Freeths Employment Update May 2024

Holiday Pay – what is a series of deductions?

• The holiday pay cases keep coming. InBritish Airways PLC v De Mello & Orsthe EAT considered two issues:

• Whether certain allowances were part of “normal remuneration” and should be included in holiday pay calculations
• How far back claims could go as a “series of deductions” in light of the Supreme Court’s decision in Chief Constable of Northern Ireland v Agnew

• The claims were raised by cabin crew at British Airways.
• Meal Allowance
• A meal allowance was payable whenever a member of cabin crew was on duty at any mealtime. The allowance was payable even if the employee was unable to spend money on a meal at that time (eg they were on board a flight) and there was no requirement for the employee to prove that the allowance was spent on food.
• The case law has established that payments linked to the performance of tasks should count towards holiday pay and payments to cover “occasional or ancillary costs” should not be included.
• The Tribunal considered that the burden was on British Airways to show that the meal allowance came within the “ancillary costs” category, and it had not done so. It also referred to the possibility that it may be that some of the meal allowance was referable to performance (eg the extent to which the allowance exceeded the actual costs of food) and part of it may be linked to the actual expense.
• The EAT upheld British Airway’s appeal and held:

• The burden was not on the employer to establish that the payment was for an ancillary cost: it was instead for the Tribunal to “weigh and assess the overall picture painted by the factual mosaic”
• The allowance could not be split: either it should be included in holiday pay calculations or it should not

• The EAT therefore sent this element of the case back to the Tribunal for fresh determination.

• Commission on duty free sales

• 10% of duty free sales on a given flight formed a commission pot that was shared among the cabin crew on that flight. This was paid monthly in arrears and was taxable.
• The Tribunal concluded that these payments were linked to performance, but were at such a low level that it was “highly unlikely that their exclusion from holiday pay would have a deterrent effect on taking holiday” and that they should not therefore be included in the holiday pay calculations.
• The EAT disagreed and held that the Tribunal should not have considered the lack of deterrent effect as a reason for not including the commission payments in holiday pay calculation. Even though the payments were low, they were referable to performance and should be included in holiday pay calculations.

Back to back allowance

• One of the Claimants became entitled to an allowance part way through the year due to a change in role. For the first 7 months of the year, he had no entitlement, and once entitled he received the allowance in 3 out of the remaining 5 months.

The Tribunal took the view that the payment was not sufficiently regular to constitute normal remuneration as he had only received it in 3 out of 12 months.

• The EAT found that this was an incorrect conclusion. The Tribunal should not have factored into its determination of “regularity” periods during which there was no entitlement because the employee was in a different role. The issue was whether once he became entitled to the allowance, it was sufficiently regular to be included in holiday pay calculation. The question to be remitted to the Tribunal was therefore whether earning the allowance 3 months out of 5 was regular enough.

• Series of deductions

• At the time of the Tribunal’s decision, it was bound by the principle established in Bear Scotland v Fultonthat a gap of three months between deductions broke the series of deductions and a worker could not claim for any holiday pay due before such gap.
• Since the Tribunal judgement, the Supreme Court has established in Chief Constable of Northern Ireland v Agnewthat this 3-month gap principle was wrong: it was for the courts to determine whether there was a series of deductions taking into account all relevant factors.

• For deductions to form a series, there must be a factual and a temporal link:

• Are the deductions “sufficiently similar” to be linked?
• Are they temporally linked or is the gap between them so long as to break the series.

• In this case, the EAT found that the deductions were sufficiently similar as they related to the same issues, but it could not determine whether they were temporally linked – that was a matter to be remitted to the Tribunal for consideration (but not applying an artificial 3-month gap test). This was a decision to be taken in light of all factors and not artificially split into two elements.
• The removal of the 3-month gap rule means that we will probably have more cases that require a holistic determination of whether failures to pay correct holiday pay form a series of deductions.

Whistleblowing – another difference between detriment claims and dismissal claims

• We reported last month on the different causation test in whistleblowing claims: the law protects whistleblowers from detriments “done on the ground that” they made a protected disclosure and from dismissal where the protected disclosure has to be the “reason or principal reason”.
• Another recent case looked at further difference between the two types of claim.

• In Royal Mail Group v Jhuti, the Court of Appeal found that an employer could be liable for unfair dismissal even where the dismissing officer did not know of the protected disclosure. This was in circumstances where an individual who did not know of the disclosure had manipulated a process or instigated an investigation and therefore caused the dismissal. The Court of Appeal did emphasise in its decision that such cases would be rare and in very particular circumstances.
• InWilliam v Lewisham and Greenwich NHS Trust, the EAT looked at this issue in relation to detriment claims.

• The Claimant made a protected disclosure about a colleague’s failure to handover adequately. The Claimant was filmed having a confrontation with the colleague about whom she had complained and was alleged to have provided incorrect information about this incident. She was given a written warning.
• She claimed that the written warning was a detriment because of her protected disclosure but the Tribunal rejected this claim on the basis that the disciplining officer had no connection to the disclosure and had dealt with the disciplinary issue in isolation.

• The Claimant appealed on the basis that Jhutisuggested that there was no need for the disciplining officer to know of the protected disclosure if someone who did know had manipulated the process. The EAT found that the rationale in Jhutiapplied only in relation to dismissal claims and not to detriment claims. The EAT found that the existing authority on detriment claims (Malik v Centros Securities plc) is that “importing the knowledge and motivation of another to the decision maker is not permissible” and that stands in relation to detriment claims.

• This decision is another example of the complexity of whistleblowing claims in the Employment Tribunal.

Fair Allocation of Tips – revised Code of Practice published.

• Following a period of consultation about the draft Code, the Government last week published its revised statutory Code of Practice on Fair and Transparent Distribution of Tips that it intends to have effect from 1 October 2024. It has delayed the previous proposed implementation date of July 2024 due to “extenuating circumstances”.
• The Code is split into these sections:

• Scope

• All workers are covered including permanent employees, agency workers and zero hours workers.

• The method of payment (eg card, cash, app) is not determinative of whether a tip is a “qualifying tip”.  The determining factor is whether the employer receives or exercises control or significant influence over the distribution of tips

• Therefore, falling out of scope are:
• A worker receiving and keeping a cash tip with no employer control or involvement.
• A digital tipping app through which a customer directly tips members of staff, bypassing the employer altogether.
•  
• Service charges are within scope.
• Non-monetary tips are included (eg casino workers receiving casino chips as tips).

• Fairness

• Except in very limited scenarios (eg tax), all tips and service charges should be passed on (i.e. the employer cannot levy an administration charge).
• Fairness does not mean that employers have to allocate the same proportion of tips to all workers.
• Employers should use a clear and objective set of factors to determine their tip distribution policy. An illustrative, but non-exhaustive, list of factors employers may wish to consider is:
• Type of role (eg front or back of house).
• Basic pay.
• Hours worked during period when tips are received.
• Individual and/or team performance.
• Seniority/level of responsibility.
• Length of service.
• Customer intention.

• Policies should not be discriminatory.
• Employers should consult with workers to seek broad agreement to their system for allocation of tips.
• The employer’s policy should be reviewed regularly.

• Methods of allocation and distribution

• Employers can use a tronc system (using either a member of staff or a third party tronc operator).

• If the employer uses a third party tronc operator, it must set out clear instructions or framework in line with the principles of fairness and, if the employer becomes aware of an independent tronc operator acting unfairly or improperly, the employer is obliged to address this in order to maintain a fair allocation of tips.

• Tips must be distributed promptly, at the latest by the end of the month following the month in which tips are paid. During the consultation process, some employers enquired about their practice of “smoothing over” tips over the course of a year. The Government has confirmed that this is not permissible.

• Transparency

• Employers are required to have a written tipping policy in place where there are qualifying tips paid on more than “an occasional and exceptional” basis.
• The policy should cover:
• How tips are accepted.
• How tips are allocated and distributed
• What steps the employer takes to ensure tips are handled fairly and transparently.

• The policy can be in electronic or hard copy form (and in accessible format for workers with a disability, on request)
• There is no requirement for the tipping policy to be displayed publicly for customers to view, but employers may choose to do so.
• Record keeping
  
  
• A tipping record must be kept of all tips received and the amount allocated to each worker.
• The record must be retained for a period of three years,
• A worker has a right to make a written request (limited to one request in a three month period) to view the tipping record of the employer for up to the past three years (provided they worked for the duration of the requested period)
• Tipping records must be stored, processed and disposed of in line with data protection law.

• Addressing problems

• There should be a fair process in place for resolving issues and responding to queries.
• Employers must give equal weight to queries from agency workers as from their own directly-employed staff.
• If issues cannot be resolved internally, workers can seek to enforce their rights through the Employment Tribunal. An Employment Tribunal can:

• Make a public declaration that the employer has failed in its obligations.
• Order the employer to revise a previous allocation of tips.
• Make a non-binding recommendation on previous allocation of tips.
• Order the employer to pay compensation (which can include workers other than those who made the complaint to the Tribunal).

• The Code or Practice can be referred to in the Employment Tribunal.
• There will be additional non-statutory guidance published in due course.
• Notwithstanding the delay in the implementation date, the Government encourages all businesses to follow the new requirements immediately, before they come into legal effect.  
• Businesses should start consulting with their staff to agree what system will be adopted for the fair allocation of tips. The Code of Practice makes it clear that there is no one-size-fits-all solution and what one workforce agrees is a fair system may be different to another.

No plans to introduce statutory domestic abuse leave.

• Sometimes, it is what the Government decides not to do that is as noteworthy as what it does do. 
• Northern Ireland has a system of domestic abuse leave and in 2022, the government started a review looking into whether it should be introduced in Great Britain. Last month, the Government announced that it would not be doing so as "now is not the right time".
• Supporting employees in relation to domestic abuse is nevertheless on the agenda of a number of employers and ACAS has a useful guide which states that employers should:

• Look out for signs of domestic abuse
• Respond appropriately 
• Support someone who is experiencing domestic abuse
• Keep records of reports and any actions taken

It also suggests that employers should consider having a domestic abuse policy which sets out: 

• A clear commitment to taking the issue seriously 
• Common signs of domestic abuse 
• The support available for employees and managers

If you have any questions regarding this employment law update, please reach out to Laura Tracey, Employment Partner Manchester (laura.tracey@freeths.co.uk)