Matthew Pinto-Chilcott, Owner of Consensus HR comments: “Groom v Samuel Smith Old Brewery . With Christmas now not far away, when I saw this recent article written by our Chartered Institute (CIPD), it seemed fit to write about it and one of the most common claims to an Employment Tribunal (ET), ‘Unauthorised deductions from wages. In this instance it involved a pub and its management team and a clause within their Contract that stated monies could be deducted from their wages for loss of stock etc. However, as with always, the word ‘Reasonable’ raises its head and is very important that all business owners and their management team when making decisions ensure they look at the facts and fully consider if it reasonable to take the action. In this case, it was found not to be reasonable, and this article explains why. HR is under Civil Law and the balance of probabilities and hence why you always need to be able to demonstrate that the action you took was reasonable.”
ARTICLE – Groom v Samuel Smith Old Brewery:
In this case the ET was called upon to consider if deductions made under a contract were lawful; and if not, in making those deductions, had the respondent acted in a manner calculated or likely to destroy the relationship of trust and confidence between employer and employee.
The facts behind the case were that a married couple took over the running of a pub from May 2019, following a period where one of them worked as relief manager in the same pub. On the day before both taking over, a stock take was undertaken by a representative of the respondent. Upon finding a deficiency in the stock, allegedly from the claimant’s time as relief manager, the claimants were forced to make up for this out of their own pocket, to a total of £480 or thereabouts. The payment of this was presented as an ultimatum; if the money were not paid over, they would not be able to take up their joint contractual position as managers.
On two further occasions deductions of £428 and £565 were made in line with this clause. These were not challenged. Finally, following another stock take the owner notified the claimants that they would deduct £4361.54 from their joint salary due to gaps in stock levels, this amounted to 12.5% of their net salary (which was only slightly above national minimum wage anyway).
The amounts calculated as deductions were based on a contractual clause and a relevant policy. These set out that the total sum owing was based on calculations as to how much surplus should have been created in an average pub in terms of beer and mixer drinks (as the head on the beer, or ice in a glass with a mixer, meant less liquid was served than sold), against the actual stock levels in the pub. If the actual stock levels were less than the 6% surplus the respondent said should be present, based on what been sold, then the clause allowed for the deficit to be taken from the salary of the claimants. This check could happen at a time arbitrarily picked for stock check. This therefore meant that any surplus previously recorded, where the pub held drinks over the calculated surplus, would not be taken into account, even if overall it meant that there was not a deficiency.
The deductions took place whilst the claimants were on annual leave, and they submitted their resignation on their return by letter, stating that this amounted to constructive dismissal because of a fundamental breach of contract. Specifically, that is the breach of trust and confidence. At that point they gave their contractual two weeks’ notice, but following further communication from the respondent’s representative, they withdrew that notice and resigned with immediate effect.
Claims were then made for constructive unfair dismissal and unlawful deduction of wages.
Notes for employers:
Whilst only ET, and therefore not binding precedent, this case is an important reminder for employers to take care when drafting deductions clauses. The clauses relied on in this case were not sufficient so as to result in a reasonable calculation of the employer’s loss, and therefore were not reasonable to enforce. Employers should instead be explicitly clear what is meant by a deficit and set out the means of calculating this.
A further note is that even where a valid deduction clause is in place, employers must have in mind the impact of the deduction on the individual, especially if the employee is a low earner and the amount is significant. At 12.5% of their wages, the amount deducted by the respondent represented a significant portion of their joint income, which could have had serious consequences for the claimants. This drew criticism from the ET and led them to question the validity of such a deduction. Ultimately it contributed to the successful constructive dismissal claim and is a reminder of the need to be reasonable when exercising contractual clauses.
What is the law in relation to this?
13(1A) of the Employment Rights Act 1996 – Right not to suffer unauthorised deductions.
(1) An employer shall not make a deduction from wages of a worker employed by him unless—
(a)the deduction is required or authorised to be made by virtue of a statutory provision or a relevant provision of the worker’s contract, or
(b)the worker has previously signified in writing his agreement or consent to the making of the deduction.
(2) In this section “relevant provision”, in relation to a worker’s contract, means a provision of the contract comprised—
(a)in one or more written terms of the contract of which the employer has given the worker a copy on an occasion prior to the employer making the deduction in question, or
(b)in one or more terms of the contract (whether express or implied and, if express, whether oral or in writing) the existence and effect, or combined effect, of which in relation to the worker the employer has notified to the worker in writing on such an occasion