Football club scores an own goal with season ticket deductions from wages

With Coronavirus impacting businesses and the immediate employment law challenges being faced, it could be easy to miss the introduction of an increase to the National Minimum Wage (“NMW”), taking hourly pay for people aged 25 and over to £8.72 (among other changes).  An employer perceived by an HM Revenue and Customs (“HMRC”) enforcement officer to be failing to deliver the current rate, may be served a ‘notice of underpayment’;  if this is disputed by the employer, it may well end up being argued in an Employment Tribunal (“ET”).

Middlesbrough Football and Athletic Company were recently served a notice on the basis that deductions made to facilitate season tickets for employees and their families were sufficient to reduce the wage received below the NMW threshold.  The notice was rescinded at first instance, on the basis that the deductions did not reduce remuneration for the purposes of the NMW calculation as constructed under the National Minimum Wage Regulations 2015.

The notice was consequently reinstated following a successful appeal by the HMRC; the EAT found that when examining the ordinary meaning of the words of the regulations, the arrangement to provide season tickets were indeed deductions and not a payment to the employee. The EAT also concluded that regulation 12(1)e unambiguously only applied to payments within its scope, and to widen the interpretation was inappropriate in this case, which the judge did.

In the original ET there was a precedent set in Revenue & Customs Commissioners v Leisure Employment Services Ltd 2007 (“LES”).  Employees of Butlin’s were deducted £6 per fortnight from wages for the use of gas and electricity; a charge which, if read as a ‘deduction for the employers use or benefit’ would reduce remuneration below the NMW.  It was held that the deduction was not acceptable and also that it did not matter that the deduction provided a benefit to the employee when assessing the deduction.

The original ET in Middlesborough actually correctly tested exceptions under 12(2) of the regulations in light of the employees being unable to be held contractually liable to pay for season cards and that this couldn’t be seen to be a loan issued to the employee in this particular instance.

However, the Judge was bound to follow LES unless the current case could be differentiated in some way, which it was.  The notice was rescinded on a purposive approach to the regulations, citing the ‘freedom of choice’ for the employee to use the scheme rather than the mandatory payment requirement for employee’s utilities as described in LES.  Although it should be noted that ‘payment’ or ‘deduction’ is not expressly defined in the regulations, the EAT saw no reason to read the regulation in any other way than to give it it’s ordinary meaning.  It was construed that the judge in the original ET had attached inappropriate significance to the rewording of headings that had occurred when updating the 2015 regulations from the 1999 regulations, when addressing the issue of ‘deductions and payments’.

These cases illustrate how a notice of underpayment can occur even if the goal of the employer was to reasonably provide a benefit for the employee in the form of a tailored initiative; it therefore pays to be mindful of the underlying regulations and exceptions that may need to be tested, to ensure the NMW threshold isn’t unintentionally breached in this way.

Are the recent changes to the NMW causing issues or specific challenges for your business?  Does your business use bespoke payments or deductions that may affect compliance with the NMW regulations?  If this is an area of employment law that you are unsure about, Chadwick Lawrence can help; this is a particular area of law that is employee specific on the facts, so please call 01924 379 078 in the first instance to discuss.