Scicluna v Zippy Stitch Ltd & Ors

This appeal from HHJ Peter Clark sitting in the Employment Appeal Tribunal is said to raise the question whether, if (in the context of a small family business) an employer agrees to pay an employee a salary of £100 per day and the employee agrees that payment of such salary is to be deferred until the employer can afford to pay him his salary, there is any implied term that the salary will be payable on termination of his employment. Before the court considers that question at all, however, it must decide whether that question can be argued for the first time on an appeal to this court.

In 2010 or 2011, Mr James Scicluna (the claimant) agreed with his sister and brother-in-law, Mr and Mrs Beechinor-Collins, that they would set up a clothing, alterations and repair business and they incorporated Zippy Stitch Ltd (“the company”) for that purpose. Mr Beechinor-Collins provided a capital sum of £65,000 and the claimant, although he had little or no business experience, was to be managing director. The claimant provided no capital but he was given in 20% shareholding in the company; Mr Beechinor-Collins held 40% and his family trust (Brainservices Trustees) held the remaining 40%. The small family business thrived in the limited sense that over the next 18 months, it was able to open shops not only in Bromley where it started but also in Sevenoaks, Reigate and Maidstone operated by other Zippy Stich companies.

On the question of remuneration for the claimant, the Employment Tribunal decided that there was an agreement that the company would pay the claimant £100 per day. Judge Balogun sitting alone continued (para 27):-

“I am also satisfied that there was an agreement to defer payment until the business could afford to pay it … the claimant had control over the bank accounts so could have drawn a salary had he wanted to. His reason for not doing so is found in his own evidence:-

“there was not enough cash in the bank to pay staff wages and it was important to keep staff happy”.

That does not mean that the claimant waived his entitlement to salary, he simply deferred payment in accordance with what was agreed.”

Unfortunately, as does sometimes happen in family businesses, disagreements started to emerge, starting with a disagreement about borrowing money from an outside investor. At some stage in 2014 the claimant said he wished to move to Malta; Mr Beechinor-Collins expressed dissatisfaction with the way the claimant was managing the business and the originally harmonious family relationships broke down. On 30^th June 2014 the claimant resigned and on 4^th November he issued an ET1 form claiming his outstanding salary and/or sums unlawfully deducted from his salary as well as unfair dismissal. Judge Balogun rejected the unfair dismissal claim since, despite the breakdown of relationship, there was no breach by the company of the implied term of trust and confidence in the employment contract and since the claimant had already decided to leave in any event. There has been no appeal from that decision.

Judge Balogun dealt with the unlawful deduction of wages claim before dealing with the contract claim. She held that there was no unlawful deduction within section 13(3) of the Employment Rights Act 1996 which provided that an unlawful deduction occurs:-

“where the total amount of wages paid on any occasion by the employer to a worker is less that the total amount of wages properly payable by him to the worker on that occasion.”

The judge then said (para 31) that no identifiable sums were “properly payable on any specific occasion” because it had been agreed that payment of the claimant’s salary was to be deferred. The claim for unlawful deduction could not therefore succeed.

She then considered the contract claim and (inconsistently according to the company) held (para 34) that the claim to salary was “outstanding on termination” within the Extension of Jurisdiction Order 1994 giving the employment tribunal jurisdiction to adjudicate on contract claims subject to a cap of £25,000. She then said:-

“I am satisfied that the claimant’s entitlement to deferred pay was outstanding on the termination and therefore his contract claim is made out subject to the cap.”

The claimant appealed to the Employment Appeal Tribunal against the decision to disallow his wrongful deduction claim; the company cross-appealed against the decision to allow the contract claim. HHJ Peter Clark (also sitting alone) dealt first with the cross-appeal recording the claimant’s argument that a term was to be implied that his entitlement to arrears of pay would crystallise on termination and held:-

“That founds the claim for breach of contract, and I reject the suggestion on the cross-appeal that salary would not be payable unless and until the business could afford it regardless of whether the employment was continuing or not. That is clear, in my view, from the finding at paragraph 34 of the reasons.”

Turning to the unlawful deduction claim, Judge Peter Clark held that the salary was payable on termination and that Judge Balogun was wrong to conclude in her para 31 that no identifiable sums were properly payable on any specific occasion; he therefore upheld the claim for unlawful deduction of wages. He accordingly allowed the claimant’s appeal and dismissed the company’s cross-appeal but held that there was to be no double recovery “in respect of the now successful wages claim and breach of contract claim”.

It is thus apparent that the foundation for the claimant’s success is that the EAT was prepared to imply a term into the claimant’s employment contract that his entitlement to arrears would crystallise on the employment’s termination. The EAT thought that was implicit in the decision of the Employment Tribunal and made it explicit in its own judgment on appeal.

The company has been granted permission to appeal by Lewison LJ primarily on the basis that “there is a real prospect of success in arguing that the term implied by the EAT (and inferentially by the ET at [34]) is inconsistent with the express terms of the agreement found by the ET”.

The claimant objects to this point being raised on appeal because he had contended in his ET1 form that it was either an express or implied term that unpaid salary would be paid by the company on (among other things) termination. That was not denied by the company in its ET3 form which merely alleged that “there was no contractual provision for the payment of salary as alleged or at all”. It was said to follow that the company accepted that, once the claimant proved an agreement to pay wages, he was entitled to be paid his salary on termination.

Ms Emily Betts for the claimant submitted that this was more than a mere pleading point because

Mr Chris Bryden for the company submitted in response

I agree with Ms Betts. Ever since the Woolf reforms, parties in the High Court have been required to agree lists of issues formulating the points which need to be determined by the judge. That list of issues then constitutes the road map by which the judge is to navigate his or her way to a just determination of the case. Employment tribunals encourage parties to agree a list of issues for just that reason and, if advocates are retained on both sides, it is right and proper for a list of issues to be prepared.

In paragraphs 32-33 of Land Rover v Short (2011) UKEAT/0496/10/RN Langstaff J approved the submission of counsel that:-

“it was trite law that it was the function of an Employment Tribunal to determine the claims which the claimant had actually brought, rather than the claims which he might have brought and that accordingly the claimant was limited to the complaints set out in the agreed list of issues.”

So likewise must the respondent be limited to the defences set out in the agreed list of issues.

In similar vein, Mummery LJ in Parekh v London Borough of Brent [2012] EWCA Civ 1630 (with whom Patten LJ and Foskett J agreed) said:-

“31.

A list of issues is a useful case management tool developed by the tribunal to bring some semblance of order, structure and clarity to proceedings in which the requirements of formal pleadings are minimised. The list is usually the agreed outcome of discussions between the parties or their representatives and the employment judge. If the list of issues is agreed, then that will, as a general rule, limit the issues at the substantive hearing to those in the list: see Land Rover v Short at [30] to [33].”

Professional advocates were retained in the present case and agreed the list of issues which was given to the employment judge (so we were told) on the morning of the hearing. The judge was, therefore, entitled to proceed on the basis that the only issue in relation to the claim for unauthorised deduction from wages and breach of contract was whether there was an agreement that the claimant be paid a salary. Having decided that there was such an agreement, she not unnaturally upheld the contract claim as being outstanding on termination. She never dealt with any argument that nothing was outstanding because the company could not afford to pay the claimant’s salary and still less with any argument that, even if the company could not afford to pay it, it was necessary to imply a term that, nevertheless, the company was obliged to pay once the employment had come to an end. These issues were never said to be issues which the judge needed to decide.

When the matter came before the Employment Appeal Tribunal, HHJ Peter Clark correctly upheld Judge Balogun’s determination of the contract claim and dismissed the cross-appeal. Once he had done that, consistency required that the unlawful deduction claim also had to be allowed because there was a sum “properly payable” to the claimant on the occasion of his termination.

I cannot, therefore, accept Mr Bryden’s submission that Judge Balogun inferentially made a decisive finding of fact that the company could not afford to pay the claimant; nor can I accept that there was any argument before her about the possibility that such inability could be relied on by the company as at termination. The case proceeded on the basis that if there was an agreement to pay the claimant a salary at all, he would be paid that salary. It may be that to sustain that basis some implication needed to be made as a matter of law but that was never an issue before the employment judge and cannot be made an issue now. If it had been an issue, the case would have proceeded on different lines, since there would have to be a finding that the company could not, in fact, afford to pay the claimant his salary if the matter were to be disposed of fairly.

I would therefore dismiss this appeal.

Having said that, I would not wish to give any credence to a view that it would be right to imply a term into this contract that the claimant’s salary would be payable on termination. There are arguments both ways but that was never on the list of issues and I express no view about it.

I agree.  As Longmore LJ demonstrates, the way that the agreed list of issues was structured necessarily implied that, if the Claimant succeeded in establishing the pleaded agreement that he was entitled to be paid £100 per day, the appropriate amount would be due as a matter of contract and “properly payable” under the Act.  No doubt there is in principle room for argument about how that result could or should be reconciled with the admitted term that payment would be deferred until the business could afford it.  The Claimant had pleaded various alternative ways of addressing that point, including the argument referred to by Judge Peter Clark that it was an implied term that any arrears would become payable on termination irrespective of affordability; and those alternatives were not contradicted in the ET3, where the Respondents put all their eggs in the basket of denying that that there was any entitlement to salary at all.  But all that matters is that it was common ground at the hearing that, by one route or another, the appropriate amount would be due and payable if the pleaded agreement were proved.  There was in fact a dispute as to what that amount was – identified as “issue 7” on the list of issues - but that would not prevent the sum as eventually established being due and properly payable.    There are exceptional cases where it may be legitimate for a tribunal not to be bound by the precise terms of an agreed list of issues; but this is not one of them.

I agree.