A Judicial Solution to a Statutory Problem

How a workforce is remunerated can be complex and varied with many issues for employment lawyers to get their teeth into.

One such conundrum is the question of what is to happen when a pay structure falls outside of the definition of a ‘week’s pay’ in ss.221 – 224 1996 Act? The Leeds Employment Tribunal recently had to explore just such an issue in Bettley v Perry’s Motor Sales Ltd Tribunal Case No. 1800170/2020 (14th January 2021).

Mr Bettley was employed by the Respondent, a company which operated as an official franchise dealer for a handful of household vehicle brands with a number of dealerships across the country, until constructively dismissed with effect from 3rd October 2019. 

Mr Bettley was found to work 41 hours each week with a basic salary of £15,200 per annum.

However, the vast majority of his remuneration (gross totals of which when combined with his basic pay had varied between just over £35,000 and just under £42,000) was derived from a commission scheme based on the volume of sales he generated.

The Tribunal faced a dilemma as to whether Mr Bettley’s unfair dismissal awards should be calculated by reference to ‘a week’s pay’ under s.221(2) or 221(3). By way of recap these state-

            “221 …

(2) Subject to section 222, if the employee’s remuneration for employment in normal working hours (whether by the hour or week or other period) does not vary with the amount of work done in the period, the amount of a week’s pay is the amount which is payable by the employer under the contract of employment in force on the calculation date if the employee works throughout his normal working hours in a week.

(3)  Subject to section 222, if the employee’s remuneration for employment in normal working hours (whether by the hour or week or other period) does vary with the amount of work done in the period, the amount of a week’s pay is the amount of remuneration for the number of normal working hours in a week calculated at the average hourly rate of remuneration payable by the employer to the employee in respect of the period of twelve weeks ending—

(a) where the calculation date is the last day of a week, with that week, and

(b) otherwise, with the last complete week before the calculation date.”

Mr Bettley’s commission structure operated on the amount of successful sales he achieved… it followed that, though this part of his pay packet varied, it did not do so on the amount of work done but rather the outcome of that work irrespective of the time put in each the sale.  

In Evans v The Malley Organisation Ltd [2003] ICR 432, the Court of Appeal had held the “amount of work done” under s.221 1996 Act did not ‘vary’ if solely dependent on whether a deal was secured or not.

As such, s.221(2) of 1996 Act applied and Mr Bettley’s weekly pay for compensatory purposes potentially fell to be calculated in accordance with his employment contract which only provided for basic pay, instead of the far more generous provision of average pay under s221(3)

The application of Evans meant instead of operating on figures taken from his last years’ gross earnings of £35,777.10, he would utilise a figure of less than half that size.

The effect of the application of Evans, however, left him with a figure for calculating damages less than the rate of National Minimum Wage– Mr Bettley’s basic pay provided for an hourly rate of £7.13 whereas the figure of National Minimum Wage from April 2019 was £8.21.

The Tribunal reminded itself of Paggetti v Cobb [2002] IRLR 861, which is authority for the proposition that when calculating the basic and compensatory awards on the basis of actual pay, regard must be had to the National Minimum Wage.

Though Paggetti was distinguished on the basis it applied to where actual pay was below the rate of National Minimum Wage, which was not the case here (Mr Bettley’s ‘week’s pay’ was the product of s.221 not his ‘actual pay’), the Tribunal did not hesitate in applying the principle more widely.

The Tribunal also reminded itself of University of Sunderland v Drossou [2017] IRLR 1087 where the EAT held in assessing the statutory cap under s.124(1ZA)(b), pension contributions fell to be considered in calculating ‘a week’s pay’. The Tribunal noted that the judgment was directed to the cap but, with some support from the Authors of Harvey on Industrial Relations & Employment Law, held its was equally applicable to assessing the compensatory award itself

So, applying Paggetti and Drossou, the Tribunal was able to elevate Mr Bettley’s week’s pay from basic pay of £292.31, first to £336.61 by uplifting for National Minimum Wage purposes and thereafter to £353.71 by application of his employer pension contributions.

Though not binding, the case serves as a reminder to those representing employers or employees of the importance of assessing compensation with reference to the definition of a week’s pay.