HM Revenue and Customs v Annabel's (Berkeley Square) Ltd and Others
| Jurisdiction | England & Wales |
| Judge | Lord Justice Rimer,Lord Justice Sullivan,Lord Justice Mummery |
| Judgment Date | 07 May 2009 |
| Neutral Citation | [2009] EWCA Civ 361 |
| Docket Number | Case No: A2/2008/2088 |
| Court | Court of Appeal (Civil Division) |
| Date | 07 May 2009 |
[2009] EWCA Civ 361
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE EMPLOYMENT APPEAL TRIBUNAL
Mr Justice Wilkie
Before: Lord Justice Mummery
Lord Justice Rimer and
Lord Justice Sullivan
Case No: A2/2008/2088
UKEAT/0562/07/RN
Mr Timothy Brennan QC (instructed by McGrigors LLP) for the Appellants
Mr Adam Tolley (instructed by Mr Michael Zeffman, HMRC Solicitor's Office) for the Respondents
Hearing date: 15 January 2009
Lord Justice Rimer :
Introduction
This is an appeal by Annabel's (Berkeley Square) Limited and two associated companies, George (Mount Street) Limited and Harry's Bar Limited ('the employers'). It is against an order dated 13 June 2008 of the Employment Appeal Tribunal (Wilkie J, sitting alone) reversing a decision dated 20 September 2007 of the London Central employment tribunal (Mr J.M. Edge, also sitting alone). The respondents are the Commissioners of Her Majesty's Revenue and Customs ('HMRC').
The appeal, for which Wilkie J gave permission, raises an issue of interest to the hospitality, catering and entertainment industry. It concerns the case in which discretionary service charges are paid by customers of a restaurant/club business to the proprietor/employer by credit or debit card or by cheque (but not the case in which such gratuities are paid in cash). It is agreed that such payments become legally and beneficially the employer's money. The question is whether, if the employer then passes equivalent sums to its employees via a 'tronc' system administered by an employee troncmaster, the payments count towards the employees' remuneration for the purposes of the National Minimum Wage Act 1998 ('the Act').
HMRC issued enforcement notices against each employer under section 19 of the Act. The notices were justified if, as HMRC claimed, the payments via the tronc system must be disregarded in computing the wages paid to the employees as not being 'money payments paid by the employer to the worker' within the meaning of Regulation 30(a) of the National Minimum Wage Regulations 1999 (SI 1999/584) ('the Regulations'): in that event, the wage paid by each employer was below the national minimum wage ('NMW'). If, however, as the employers claim, they should have been counted as 'money payments paid by the employer', their obligations to pay the NMW were met.
The employment tribunal agreed with the employers, held that the payments did so count and upheld the appeals against the enforcement notices. Wilkie J allowed HMRC's appeal, holding that they did not so count. The employers now challenge his decision.
The following references to sections of the Act are to those provisions in force at the material time. Section 1 ('Workers to be paid at least the minimum wage') provides, by subsection (1), that:
'A person who qualifies for the national minimum wage shall be remunerated by his employer in respect of his work in any pay reference period at a rate which is not less than the national minimum wage.'
Subsection (2) describes who so qualifies and there is no dispute that the employees do. By subsection (3), the NMW shall be 'such single hourly rate as the Secretary of State may from time to time prescribe.' By subsection (4), a 'pay reference period' is such period as the Secretary of State may prescribe.
Section 2 is headed 'Determination of hourly rate of remuneration'. By subsection (1), the Secretary of State '… may by regulations make provision for determining what is the hourly rate at which a person is to be regarded for the purposes of this Act as remunerated by his employer in respect of his work in any pay reference period.' Sub-sections (2) to (4) confer a power by regulation to determine the hourly rate in various potentially complicated circumstances, none of which is relevant. Subsection (5) provides, so far as material, that:
'(5) The regulations may make provision with respect to –
(a) what is to be treated as, or as not, forming part of a person's remuneration, and the extent to which it is to be so treated; ….'
7. Section 17, in a part of the Act headed 'Enforcement', provides:
'17 Non-compliance: worker entitled to additional remuneration
(1) If a worker who qualifies for the national minimum wage is remunerated for any pay reference period by his employer at a rate which is less than the national minimum wage, the worker shall be taken to be entitled under his contract to be paid, as additional remuneration in respect of that period, the amount described in subsection (2) below.
(2) That amount is the difference between –
(a) the relevant remuneration received by the worker for the pay reference period; and
(b) the relevant remuneration which the worker would have received for that period had he been remunerated by the employer at a rate equal to the national minimum wage.
(3) In subsection (2) above, “relevant remuneration” means remuneration which falls to be brought into account for the purposes of regulations under section 2 above.'
Section 19 is headed 'Power of officer to issue enforcement notice'. By subsections (1) and (2), if an officer acting for the purposes of the Act is of the opinion that a qualifying worker has not been remunerated at a rate at least equal to the NMW, he can serve an 'enforcement notice' on an employer requiring him to remunerate the worker for pay reference periods ending on or after the date of the notice at a rate equal to the NMW; and the notice may also require the payment of any shortfall in the NMW due to the worker under section 17. By subsections (4) and (5), a person upon whom a notice is served may appeal against it to an employment tribunal within four weeks of its service. By subsection (6), the appeal must be dismissed unless one or other of various specified matters is established. Subsections (7) and (8) explain the circumstances in which, when the appeal is allowed, the employment tribunal must either rescind or rectify the notice.
The National Minimum Wage Regulations 1999
Pursuant to section 2 of the Act, the Secretary of State made the Regulations, which came into force on 1 April 1999. Regulation 2(1) defines 'the total of remuneration' as the total of money payments determined in accordance with regulation 30; and 'the total of reductions' as the total of reductions determined in accordance with regulations 31 to 37. Regulation 8 provides that references in the Regulations to 'payments paid by the employer to the worker' are to payments paid by the employer to the worker in his capacity as a worker before any deductions are made (excluding certain defined types of payment not presently relevant). Regulation 10 provides that the 'pay reference period' (section 1 of the Act) is a month or, in the case of a worker paid wages by reference to a shorter period, that period. Regulation 11 prescribes the 'single hourly rate of the national minimum wage', originally £3.60 but since regularly increased. Regulation 14 explains how the 'hourly rate' paid to a worker in a pay reference period is calculated. Put simply, it is 'the total of remuneration' less 'the total of reductions' for the 'pay reference period' divided by the number of hours worked.
Regulation 30 (in Part IV, headed 'Remuneration Counting Towards the National Minimum Wage') is the provision upon which the appeal turns and provides, so far as material:
'30. Payments to the worker to be taken into account
The total of remuneration in a pay reference period shall be calculated by adding together –
(a) all money payments paid by the employer to the worker in the pay reference period; ….'
The question is whether the money payments transmitted to the workers via the troncmaster were 'money payments paid by the employer to the worker …' and so aggregable with the workers' basic wage in determining whether the employers paid the NMW. It is not now in issue, but in the tribunals below a question also arose under Regulation 31, headed 'Reductions from payments to be taken into account.' One such reduction, by Regulation 31(1)(e), is:
'any money payment paid by the employer to the worker representing amounts paid by customers by way of a service charge, tip, gratuity or cover charge that is not paid through the payroll;'
Its significance was that if, as the employers claim, the relevant payments were 'money payments paid by the employer' within Regulation 30(a), it would avail them nothing if they were not 'paid through the payroll': they would in that event fall out of the NMW calculation.
The facts
On 29 March 2006 HMRC, acting in their capacity as the enforcement authority under section 19 of the Act, served enforcement notices on each of the employers. The notices required each to pay specified sums in respect of arrears of NMW to former and current workers: (i) Annabel's, £49,862.45; (ii) George, £48,901.97, and (iii) Harry's Bar, £28,738.47. On 4 April 2006 each employer appealed to the employment tribunal against the notice served on it. The appeals were heard by the employment judge, Mr Edge, on 4 September 2007. Two questions were before him: (i) were the moneys received by the employees from the troncmasters 'payments paid by the employer' within the meaning of Regulation 30(a); (ii) if so, were they paid 'through the payroll' within the meaning of Regulation 31(1)(e)? The appellants...
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