Rogers v Raymond Potterton & Company Limited - EAT Makes Huge Award in Wages Case

Anna Broderick of Eversheds argues that in this case if the contract of employment had allowed for deductions from the employees wages concerning the bonus the employer could have deducted the €22590 without any difficulty. "This is a decision that all employers can learn from when drafting contracts of employment."


Olivia Rogers v Raymond Potterton & Company Limited (PW142/2008)

Facts

Under her employment contract, Ms Rogers (the employee) was due a termination payment of 25% of the average annual audited turnover of the employer company (the employer) calculated at €111,590. The employer did not dispute that the bonus was payable, however the employer wished to deduct the sum of €22,590 from the bonus which represented additional payments that had previously been paid to the employee. These additional payments included fees due on the sale of the employee’s house, advertising fees, fees for her master’s course and study leave. The employer believed these were additional payments were in part satisfaction of the termination payment.

The central issue was the definition of ‘wages’ and whether the termination payment fell within this definition.


Determination

This case was heard on 19 December 2008 in Navan before Mr D. MacCarthy SC. The Employment Appeals Tribunal (the EAT) held that the payment due under the contract fell within the definition of ‘wages’ under s.1(A) of the Payment of Wages Act, 1991. The employee was awarded the full sum of €111,590 with no deduction.


Legal Commentary

This case came before the EAT on appeal from the Rights Commissioner and concerned a claim under the Payments of Wages Act, 1991 (the “Act”). It is rare to see payment of wages claims progress further than the Rights Commissioner but in this instance the amount being claimed was substantial.

In this case both parties were represented by counsel. Counsel for the employee argued that the bonus payable under the employment contract came within the definition of wages set down by section 1 (A) of the Act. Counsel for the employer argued that the proviso to the definition of wages, which specifically excludes “gratuities,” meant the bonus would not be regarded as wages so the employer could deduct the sum of €22,590 from the bonus.

In this case the contract of employment appears to have been clear and precise i.e. that a specific bonus would be paid to the employee on termination. The contract does not appear to have provided for any deductions from the bonus. The EAT accepted that gratuities in general terms means a payment which is not legally due. However, the EAT found that the bonus constituted wages and as the employer did not dispute that the contractual payment was due the entire bonus was payable.

The EAT’s determination that a payment on termination of employment constitutes wages even when the wording of the Act specifically excludes any payment by way of a pension, allowance or gratuity in connection with the death, or the retirement or resignation from his employment, of the employee or as compensation for loss of office seems to be based on a view that the termination payment was not a gratuity (ie paid without obligation).

Where wages are properly payable an employer cannot make any deductions unless such deduction is required by statute, it is authorised under the contract of employment, or it is a deduction the employee consented to. Given the wide interpretation given to “wages” by the EAT in this case all employers should ensure that there is wide provision for deductions from wages in the employee’s contract for employment.

Where an employer wishes to make a deduction to compensate for goods or services provided to an employee, not only should the deduction be referred to in the contract of employment but under s.5 (2) of the Act additional requirements must also be:

• The deduction must be fair and reasonable.
• Prior to the provision of such goods or services the employee must be given a copy of the term in the contract (if in writing) or otherwise be given notice in writing of the existence and effect of such term.
• The deduction must not exceed the value of the goods or services provided.
• The deduction must be made not later than 6 months after the provision of the goods or services. If the deduction is to take place in a number of instalments, then the first deduction must not take place later than 6 months after the provision.

In this case if the contract of employment had allowed for deductions from the employees wages concerning the bonus the employer could have deducted the €22590 without any difficulty. This is a decision that all employers can learn from when drafting contracts of employment.