Delaney v Staples (trading as De Montfort Recruitment)

JurisdictionEngland & Wales
CourtHouse of Lords
JudgeLord Bridge of Harwich,Lord Templeman,Lord Ackner,Lord Goff of Chieveley,Lord Browne-Wilkinson
Judgment Date12 Mar 1992
Judgment citation (vLex)[1992] UKHL J0312-1

[1992] UKHL J0312-1

House of Lords

Lord Bridge of Harwich

Lord Templeman

Lord Ackner

Lord Goff of Chieveley

Lord Browne-Wilkinson

Delaney
(Appellant)
and
Staples (Trading as De Montfort Recruitment)
(Respondent)
Lord Bridge of Harwich

My Lords,

1

I have had the advantage of reading in draft the speech of my noble and learned friend, Lord Browne-Wilkinson. I agree with it and, for the reasons he gives, I would dismiss the appeal.

Lord Templeman

My Lords,

2

For the reasons given in the speech of my noble and learned friend, Lord Browne-Wilkinson, I too would dismiss this appeal.

Lord Ackner

My Lords,

3

I have had the advantage of reading in draft the speech prepared by my noble and learned friend, Lord Browne-Wilkinson. I agree with it, and for the reasons which he gives I, too, would dismiss this appeal.

Lord Goff of Chieveley

My Lords,

4

I have had the advantage of reading the speech prepared by my noble and learned friend, Lord Browne-Wilkinson. I agree with it, and for the reasons which he gives I, too, would dismiss this appeal.

Lord Browne-Wilkinson

My Lords,

5

This case raises a point of some importance on the construction of the Wages Act 1986. That Act prohibits an employer from making unauthorised deduction from "wages". The question in this case is whether "wages" for this purpose includes a payment in lieu of notice paid by an employer when terminating employment without notice.

6

The facts are simple. The appellant, Miss Delaney, was employed by Mr. Staples as a recruitment consultant at a wage of ?125 per week plus 6 per cent. commission. Her employment started on 11 February 1988. She was entitled to receive one weeks notice under section 49 of the Employment Protection (Consolidation) Act 1978, but was dismissed without notice on 9 September 1988. On that date she was given a cheque for ?82 "in lieu of notice". However, before the cheque was presented it was stopped by Mr. Staples who claimed he had discovered that she was in breach of her duty of confidentiality. Miss Delaney's weekly pay was apparently up to date but she claimed that there was due to her commission of ?18 and accrued holiday pay of ?37.50 that Mr. Staples had not paid.

7

Miss Delaney applied to the Industrial Tribunal in Leicester claiming all three of these sums under the Act of 1986. The Industrial Tribunal has no jurisdiction to adjudicate upon these claims unless the failure of Mr. Staples to pay the sums claimed constituted "deductions" from "wages" within the meaning of the Act. The Industrial Tribunal held that the failure to pay commission and holiday pay constituted "deductions" and ordered Mr. Staples to pay ?55.50 to Miss Delaney in respect of those two claims. As to her claim for ?82 in lieu of notice, the Industrial Tribunal held that it had no jurisdiction to adjudicate on the claim since payments in lieu were not "wages" within the meaning of the Act.

8

On appeal the Employment Appeal Tribunal held that there had been no "deduction" of the payments due for commission and holiday pay nor was the payment in lieu "wages" within the Act. On further appeal to the Court of Appeal, the decision of the Industrial Tribunal was restored: the claims for holiday pay and commission were held to be within the Act as constituting "deductions" but the claim for ?82 payment in lieu was not. [1991] 2 Q.B. 47. There is no appeal against the Court of Appeal decision as to holiday pay and commission but Miss Delaney appeals to this House against the decision disallowing her claim to the payment in lieu.

9

Although the sums at stake are small, the questions raised are of considerable practical importance. If Miss Delaney is not entitled to proceed in the Industrial Tribunal under the Act of 1986, she can sue Mr. Staples for breach of her contract of employment in dismissing her without the one week's notice to which she was entitled. But, since the Industrial Tribunal has no jurisdiction to entertain claims for damages for breach of contract, such proceeding would have to be brought in the County Court. In a large number of cases, claims arising from the termination of employment relate only to the employer's failure to pay accrued wages or sums in lieu of notice. It would therefore obviously be convenient if such disputes could be resolved comparatively simply in the Industrial Tribunal rather than pursued through the courts.

10

Before turning to the Act of 1986, I must say a word about the nature of wages and payments in lieu of notice.

11

The proper answer to this case turns of the special definition of "wages" in section 7 of the Act. But it is important to approach such definition bearing in mind the normal meaning of that word. I agree with the Court of Appeal that the essential characteristic of wages is that they are consideration for work done or to be done under a contract of employment. If a payment is not referable to an obligation on the employee under a subsisting contract of employment to render his services it does not in my judgment fall within the ordinary meaning of the word "wages". It follows that if an employer terminates the employment (whether lawfully or not) any payment in respect of the period after the date of such termination is not a payment of wages (in the ordinary meaning of that word) since the employee is not under obligation to render services during that period.

12

The phrase "payment in lieu of notice" is not a term of art. It is commonly used to describe many types of payment the legal analysis of which differs. Without attempting to give an exhaustive list, the following are the principle categories:

13

(1) An employer gives proper notice of termination to his employee, tells the employee that he need not work until the termination date and gives him the wages attributable to the notice period in a lump sum. In this case (commonly call "garden leave") there is no breach of contract by the employer. The employment continues until the expiry of the notice: the lump sum payment is simply advance payment of wages.

14

(2) The contract of employment provides expressly that the employment may be terminated either by notice or, on payment of a sum in lieu of notice, summarily. In such a case if the employer summarily dismisses the employee he is not in breach of contract provided that he makes the payment in lieu. But the payment in lieu is not a payment of wages in the ordinary sense since it is not a payment for work to be done under the contract of employment.

15

(3) At the end of the employment, the employer and the employee agree that the employment is to terminate forthwith on payment of a sum in lieu of notice. Again, the employer is not in breach of contract by dismissing summarily and the payment in lieu is not stictly wages since it is not remuneration for work done during the continuance of the employment.

16

(4) Without the agreement of the employee, the employer summarily dismisses the employee and tenders a payment in lieu of proper notice. This is by far the most common type of payment in lieu and the present case falls into this category. The employer is in breach of contract by dismissing the employee without proper notice. However, the summary dismissal is effective to put an end to the employment relationship, whether or not it unilaterally discharges the contract of employment. Since the employment relationship has ended no further services are to be rendered by the employee under the contract. It follows that the payment in lieu is not a payment of wages in the ordinary sense since it is not a payment for work done under the contract of employment.

17

The nature of a payment in lieu falling within the fourth category has been analysed as a payment by the employer on account of the employee's claim for damages for breach of contract. In Gothard v. Mirror Group Newspapers Ltd. [1988] I.C.R. 729, 733G, Lord Donaldson Lymington M.R. stated the position to be as follows:

'"If a man is dismissed without notice, but with money in lieu, what he receives is, as a matter of law, payment which falls to be set against, and will usually be designed by the employer to extinguish, any claim for damages for breach of contract, i.e. wrongful dismissal. During the period to which the money in lieu relates he is not employed by his employer.'"

18

In my view that statement is the only possible legal analysis of a payment in lieu of the fourth category. But it is not, and was not meant to be, an analysis of a payment in lieu of the first three categories, in none of which is the dismissal a breach of contract by the employer. In the first three categories, the employee is entitled to the payment in lieu not as damages for breach of contract but under a contractual obligation on the employer to make the payment.

19

Against that background, I turn to the relevant provisions of the Act. Section 1(1) prohibits an employer from making "any deduction from any wages of any worker employed by him" unless such deduction is of kind authorised by section 1 of the Act. Therefore, to fall within the prohibition contained in section 1 two things have to be demonstrated: first, that there has been a "deduction"; second that the deduction was made from "wages".

20

As to "deductions", section 8(3) provides as follows:

"Where the total amount of any wages that are paid on any occasion by an employer to any worker employed by him is less than the total amount of the wages that are properly payable by him to the worker on that occasion (after deductions) then, except in so far as the deficiency is attributable to an error of computation, the amount of the definciency shall be treated for the purposes of this Part as a deduction made by the employer from the worker's wages on that occasion."

21

The Court of Appeal in this...

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