Retention of salary due to zero notice given

[Talay]

We have a clause in the contract of employment which is also listed on the letter of engagement which sets out the company's right to withhold salary equal to any shortfall in the minimum notice period given by the exiting employee. We have never had this tested but have previously taken advice.

We are not looking to use this as a punitive measure but rather to offset some of the costs in replacing the exiting employee and for covering their notice period.

Post interview and offer, the employee was on one month's notice at their previous employer. In the interim, the employee was looking for more hours so we decided to let them attend another branch on Saturdays. This went well.

However, after one day working full time in the main office, they said "see you tomorrow" and never came back. They did not respond to phone calls, emails or text messages save one "personal reasons - won't be coming back" response.

Cut and dry we thought. No notice given, only 4 days worked, minimum notice required is one week so technically, they owe us one day's pay, which of course we would not chase. However, they are now emailing demanding payment. We have not responded as the pay date is 31/12/16.

The sums involved are not huge, around £300 or so but after costs to find the candidate, waiting for them to complete notice and now having to pay others to cover the hours they were supposed to do, I find myself drawn to the view that no, we will not bend over and let this slide. Principle, not financial.

However, I see the potential downfall. Though we issued the letter of engagement we did not get a signature confirming receipt. We have remedied this going forward. The contract of employment was being completed and had not been issued, hence the retention clause outlined in the letter of engagement.

I believe we have a defensible position should any any action be taken against us and whilst I am not unduly worried about any time taken to defend any action, I do concern myself with the fact that if costs were £10k then the risk / reward would mean that we would need to simply pay.

Though potentially not material to this case, I actually think we have been led on here. I am not certain the ex employee actually left their prior employment and that they may have simply been using us to get weekend work. The tone of the emails received last week has been heavy on the "I have copies of the timesheets" etc.

Thoughts ?

 

[billmccallum1957]

https://www.gov.uk/understanding-your-pay/deductions-from-your-pay

The key section is "you agree in writing".....

 

[Newchodge]

Can you prove they received the letter of engagement?

For £70 and the risk of legal action or even an investigation for not paying minimum wage, I would be incliined to pay up.

 

[Talay]

https://www.gov.uk/understanding-your-pay/deductions-from-your-pay

The key section is "you agree in writing".....

Thanks - I saw that website as one point of reference.

 

[Talay]

Can you prove they received the letter of engagement?

For £70 and the risk of legal action or even an investigation for not paying minimum wage, I would be incliined to pay up.

The sum is around £300 not £70 and the hourly rate involved was £9.00 per hour, well above the minimum wage. I haven't checked the full hours on the timesheets yet but even if they worked 8 hours a day it would only be 4*9*8=£288.

I fully accept that the pragmatic argument would be to just pay and forget but then the person goes to another company and does the same. They tell their friends and so the likelihood of this type of nonsense carries on and becomes more widespread.

If a claim was made, I'd happily defend it and I don't see any need to instruct solicitors, which itself would make settlement a foregone conclusion on a cost basis and if by some fluke I lost, then I'd just write out a cheque.

We issued the letter of engagement and it is in the contract (not issued) so I believe we are covered but my feeling is that as we don't have a signed receipt, then they could claim to have never received it and if my gut feeling is correct, then any tribunal would be biased towards the employee. That is the only reason I question the decision to be made.

 

[Newchodge]

If you don't pay them anything then you have not paid them the minimum wage. It doesn't matter what rate you offered, it is the payment that counts.

if your contract term stands up in court then you may be OK, however it will be for you to prove that the employee read it and agreed to it. The fact it is in your contract doesn't count, as the employee had not received the contract. If not, then you are only allowed to recover the amount it cost you to deal with their absence for 5 days. And the proper way to do this is to pay them their wages and sue them for your costs.

You could try emailing them demanding the 1 day they 'owe' you and see if that shuts them up.

This would go to the small claims court - the only cost you could be charged would be the issue fee (£25 if filed online, £35 if filed on paper), if you lost.

 

[Talay]

I don't know why you bring the NMW into this ? It isn't a consideration IMHO. You cannot combine NMW and retention, they are not the same argument.

 

[Newchodge]

If you don't pay anything the employee can report you for failure to pay national minimum wage. they worked, say 28 hours over a 4 day period. Assuming they are over 25 they must be law receive £201.60. They have received nothing, you have failed to pay the minimum wage.

Your only defence is that you were entitled to withhold it because the employee had agreed that you could deduct if they failed to give proper notice. But you cannot prove they agreed. Or, perhaps you can. Either way, you may face a minimum wage investigation.

An employee can have multiple causes of action, not just one, arising from the same situation. You have also failed to pay holiday pay, for instance.

 

[STDFR33]

The risk of paying out much more, combined with the risk of being investigated makes this a very simple decision for most business people.

When you make business decisions based on a personal vendetta, it's you that is likely to be the loser.

 

[Clinton]

Funny how the act of standing up for what's right, and refusing to lie down and be ripped off, is seen as pursuing a "personal vendetta".

 

[STDFR33]

Funny how the act of standing up for what's right, and refusing to lie down and be ripped off, is seen as pursuing a "personal vendetta".

If you are willing to throw good money after bad, then more fool you.

 

[Jack Dynamite]

If you are willing to throw good money after bad, then more fool you.

Depends if you are are actually throwing good money after bad, or simply enforcing a legally binding contract. Trouble is it's all bar-room lawyers commenting here as we don't have the actual contract in front us.

 

[STDFR33]

Depends if you are are actually throwing good money after bad, or simply enforcing a legally binding contract.

The two are not mutually exclusive.

 

[Chris Ashdown]

I have probably got the wrong end of the stick. to me she is entitled to 4 days pay and equivalent holiday pay which I guess is nothing after 4 days
The months notice she should have given she has not responded to so nothing should be paid, but I think this also should include holiday pay
The only problem I can see is you did not call he in for a disciplinary after she had not turned up and when you new she had not turned up you could have sacked her

 

[Newchodge]

Holiday pay works out at 12.07%. So 4 days @ 7.5 hours = 30 hours. 12.07% of 30 is 3.62 hours.

The employee was only on 1 week notice.

 

[Talay]

If you don't pay anything the employee can report you for failure to pay national minimum wage. they worked, say 28 hours over a 4 day period. Assuming they are over 25 they must be law receive £201.60. They have received nothing, you have failed to pay the minimum wage.

Your only defence is that you were entitled to withhold it because the employee had agreed that you could deduct if they failed to give proper notice. But you cannot prove they agreed. Or, perhaps you can. Either way, you may face a minimum wage investigation.

An employee can have multiple causes of action, not just one, arising from the same situation. You have also failed to pay holiday pay, for instance.

I still see your interpretation as missing some of the facts.

We have not paid anything yet and are not obliged to do so until 31/12/16 so we are not currently in breach of any legislation (whether we would be or not).

The written contract was not issued so let's also dispense with that portion of the argument. I have already stated that they were employed on £9 per hour so let's set aside all worries about NMW.

Even if we entertained the notion that they should have holiday pay for 4 days work, just add that to the £288 gross pay. For argument, let's add 0.5 days and make the total £324.

So we are contractually required to pay £324 but we are also contractually able to withhold 9*8*5=£360 equating to the one week's notice that was not given.

The only items remaining is whether the letter of engagement, which sets out the retention clause, would hold up if there is no copy. However, the lack of a signed copy does not make it non binding just as the lack of a written contract does not infer that there isn't a binding contract in place.

The legal argument would be solely on whether there was notification of the retention clause and as this would nullify any claim against us, my looking into the future envisages a potential scenario where the employee claims they never received such a document.

That the employee is in breach of contract is not in dispute but the costs to pursue a claim for breach would be out of proportion, hence the use of the retention clause.

My gut feeling is that the exercise in discussing this issue is productive but that the pitfall of the employee employing an "ambulance chaser" solicitor on a no win no fee basis means we could walk into a £5k costs award should we lose.

There is also the potential of having to disclose any tribunal claims to future insurers to consider.

I wonder whether the safest course of action might not be to pay the salary accrued and then (if so desired) make a small claims court claim for breach of contract due to lack of notice ?

 

[Newchodge]

If you know all the answers, why ask the question?

 

[Chris Ashdown]

You are not allowed to take pay for the unworked notice period, you could take civil action to recover any loss to the company but not the wages she would have been paid
So she gets paid for the hours she worked which is her right and if you are generous her holiday pay but no deductions for not working her notice

 

[Newchodge]

Chris That is generally true, unless it falls under 'you do something and your contract says you are liable for it. In this case it is arguable, although not definitely legal, that leaving without notice is covered, the letter of engagement being part of the contract.

There is no option to be generous about holiday pay. It is a legal obligation.

 

[Plumb Spares Direct]

I still see your interpretation as missing some of the facts.

We have not paid anything yet and are not obliged to do so until 31/12/16 so we are not currently in breach of any legislation (whether we would be or not).

The written contract was not issued so let's also dispense with that portion of the argument. I have already stated that they were employed on £9 per hour so let's set aside all worries about NMW.

Even if we entertained the notion that they should have holiday pay for 4 days work, just add that to the £288 gross pay. For argument, let's add 0.5 days and make the total £324.

So we are contractually required to pay £324 but we are also contractually able to withhold 9*8*5=£360 equating to the one week's notice that was not given.

The only items remaining is whether the letter of engagement, which sets out the retention clause, would hold up if there is no copy. However, the lack of a signed copy does not make it non binding just as the lack of a written contract does not infer that there isn't a binding contract in place.

The legal argument would be solely on whether there was notification of the retention clause and as this would nullify any claim against us, my looking into the future envisages a potential scenario where the employee claims they never received such a document.

That the employee is in breach of contract is not in dispute but the costs to pursue a claim for breach would be out of proportion, hence the use of the retention clause.

My gut feeling is that the exercise in discussing this issue is productive but that the pitfall of the employee employing an "ambulance chaser" solicitor on a no win no fee basis means we could walk into a £5k costs award should we lose.

There is also the potential of having to disclose any tribunal claims to future insurers to consider.

I wonder whether the safest course of action might not be to pay the salary accrued and then (if so desired) make a small claims court claim for breach of contract due to lack of notice ?

I think you''re over thinking this waaaay too much. An 'ambulance chaser' solicitor is unlikely to take such a trivial case on. It will cost the 'employee' time and money to resolve this, would they take that risk? especially as they are at the very least morally negligent. As for the contract, we once inherited an employee and he simply wouldn't sign the contract of employment etc so we eventually just left it. We employed an HR service at the time and their view was that as long as you have it on record that you had supplied the employee with one, that it was enforceable. We have had so much of this mucking about from employees over the years that it really grinds on me and personally I would just not pay him and ignore them. The likelihood is that the little worm will just crawl away back under their rock

 

[Paul Norman]

If you know all the answers, why ask the question?

I wondered about that. The opening post invites our thoughts. The reason for this, it seems, is that the OP can then debate our apparent lack of employment law.

The employee has, of course, not behaved well.

But the employer, has not followed absolute process in dealing with it, exposing themselves to risk. They are, and will, follow their own counsel on where to go next, but for other employers here on this forum there is a lesson to follow with your HR stuff.

Have a clear procedure. Follow it exactly. Document everything. That is what the law requires, not that you allow yourself to be taken advantage of.

 

[Clinton]

That is what the law requires...

The law is an ass and employee protection has gone too far, IMO.

Some years ago I had a part-timer who decided to stop working. But rather than give me notice she just decided she'd go home one evening and not return. To make matters worse, she thought, "Why take a chance on Clinton paying me my last week's wages? What if he decides to withold it in leiu of notice?"

So she nicked all the money in the petty cash ... and left a handwritten note to say what she'd done!

I went to the cops and they laughed at me because "the amount she took was roughly one week's wages anyway, so what's your problem?".

 

[Chris Ashdown]

What does amaze me is the response's from the OP on a open forum with his web site addresses open to view. maybe not the best advertising for a company to make

 

[Employment Law Clinic]

The sums involved are not huge, around £300 or so but after costs to find the candidate, waiting for them to complete notice and now having to pay others to cover the hours they were supposed to do, I find myself drawn to the view that no, we will not bend over and let this slide. Principle, not financial.

Hi @Talay,



I’ve had clients in the past that have requested terms like yours for employment contracts. I’ve written/included them in contracts, typically with a proviso that they may help discourage staff from leaving without giving notice, but observing how enforceable the clause might be is open to question - they can be practical as a deterrent from someone leaving without giving notice, though, and often (not on this occasion) appear to work for this purpose.


On the basis that the clause is enforceable (and I don’t wish to suggest it is), the first thing to note is that all you could recover is the extra cost of covering them for their notice period – say, a temp cost you £15ph, that’s an extra £6ph for the weeks’ notice. But if you had received notice, you’d still have the costs of finding another candidate, and you’d still have to paid £9ph, so the only damage you can recover is for any extra expense of covering the notice period. If you deducted anything more, that would become a deterrent, and that's certainly not allowed.


I don’t see why the contract term wouldn’t be applicable due to the deduction agreement needing to bein writing, as the letter of engagement would help inform several terms, including the starting date & the term in question. It's not unusual for any employment contract to exist without any signature, but still be in writing.


And I don’t see a problem with the minimum wage either – you pay above the minimum wage, but then make contractually agreed or legal deductions, be these tax, check-off for trade union membership, a subscription to a gym, pension deductions, an advance of salary, or this contractual condition.


To my mind, the interesting question is whether an employment tribunal could adjudicate on how enforceable the term might be: a deduction from wages that is “agreed” in writing (and the fact it was put in writing, one assumes alongside other terms, such as the employer that is offering the employment) is a legal deduction, but whether the clause is fair would seem more appropriate to a county court. I would think (or at least argue) that an employment tribunal would have to accept the term as enforceable, on the basis it’s in writing, and that an employment tribunal has no jurisdiction (or capability) to determine how enforceable or otherwise the clause is – that is something for a county court to consider.



(That’s all unconditional: to note Dynamite’s silly description of contributors to the forum as “bar-room”, I haven’t seen the letter of engagement, and neither have I researched any case law – just posting initial thoughts.)


Karl Limpert

 

[Newchodge]

But Karl, even if it is agreed in writing, I understood the deduction could not take the wages paid below NMW.

The alternative may be the contractual liability point - if a contract allows deductions for an employee's action (usually, but not only, stock shortages) then there is no NMW limit. Whether failing to give notice is an employee action that can be covered in this way is debatable, but certainly arguable.

 

[Employment Law Clinic]

But Karl, even if it is agreed in writing, I understood the deduction could not take the wages paid below NMW.


The alternative may be the contractual liability point - if a contract allows deductions for an employee's action (usually, but not only, stock shortages) then there is no NMW limit. Whether failing to give notice is an employee action that can be covered in this way is debatable, but certainly arguable.

That could never make sense though, Cyndy, surely. Tax, NIC, a pension contribution, check-off, payment towards employee-perks, they’d all be deducted from the gross minimum wage paid, but all could be perfectly legitimate. There are clauses in the ERA limiting the amount of a deduction to cover losses in a retail environment for cash shortages from a till, but I can’t see how the minimum wage would always have to be paid net of any deductions at all – the gross pay could often have to be a lot more, particularly if someone happened to be on a top rate of tax, and opted to make a large pension contribution; where is the line then drawn?


Perhaps I’m misunderstanding you Cyndy, as I don’t follow the point about no limit, but some deductions have to be allowed from the gross NMW paid.


Karl Limpert

 

[Employment Law Clinic]

Compulsory contractual deductions - something that has to be paid to get the job, perhaps a contribution towards a uniform, or whatever odd clauses an employer requires to reduce the amount they pay - I could see falling foul of the NMW, but none of the deductions I mentioned - including the clause being discussed in this thread - are compulsory for the employment (in this case, the employee, could simply have worked their notice, and received their pay of £9ph. They could even have self-certified as unfit for work, and again be due their notice. But they apparently didn't). I can't perceive why they would fall foul of the NMW Regulations, but a useful discussion among "bar-room" lawyers.



Karl Limpert

 

[Newchodge]

I read it that there are 2 (many more, actually) deductions that are relevant. Deductions that have been agreed in writing: these cannot take the nett amount below the minimum wage. In this case, whether they have been agreed in writing, as opposed to proposed in writing is a moot point. Or deductions that are permitted because of the action of the employee, which is specified in the contract, such as stock shortages (which are limited in law) but can take the nett amount below the minimum wage. Whether failing to work a notice period falls within this is, again, open to judgment.

 

[Employment Law Clinic]

I could well be missing something that you’re thinking of, Cyndy, but (ignoring statutory deductions – tax/NIC) why couldn’t an employee agree in writing with an employer that the employer will directly pay their gym membership (perhaps at a discounted rate, as an employee perk), or pay for the employee's crèche use directly from their wages? And if this is permissible (I can’t think why it wouldn’t be, but interested in your thoughts, Cyndy), why would a deduction for another purpose be unlawful?


Karl Limpert

 

[Newchodge]

1. A voluntary deduction, such as a gym membership, is obviously permissible, because it is, effectively a loan repayment.

2. A written agreement to repay the cost of uniform provided if the employee leaves within 6 months of starting employment is valid, but it cannot be said to be voluntary as the employee has to have the uniform, and cannot take gross pay minus uniform deduction below minimum wage.

3. A penalty for breach of contract, such as breakage of employer equipment, while it is not voluntary, is also not compulsory as there is no compulsion to break the equipment this can therefore be deducted even if it takes the employee below NMW.

4. Compulsory deductions without written agreement, such as tax and NI and attachments of earnings are irrelevant when calculating NMW.

The contract clause in the engagement letter (setting aside whether it was received or accepted) is, to my mind, akin to example 3 - there is no compulsion to leave without working notice, so may take the employee earnings below NMW.

 

[Employment Law Clinic]

Digressing, how or where are disputes about the NMW decided? HMRC enforce them, but where does an employer take a case if they disagree with HMRC's findings? (I've never had such a problem with an employer, and I'm sure it's obvious, but I've indulged in the festive season, and can't think of it at all.)

It would be ridiculous to think @Talay could have to defend this in three different arenas.


Karl Limpert

 

[Newchodge]

I think it's a straightforward tribunal case. Or not that straightforward, as the case may be. Sorry, misread your post. Th employee goes to the ET. I assume the employer has an opportunity to comment on the HMRC investigaion as it develops and before it is decided. Not sure if there is a right of appeal.

 

[Employment Law Clinic]

That’s a helpful post, Cyndy, but I don’t see this as a penalty (as long as the deduction is no more than the extra cost of covering the expected notice period – that’s not obvious that it would be though, it seems to be high for that purpose), but I can see your argument. But there was no compulsion to leave without notice, they could have served the notice whether they liked the job or not – they agreed to accept it, apparently on the terms being discussed.

 

[Employment Law Clinic]

Oh LOL, Jack of all trades "know it all retired solicitor" has met her match with a true professional in the arena.

LOL, is this meant to be a criticism of @Newchodge? While I agree that solicitors (and other professionals) should stick to their narrow remit rather than try to comment on all & sundry, as some do, clearly you’re not someone I would consult for PR, or anything else, @Jack Dynamite. Cyndy advises on employment law, and personally I consider her to be extremely competent in the field; I would most certainly not suggest my take on the deductions are definitely correct, hence why I appreciated the input & discussion with @Newchodge, and hopefully we’ve given @Talay something more to help inform his decisions.



Karl Limpert

 

[Gecko001]

From where did the Op get this "retention clause"? It looks like an invalid clause as far as I can see. It might be worthwhile to go to court to find out whether you have a valid case, but maybe consulting an employment lawyer or HR consultant would be a more economical way.

 

[Newchodge]

Ok let me try again.

An employee may contractually agree to all sorts of things, however they may not agree to sign away their statutory rights without a formal procedure.

An employee is entitled to receive NMW.

An employee may (for example) sign to say that, if they leave employment within 6 months of starting employment they will repay the cost of uniform supplied to them. That is a valid agreement. However, if implementing that agreement takes the employee's pay over the reference period below NMW, the agreement cannot be enforced. That is because the employee has no control over having to have the uniform, but is allowed to resign whenever they wish. They should not be subject to a detriment for exercising their right to leave.

That is because the employee cannot sign away their right to NMW.

An employer can contractually hold the employee responsible for certain losses attributable to the employee's negligence. For example stock and till shortages in retail. Recovering those shortages may, legally, take the employee's wages below NMW. There are, separately, limits to the amount that can be recovered, but those limits are not related to NMW. So an employer may make a contractual reduction to below NMW in response to the employee's negligence.

So, potentially, and without having seen the clause, the employee may have agreed a contractual right to reduce their pay to below NMW if they commit a specific contractual breach - not giving proper notice. Leaving without giving contractual notice is a choice of the employee, not something imposed by the employer. That may, or may not, allow the employer to pay less than NMW for the work carried out prior to the breach of contract.

I think. However I have also been a bit festive recently and I stand (wobblily) ready to be corrected.

 

[Employment Law Clinic]

That is because the employee has no control over having to have the uniform, but is allowed to resign whenever they wish. They should not be subject to a detriment for exercising their right to leave.


That is because the employee cannot sign away their right to NMW.

I think this is the crux of where Cyndy & I beg to differ – a detriment (deduction from the gross wage) that could bring the net pay below the NMW.


If the employee decides to leave (or in the case of @Talay’s employee, leaving without serving their notice), I don’t think they can get out of any contractual terms they’ve otherwise agreed to – they’ve agreed to make the payment via their wages, just as they could agree to pay for gym membership, a pension contribution, etc., from their wages. I don’t think it matters that the net wage then falls below the NMW in such an instance, as the employee agreed to it (if that part of the contract is deemed to be valid in its own right).


(Of course, as Cyndy observes, the festive season could help distort our thinking.)


Karl Limpert

 

[Newchodge]

Right, I see where you're coming from.

The 2015 legislation, here, http://www.legislation.gov.uk/uksi/2015/621/regulation/12/made states that items 'do not count as deductions', or in English, can be deducted even if they take the wages below NMW. The one I am thinking of is:

deductions, or payments, in respect of the worker’s conduct, or any other event, where the worker (whether together with another worker or not) is contractually liable; So, if there is a valid contract condition that leaving without giving notice will result in deduction of the pay for the amount of notice not given, then the deduction may be made.

However the next provision states that certain things do count as deductions, ie cannot be deducted if they take wages below NMW. In particular:

deductions made by the employer, or payments paid by or due from the worker to the employer, as respects the worker’s expenditure in connection with the employment; Paying for uniform is, in my view, expenditure in connection with employment, if the uniform is compulsory. Therefore cannot be deducted from a NMW employe

 

[Employment Law Clinic]

So, if there is a valid contract condition that leaving without giving notice will result in deduction of the pay for the amount of notice not given, then the deduction may be made.

However the next provision states that certain things do count as deductions, ie cannot be deducted if they take wages below NMW. In particular:

deductions made by the employer, or payments paid by or due from the worker to the employer, as respects the worker’s expenditure in connection with the employment; Paying for uniform is, in my view, expenditure in connection with employment, if the uniform is compulsory. Therefore cannot be deducted from a NMW employe

While the payment towards a uniform may be a 'compulsory' deduction, the employee agreed to the payment (as a condition of employment), but didn't have to - they could have declined the job. Having agreed to the payment/deduction, I think they're liable to it, regardless of minimum wage; they simply have to work long enough to cover the cost.


Karl Limpert

 

[Newchodge]

Ok, we'll have to agree to differ.

Regards

Cyndy