The right to be paid wages in full is one of the most basic and oldest employment rights. A failure to pay what is due will generally give a worker the right to bring a claim for unlawful deduction from wages. There are a small number of circumstances however when an employer is permitted to make a deduction.
Under section 13 of the Employment Rights Act 1996 an employer cannot make any deductions from the wages of a worker unless:
- There is a statutory authority to do so (e.g. to pay income tax or National Insurance)
- The contract of employment entitles him to do so (e.g. where the employer provides loans to workers and has a contractual right to take money out of the workers wages in repayment)
- The worker has previously signified in writing their consent to the deduction (e.g. pension contributions paid to a 3rd party)
- There has been an overpayment of wages (this doesn’t need to be specifically provided for in the employment contact)
- The employer is obliged to make payments to a statutory authority such as the Child Support Agency
- The deduction or payment is made on account of the worker taking part in a strike or other industrial action
- The deduction or payment is made to satisfy a court order or tribunal decision requiring payment by the worker to the employer (e.g. an attachment of earnings order from a court)
Even if the employer is contractually entitled to make the deduction, there is a generally accepted principle that any clause which amounts to a penalty is unenforceable. Generally a penalty clause is one which seeks to punish the party in breach, rather than reflecting a genuine estimate of the potential loss following that breach.
For example, you might wish to reclaim the cost of training course fees or professional subscriptions from a departing employee. If you were to claim more than the cost of the fee, then this would probably amount to a penalty clause. A better approach would be to claim a percentage of the fee back based on how long the employee stayed with you after you incurred the cost – for example 100% if they left within a month, down to 0% after 12 months.
If a repayment provision is found to be a penalty clause it will not be enforceable and monies deducted pursuant to it will entitle the employee to raise a claim for unlawful deduction from wages. Clauses should therefore be carefully drafted in order to increase the likelihood that they will be enforceable.
If you would like to include repayment provisions in your contracts of employment, please contact Backhouse Solicitors contact for advice and guidance.
The Backhouse Solicitors Team