Scicluna v Zippy Stitch Ltd & Ors

Good morning and welcome back to your weekly case law update. Last week we looked at unfair and wrongful dismissal, this week we have two cases. One will be looking at unlawful deductions from wages and the other is the Supreme Court ruling in the gig economy/employment status case of Pimlico Plumbers.

Section 13 of the Employment Rights Act 1996 protects workers from unlawful deductions. A deduction from wages will be unlawful unless it is required by law, part of their contract or the worker has given express written consent to the deduction. This is a day one right available to all employees.

It will also not be payable where the total amount of wages paid on any occasion by the employer to a worker is less than the total amount of wages properly payable by him to the worker on that occasion – essentially if it is undefinable. Furthermore, there will be no unlawful deduction if an employer makes an error of computation in calculating wages and then recovers any overpayment through a deduction.

In light of that, today’s questions are:

On termination of employment, does an employee have the right to be paid any deferred wages?

Can deferred wages be an unlawful deduction if not paid on termination?

Mr Scicluna, the Claimant, set up a clothing repair and alteration company, Zippy Stitch Ltd, the Respondent, with his sister and brother-in-law. The Claimant was to be paid £100 per day. The company expanded quickly but the Claimant, who had access to the accounts, deferred his wages for around 18 months because he wanted to make sure all other staff were paid.

The Claimant then fell out with his brother-in-law and sister after a disagreement with an outside investor and the Claimant’s brother-in-law expressing dissatisfaction with how the Claimant was running the business. The Claimant resigned due to the breakdown in the relationship between him and the other founders.

The Claimant brought constructive dismissal, unlawful deduction and breach of contract claims against the Respondent. The unlawful deduction and breach of contract elements were for the deferred wages. However, breach of contract claims are capped at £25,000 whereas the Claimant was owed more than £50k in deferred wages.

The Claimant appealed the rejection of his unlawful deduction claim and the Respondent cross-appealed the breach of contract decision. The EAT allowed the Claimant’s appeal – and thus the unlawful deduction claim – as the wages were defined at £100 per day. The EAT rejected the Respondent’s cross-appeal. The Respondent appealed to the Court of Appeal but the CoA rejected the appeal. There was also a costs award made against the Respondent.

The Takeaway Points:

Yes, deferred wages should be paid at termination and can be an unlawful deduction if they are not paid at termination, or, (if the employee did not leave employment) when the employer can pay them. Here the employee was able to claim around 18 months of deferred wages which exceeded the £25,000 cap on contractual claims. This shows that having an employee with a lengthy period (or high monetary value) of deferred wages poses a serious financial risk in the event of any litigation.

Finally, this case also raised a procedural point regarding the list of issues. A list of issues is an agreed list of all the issues that the ET has to make a decision on (Was X unfairly dismissed?/Was X an employee or a worker? Etc.)

In this case, the Respondent and Claimant had agreed to their list of issues but then the Respondent raised the interpretation of those issues in their appeal. The Respondent argued that one of the issues should be interpreted to mean the deferral was only payable when the Respondent could afford to pay it, not when the employment was terminated.

The CoA held that a judge should only make findings on things outside the list of issues in exceptional circumstances and thus any discrepancy should be cleared up by adding a separate issue before agreeing to the list.