Cooper & Ors v The Isle of Wight College

The 3 Claimants in this case were at all material times employed by the Defendant College as full time support staff under contracts whose material provisions are identical.

On the 28^th March 2006 each Claimant took part in industrial action consisting of a one day strike, when they withdrew their labour and were not willing to work in accordance with their contracts of employment.

The employer responded by making a deduction from the monthly wages due for March 2006. It is not disputed by the Claimants that the employer can make some deduction, following the decision of the House of Lords in the case of Miles v Wakefield MDC [1987] AC 539. The question to be resolved is what is the quantum of deduction. Mr White QC for the claimants submits that what Miles establishes is that the maximum deduction that can be made in such circumstances is the value of the day’s pay that otherwise would be paid to the Claimants. Ms. Tether for the Defendants disputes this and submits that what can be deducted is the loss to the employer of the withdrawal of the services of the day of the strike, and that this sum is necessarily greater than the amount the employee would receive by way of pay.

The difference between the two bases for the deduction is explicable by the fact that under their contracts, the Claimants are to work a 37 hour week but under clause 10.1 each was “entitled to receive your normal remuneration for all Bank and Public holidays normally observed in England and Wales and to a further 25 working days in each holiday year”. The Claimants say that their annual salary has to be apportioned between the working hours as defined in the contract spread over the 52 weeks of the year. This produces the formula for calculation of a days pay of 1/260 achieved by deducting the 104 weekend and non working days from the 365 days in the normal calendar year and discounting the odd day. The Defendants say that the formula should be 1/228 which discounts the paid holidays to which the Claimants are entitled. This is because the value of the Claimants services to the Defendants is only provided on the working days, although the wages paid for those services are also paid over the holiday period.

Although the principle of deduction from wages by reason of a refusal to work for part of the working week has been clearly established since 1987 there is no unambiguous authority on the question that falls for determination in these 3 claims. If the Claimants are right then it is common ground that the deductions made would be in excess of what is permissible in the sums of £10.61, £6.67 and £7.74 respectively. Although the sums involved are trivial the principle is not, and these claims are brought with the support of the Claimant’s trade union given the impact that they could have over the field of industrial relations. The Claimants seek a declaration that the deductions made were excessive. The Defendants support the deductions made by reference to the ‘no work no pay’ principle. The parties have further agreed to a summary trial of this action on agreed facts, as the outcome depends on submissions of law when applied to the terms of the contracts of employment in this case, which are agreed.

As a starting point to resolve the disputed issue, in my judgment four facts can be deduced from the contracts in this case:

In accordance with these provisions in my judgment it is clear that if the employer improperly failed to pay the employee for a day’s work during the working year the quantum that the employee could recover in an action for payment under the contract is the day’s pay as calculated by the 1/260 formula.

These observations do not resolve the issue in this case however, as Ms. Tether submits that what an employer is entitled to deduct under the law as declared by the House of Lords in Miles, and as preserved by Parliament in the ERA s.14 is not the same as that which the employee can sue for in respect of his or her wages. It is submitted that the cost to the employer of the loss of the day’s labour is more than the costs of the wages of the day, but includes the total consideration payable in respect of that day and therefore includes the holiday pay entitlement earned as a consequence of work rendered on the day worked.

Both sides rely on what they submit is the true ratio of the decision of the House of Lords in this case. Admittedly this case is also concerned with matters not in issue in the present case, namely:

The House of Lords clearly answered both these questions in the affirmative, contrary to the submissions of the office holder. However the precise quantum of the deductions made by the employer in that case was not the subject of forensic debate. On the facts recorded over a twelve month period the Registrar had refused to perform marriages for three hours per day on a Saturday as required by the council and the council accordingly withheld 3/37’s of his salary throughout the period of the dispute. 3 represented the 3 hours per week not worked and 37 the total contractual hours worked. It is unclear what the entitlement to holiday pay was and whether the deductions were made from any holiday pay awarded.

Nevertheless, it is submitted that in affirming that an employer may deduct from wages, a sum representing the time not worked as a result of industrial action, the House of Lords established a clear principle that in certain circumstances deductions can be made without the employer having to sue for loss occasioned for breach of contract. The issue that is common to Miles and the present case concerns what the sums are that may be deducted.

Mr. White QC for the claimants submits that it is clear from the speeches of Lords Bridge, Templeman and Oliver, that the case identifies that the employer can deduct what the employee could not sue for in an action for his or her wages, and the deduction is thereby confined to the wages payable for the hours not worked. Ms. Tether submits to the contrary that the quantum of the deduction approved in Miles was the value to the employer of the service lost by the hours not worked, and that sum cannot be lower than the total remuneration payable to the employee for the hours worked. The present case is really concerned with what difference if any holiday pay makes to the deduction. Ms. Tether submits that since one earns holiday pay by working the hours contracted, non-performance of the contracted hours entitles the employer to reduce holiday pay pro rata and make a deduction for that as well as well as the wages for the hours not worked. I shall examine the speeches with these rival submissions in mind.

Lord Bridge agreed with Lord Oliver, but in his own judgment defined the issue at 551 E as:

“The more difficult question at the heart of this appeal is whether the council were entitled, in the circumstances, to deduct and withhold a proportion of the weekly salary corresponding to the three hours of work required to be done on Saturday mornings during the weeks when the plaintiff was refusing to perform his duty of celebrating marriages on Saturdays.” (emphasis supplied)

He used similar language at 552 A. Mr. White relies on that description of what can be deducted.

Lord Brandon agreed with Lords Oliver and Templeman without adding observations his own on this issue.

Lord Brightman also agreed with Lord Templeman and Brightman. He did describe his preference for the quantum meruit analysis of the employee’s entitlement to some payment for part performance in the case of industrial action by reference to what the employee can sue for and what the employer would be bound to pay (553 D and F). I read the speech as indicative that the employer can also deduct that which the employee cannot sue for. The employee cannot sue for wages for hours not worked and that appears to be the value of the services that Lord Brightman has in mind. Such an approach again supports Mr. White’s contentions when applied to the contracts in the present cases.

Lord Templeman’s analogy with the liability to deductions of the ambassador or judge who went on strike at 556F-H provide direct support for Mr. White’s submissions. Recognising that judges and ambassadors do not work a defined working week of 37 hours, and that the performance of their duties may require them to work over weekends, and public holidays, he would divide 365 days by 1 to find the deductible portion for a day’s with-holding of labour. This is the only place in the judgment that one of their Lordships moved from general principles to an indication of how the deduction is to be calculated for an employee paid on an annual salary basis with no defined hours of work. The position of a person employed on a contract with a defined working week of 37 hours is not the same, and Mr. White does not contend that the deduction in the present case should be 1/365. However, although judges can be required to provide services on any day of the year, they are not required to provide services on every day of the year, they are entitled to holidays and will be entitled to time off in lieu for weekend and bank holiday service once an initial period of so called “statutory” leave has been worked off. Lord Templeman would only deduct for the day not earned and not a proportion of the holiday period that the judge would be entitled to take.

His Lordship focused on what the employee is entitled to be paid in his description of the Council’s contentions at 557E, and what the Plaintiff claimed he was due at 558 C. In my judgment those are references to the wages that would be paid for the hours not worked rather than losses to the employer that were greater than the wages. Ms. Tether relies on the words used at 560 D-E:

“My Lords an employer always suffers damage from the industrial action of an individual worker. The employer suffers the loss of services of the worker. The value of those services to the employer cannot be less than the salary payable for those services otherwise most employers would become insolvent”

Mr. White submits that the context for those remarks is the rejection of the submission made on behalf of Mr. Miles that in the Miles case, the council suffered no financial loss by the unwillingness of the registrar to perform weddings on Saturdays. Lord Templeman makes the point that withdrawal of services always causes loss. He is not there addressing the question of how much can be deducted from wages. Indeed, it may be that an employee who breaches his contract may cause his employer much greater loss than the costs of his or her wages. Thus if a teacher took industrial action and the Head Teacher employed supply teachers from an agency the costs to the school may be greater. If transport workers go on partial strike valuable contracts may be lost or penalties incurred. The employer may well be able to sue the worker for such losses at common law, but it is not suggested that such sums can be deducted from the worker’s wages under the principles in Miles.

Miles is a case concerned with deductibility from wages rather than a general examination of whether and if so what damages can be recovered for breach of contract. At p.561 B-C Lord Templeman returns to the principal theme of his speech on this point and encapsulates the “no work no pay” dictum with which the case is concerned:

“If the worker declines to work, the employer need not pay. In an action by a worker to recover his pay he must allege and be ready to prove that he worked or was willing to work”. (Emphasis supplied).

He repeats the same point at 564 H- 565A where he both agrees with Lord Oliver and says that this approach makes it unnecessary to consider the law relating to damages and the defences of abatement or set off.

Those defences and causes of action were precisely what counsel for Mr. Miles was relying on as the only permissible solution to the problem of breach of contract as Lord Oliver makes clear at 566F-567 E. As part of those submissions Mr. Miles relied on the first instance decision of Scott J as he then was in Sim v Rotherham MBC [1987] Ch 216 where the employer counterclaimed for damages for breach of contract and sought to set off this claim against the employee’s claim. Lord Oliver would have found those submissions persuasive but for the principles he is about to adumbrate (567E).

At 568 A he identifies both why deductions can be made and what can be deducted without a prior claim or counter claim in terms that are consistent with the other judicial observations in this case noted above:-

“the simple fact would be that the council had suffered damage to the extent that it was liable to pay for what was, in effect, a period of voluntary absence from work and I can see no particular difficulty in quantifying the damage, since the employee could hardly contend successfully that that of which his employer had been deprived by his absence (i.e. his services) was worth less than the sum he was claiming to be paid for them” (emphasis supplied).

He makes the same point at 568 D.

Having examined the applicable reasoning in Miles in some detail with the benefit of the submissions of counsel on this point orally and in the skeleton arguments relied on, I conclude that Mr. White’s submissions as to what could be deducted from an employee’s wages are correct. The correct test is to determine whether the employee could sue for the withheld wages rather than focusing on what the overall losses to the employer were by reason of the partial non-performance.

Applying these principles to the contracts of employment in the present cases, I am satisfied, that the wage that was payable on the 28^th March 2006 was 1/260 rather than 1/228 of the annual wage payable. This was the extent of the employee’s inability to sue and therefore the limit of the employer’s ability to deduct from the wage packet.

Ms. Tether submitted that even if this was the limit of deductibility applied by Miles, this did not preclude her from justifying the deductions by equitable set off pursuant to the older pre Miles decision of Sim v Rotherham noted above. She submits that nothing in Miles suggests Sim was wrongly decided, merely that it was unnecessary to go through that procedure in the particular case.

It is ‘of course’ the case that an employer can sue for damages as opposed to deduct from wages, and it was this alternative remedy that Mr. Miles relied on as the only remedy for the employer as we have seen.

In Sim itself, teachers were found to be in breach of contract by failing to provide lunchtime cover for classes. The teachers further argued that even if they were in breach of contract, they should not have suffered deductions from their wages although they could be sued for damages. As Scott J noted at 252 E-F the debate on this question was somewhat sterile as the employers were counter-claiming for damages for breach of contract and the quantum of the damages was agreed between the parties [255 E]. In those circumstances where it was agreed that the employer was entitled to damages for breach of contract in the sum claimed, it was held that the sum could be regarded as equitable set-off and the deduction could be justified by the agreed counter claim.

This was certainly how Lord Oliver regarded the decision in Sim when he considered it in Miles at 5764H-575 A.

In the present case, although the right of the employer to counter claim for damages is not disputed, the ability to deduct a proportion of holiday pay from wages is disputed. This is both because the employer is deducting more than the employee is prevented from suing for, and because it is not accepted that the employer is entitled to reduce holiday pay pro-rata as an item of damages.

Mr. White points out:-

Those appear to me to be formidable submissions, but in the end I do not need to determine them. It is sufficient to note that the Defendant has not counterclaimed for damages for breach of contract but has defended the claim by way of equitable set off, where the quantum of set off is not agreed for compelling reasons. Neither do I need to give a decision on the impact on this case of two further submissions of Mr. White that an employer cannot unilaterally vary the contract to apportion holiday pay to earnings during the period when services are actually rendered and that rolled up rates of pay including pay for both periods of service and holiday pay are precluded by European Community Law.

In my judgment it is clear from Miles that deduction from wage packets is a remedy that is limited to the circumstances noted above. The alternative remedy of equitable set off cannot be considered as a basis for any deduction by way of recoverable damages that the employer alleges flows from an admitted breach of contract. The House of Lords would have been wasting their time if this was the case. Ms Tether does not argue that this is the effect of s.14 of the ERA 1996. Damages that are deductible from wages on account of industrial action can only be deductible according to a definite statement of principle found somewhere else in the law. That statement is the judgment in Miles v Wakefield.

In my judgment the earlier decision in Sim does not help Ms. Tether, because the case proceeded on the existence of counter claim and the acceptance of the quantum of damages. It is of no assistance where the quantum of damages is disputed, and there has been no trial of a damages counterclaim to determine whether and if so what damages may flow. For reasons already noted, I consider there to be very serious questions of law and policy that would prevent holiday pay being discounted and deducted and therefore the incentive to take a holiday reduced in a case such as the present.

I therefore conclude for the reasons given above, that the Claimants succeed in their contentions that the employer was not entitled to make the deductions of the sums it did for the industrial action undertaken for the one day on the 26^th March 2006 and I give judgment for the Claimants on this application which has been treated as the trial of their claim.