in particular, from the provisions relating to the "reference salary", the definition of which in the schedule to all relevant Treasury Directions had been unambiguous and had left employers who had chosen to sign up to the CJRS with an obligation to apply the prescribed formula for the calculation of furlough pay applicable to each category of employee. The Treasury Directions had been issued at speed in order to address a national crisis. Necessarily, they had been general and broad in scope. Had it been the intention of Government to authorise employers to depart from the prescribed formula, that would have been stated clearly. By the Furlough Letter, the respondent had confirmed that the claimant's employment status would change to that of a furloughed employee. Having regard to the formula applicable to the claimant, she had been underpaid for the period spanning April to August 2020, in the aggregate sum of £1,011.66, calculated as set out in a schedule which had been made available to the Tribunal and later appended to his skeleton argument (as amended in later correspondence) and payable pursuant to section 13(3) of the ERA. The Tribunal had been wrong to hold that the CJRS had concerned the interests of employer and HMRC. The Treasury Directions expressly had contemplated the interests of the employee, who had been required to cease work and for whom provision had been made to receive pay and be retained as an employee.

Mr Riley submitted that the Tribunal had erred in concluding that the Treasury Directions had not governed the contractual relationship between employer and employee and the latter's employment rights. At the very least, they had supplemented an employee's existing contractual and statutory rights, defining the relationship between such rights and the concept of furloughed status. Should it be necessary to import the relevant formula into the claimant's contract of employment, that could be achieved via the implied term of mutual trust and confidence, whereby unlawful, capricious or irrational behaviour on the part of either party, was necessarily destructive of trust, Mr Riley submitted. The contractual variation identified by the Tribunal had done no more than set out how it was that the respondent had proposed to calculate the claimant’s pay during the furlough period; it had not varied her salary or role, or constituted an agreement by the claimant to accept pay lower than that to which she had been contractually entitled.

Whatever the position set out in earlier guidance might have been, the requirement imposed after 30 March 2020, by TD1 and subsequent Treasury Directions, had governed the respondent's legal obligations to the claimant under the CJRS. There could be no question of unjust enrichment; the claimant had been entitled to be paid in accordance with the terms of the CJRS. In any event, it could not be assumed that payment in accordance with that scheme would have constituted a windfall in this case. It could not be known what the claimant would have earned absent the pandemic and the respondent's associated need to furlough staff, in particular given the Tribunal's finding that she had worked variable hours. The Chancellor had devised a broad-brush scheme, under which there would be winners and losers, but the overarching aim had been to avoid mass unemployment and redundancies. It had been open to employers to agree different arrangements with their employees, but not under the rubric of the CJRS, which had prescribed the formula to be applied in order to ascertain the reference salary for a non-fixed rate employee such as the claimant. That payment could have been topped up should the employer have wished to do so, but it set a minimum level below which it could not pay and, thereby, had intervened directly in the wage-work bargain between employer and employee. Under the CJRS, the employee had agreed to cease work in consideration of the employer's agreement to pay him or her in accordance with the terms of the scheme.

Mr Riley submitted that the Tribunal's construction of the CJRS had rendered large parts of it redundant and had not followed ordinary principles of statutory construction. The implication had been that the agreement set out in the Furlough Letter, entered into at a time when TD1 had yet to be published or in force, had survived the coming into force of delegated legislation. Acknowledging that the contract had operated to vary the claimant's entitlement to pay in the way in which it subsequently had been paid by the respondent, it had been superseded by TD1 and subsequent Treasury Directions, which had provided for retrospective effect, submitted Mr Riley.

Finally, Mr Riley contended, the fact that the CJRS had now closed, could have no bearing on the claimant's entitlement to the sum outstanding, for which the respondent's entitlement to be reimbursed by HMRC was not a pre-requisite. It may be that HMRC would be willing to reimburse any sum which the EAT ordered to be payable. Whilst any unwillingness to do so would operate harshly on the respondent, there would be a greater injustice to the claimant, were sums due to her to remain unpaid.

By his concise written and oral submissions, Mr Franklin argued that the Tribunal's conclusions and rationale therefor should be upheld. Treasury Directions could not reasonably have provided for all scenarios and nuances arising in connection with employees, such as the claimant, whose contractual hours had changed during the calculation period. Accordingly, a pragmatic approach had been required to avoid unjust enrichment of such an employee, in particular as the respondent would have been held responsible for its decision as to the use of taxpayers' funds, its interpretation of Government guidance and that which had been morally right. Calculation of the claimant's pay in the manner which she had sought would have resulted in her receipt of pay exceeding that which she would have earned had she continued to work and could not have been justified to Government. Furthermore, the CJRS had been between the Government and businesses affected by the pandemic, and had now closed.

Mr Franklin told me that the claimant's original contract had, by her own choice, concluded at the end of 2019 and that the respondent had agreed to provide her with an alternative number of working hours, from January 2020 onwards. Any hours worked over and above those to be worked on Fridays, had been additional and ad hoc, to which the claimant had had no contractual entitlement. All hours worked had been paid at the hourly rate of £13.00. Only a short period had elapsed between the variation of the claimant's contract, effective from January 2020, and the beginning of the furlough scheme. Attempting to interpret the available Government guidance at that point, with the benefit of (non-legal) advice and looking at the situation from a moral perspective, the respondent had believed its approach to be correct. Albeit having raised a question as to the calculation of her furlough pay, the claimant had accepted it.

As to Mr Riley's contention that there would be winners and losers under the CJRS, Mr Franklin submitted that the fact that, when calculating a non-fixed rate employee's reference salary, no account was to be taken of anything which did not constitute regular salary or wages, was not comparable with the situation in this case; a bonus would normally be referrable to the company's performance, to the knowledge of its prospective recipient. That was very different from being paid a sum which the employee would not have earned had she been working. Furthermore, it would be likely to be very difficult for the respondent to obtain reimbursement from HMRC of any additional sum now said to be payable, now that the scheme had closed.

Regarding quantum, whilst no issue was taken by the respondent with the gross figures set out in the claimant's schedule, she would only have been entitled to receive a sum net of tax and national insurance, submitted Mr Franklin.

Section 13 of the ERA provides, materially:

Sections 71 and 76 of the Coronavirus Act 2020 provided:

TD1 and its schedule provided, so far as material:

It is not necessary to set out the relevant parts of the Schedule, respectively to TD2 and to TD3, but I set out below the Directions themselves:

Each of the Treasury Directions was issued under sections 71 and 76 of the 2020 Act, coming into effect upon signature by the Chancellor of the Exchequer without the need for Parliamentary approval. Thus, albeit unusual in form and origin, I accept Mr Riley's submission that each Treasury Direction constituted a form of delegated legislation and, as such, is subject to ordinary principles of statutory construction, as recently summarised by Lord Hodge DPSC, in R (The Project for the Registration of Children as British Citizens) v Secretary of State for the Home Department [2022] UKSC 3, [29] to [31]:

In both form and substance, the CJRS provided qualifying employers with a grant, from a time following the Government's decision to impose a lockdown on 23 March 2020, with the assistance of which to pay their furloughed employees. Nothing in any Treasury Direction or attached schedule material to this case expressly imposed upon an employer an obligation to adopt the CJRS (as Mr Riley acknowledged), or obliged it to adopt the formulae set out in that scheme, as it applied from time to time, when paying its furloughed employees. Whilst such an employer had no entitlement under the CJRS to make a claim for a sum greater than it had paid to the employee in question, and, in any event, for costs of employment which did not constitute "qualifying costs", as defined, from a civil perspective that was a matter as between the employer and HMRC. The CJRS did not affect existing employment law rights and obligations. So it is that the editors of Harvey on Industrial Relations and Employment Law, at paragraph [40.32], identified the following "problem area" arising from the way in which the Treasury Directions had been drafted:

Thus, whilst I accept that the claimant was a furloughed employee, as defined by section 6 of the schedule to TD1, and that she was not a fixed rate employee, as defined by paragraph 7.6 of that schedule, it does not follow that she was entitled, under her contract of employment, to be paid, at minimum, a salary calculated in accordance with paragraph 7.2 of that schedule, when furloughed. None of the Treasury Directions and schedules itself created a statutory or contractual obligation between employer and employee; rather, as previously noted, each created rights and obligations as between the employer and HMRC.

There being no alternative statutory basis upon which Mr Riley relies for the claimant's asserted entitlement to the sums claimed, her contract of employment can be the only remaining source of any such obligation. At paragraph 20 of its reasons, the Tribunal found that the claimant had accepted the terms as to furlough set out in the Furlough Letter, which had necessarily varied her contract of employment for the period in question. There is no appeal from that finding; the notice of appeal asserts that "the Tribunal erred in law in that it did not consider that the amount properly payable to the claimant is governed by the rules of the CJRS as it was implied in the variation of contract that, while furloughed, the claimant would be paid on the basis set out in the CJRS."

Thus, I begin with a consideration of the express terms as to pay on which the claimant agreed to be furloughed, as set out in the Furlough Letter. As previously recorded, those were (sic):

With obvious typographical errors corrected, there was nothing ambiguous in the above wording, nor has it been argued that there were express terms which fell to be reconciled as being mutually inconsistent. In short, the parties had agreed that, with effect from 1 April 2020, the claimant would be paid 80 per cent of her average monthly earnings from the time at which she had commenced her new working pattern in January 2020, which payment, together with the specified employer contributions, would be subsidised by HMRC. It is a trite principle of law that a term contrary to an express term cannot be implied into a contract (see, for example, Reda v Flag Limited [2002] UKPC 38, [2002] IRLR 747 [45]). Thus, the implied term for which the claimant contends in her notice of appeal cannot be implied, as being inconsistent with the express basis upon which it had been agreed that her pay would be calculated during the furlough period. Nor can the asserted obligation arise as an incident of the implied term that an employer shall not, without reasonable and proper cause, conduct itself in a manner calculated, or likely, to destroy, or seriously damage, the relationship of confidence and trust between employer and employee, which must also be read consistently with the relevant express term. The only basis upon which Mr Riley submitted that it had formed part of that duty was that the Treasury Directions and their schedules themselves had imposed upon the respondent an obligation to pay the claimant in accordance with the formulae for which the CJRS had provided. As he acknowledged in oral submissions, that was a circular argument and, in any event, I have found that they had not.

Similarly, I reject Mr Riley's submission (to the extent independently advanced) that the agreed variation to the claimant's contract of employment set out in the Furlough Letter had been "superseded" by TD1. First, whilst the Furlough Letter had been drafted before TD1 had been issued, it had followed consideration by both contracting parties of guidance which, in the relevant respect, had reflected (albeit not used wording identical to) the formula subsequently set out in the schedule to TD1, as Mr Riley acknowledged. No significant change in the position had occurred thereafter, such that it could not be said that anything outwith the contemplation of the parties at the time at which they had contracted had arisen. But in any event, this submission, too, necessarily takes as its premise Mr Riley's primary contention, which I have rejected, that TD1 and its attached schedule had imposed upon the respondent an obligation to pay the claimant in accordance with the relevant statutory formula. It follows that it, too, must fail.

There is no appeal from the Tribunal's finding, at paragraph 19 of its reasons, that the claimant had been paid in accordance with the agreed terms set out in the Furlough Letter. In the absence of an obligation to pay the claimant in accordance with the formula set out in the CJRS, as amended from time to time, there can be no basis upon which it may be said that the respondent had made the asserted unauthorised deductions from her wages, contrary to section 13 of the ERA, such that her complaint under section 23 of that Act necessarily failed. It follows that the Tribunal made no error of law in so concluding, or in its conclusions that the CJRS had concerned HMRC and the employer and that the claimant's furlough pay had been correctly calculated. Accordingly, the appeal is dismissed. On the facts of this case, I reach that conclusion without regret. The claimant's furlough pay had been calculated by reference to her revised working pattern, which had been agreed at her request. Had she been paid by reference to her original working pattern, whilst furloughed, she would have received a monthly sum significantly in excess of (or, in August 2020, equating with) 100 per cent of her highest monthly earnings in the new work pattern.

I add this. In this case, the Tribunal found that the parties had consensually and expressly varied the claimant's contract of employment to provide the formula by reference to which her furlough pay would be calculated. In a different case, in the absence of such an agreement and where an employer had chosen to furlough staff and claim reimbursement from HMRC under the CJRS, it might well be that an employee's contention for an implied term that his or her furlough pay would be calculated in accordance with the formula set out in the CJRS would have force. That would not be because the CJRS itself conferred a statutory or contractual right upon the employee (see above) but because, in default of the parties' agreement to an alternative sum or methodology, a court or tribunal might accept that there had been a mutual intention to adopt the formula set out in the CJRS, as revised from time to time. That would be a fact-sensitive question and is not this case.