National minimum wage: deduction for repayment of training fees

In DLA Piper’s latest case report, the Employment Appeal Tribunal (EAT) considered that national minimum wage legislation is not breached when a deduction is made on termination for the repayment of the cost of a training course if the worker is responsible for the termination of his or her employment (typically, by resigning).

Commissioners for Revenue and Customs v Lorne Stewart plc

Facts

When determining whether or not an employee has received the national minimum wage, certain payments and deductions must be taken into account when calculating the employee’s average hourly rate of pay.

Regulation 33(a) of the National Minimum Wage Regulations 1999 provides that “any deduction in respect of conduct of the worker, or any other event, in respect of which he (whether together with any other workers or not) is contractually liable” should be excluded when calculating whether or not the employee has received the national minimum wage.

The question in this case was whether or not the deduction of the cost of the training course should be taken into account when calculating the employee’s average hourly rate for the purpose of calculating the national minimum wage.

EAT decision

HM Revenue and Customs (HMRC) issued a notice of underpayment against Lorne Stewart plc, which appealed to the employment tribunal. The tribunal decided that the deduction of the payment for the training course came within regulation 33(a).

The employment tribunal held that, for such an “event” to occur, the worker should be responsible for the event taking place. The tribunal compared this with the “conduct of the worker”, which would imply misconduct. The worker had resigned of her own accord before the expiration of the two-year period set out in the agreement.

This came within the meaning of “any other event” and therefore Lorne Stewart plc could deduct the payment and this would not be taken into account as part of calculating the worker’s average hourly rate for the purposes of compliance with the national minimum wage.

HMRC appealed this decision. In dismissing the appeal, the EAT agreed with the employment tribunal’s interpretation that “any other event” should refer to conduct for which the worker is responsible and does not necessarily refer to misconduct.

Implications for employers

The key issue in this case is that the worker voluntarily resigned. The employment tribunal and the EAT interpreted “any other event” as conduct for which she was responsible. The deduction could not be made solely on the basis that the worker had entered into the agreement with her employer to make the deductions.

It is important to keep in mind that the EAT was clear that, if the worker had been made redundant, minimum wage legislation would still require that the final salary payment be compliant with the national minimum wage.