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Employment Law

Legal guidance - compliance - software

12 JAN 2015

Deduction to repay training costs to be ignored for the purposes of National Minimum Wage

Deduction to repay training costs to be ignored for the purposes of National Minimum Wage
Joanne Oliver
Associate, Veale Wasbrough Vizards

The Employment Appeal Tribunal (EAT) held that a deduction made from the final salary payment of an employee to repay the cost of a training course she attended should be ignored for the purposes of calculating whether she had received the National Minimum Wage (NMW).

In Commissioners for HM Revenue and Customs v Lorne Stewart plc, Miss Brade worked for Lorne Stewart and during her employment she attended a training course. Before she undertook the relevant training, she entered into a written agreement with Lorne Stewart where she agreed to repay a percentage of the course fees if she terminated her employment within two years of completing the course, which she duly did.

The Employment Tribunal concluded that Miss Brade's voluntarily resignation within the repayment period was an 'event' rendering her contractually liable to reimburse Lorne Stewart. As such the deduction did not count for the purposes of calculating whether she received NMW as it fell within an exception in the NMW Regulations 1999. This exception excludes any deductions in respect of which the employee, due to their conduct or any other event, is contractually liable from the NMW calculation.

HMRC appealed on the basis that the exclusion was open to abuse. It argued that the NMW Regulations should be read as referring to 'conduct' as misconduct and that 'any other event' should be interpreted as meaning something akin to misconduct.

The EAT dismissed the appeal.

Whilst the EAT agreed that conduct should be construed as referring to the employee's misconduct, it rejected HMRC's argument in relation to the meaning of 'any other event'. It concluded that this should be interpreted as conduct leading to a deduction for which the employee was responsible, such as accidental damage to company property or the employee's decision to leave employment within a period, during which it was agreed that training costs would be repayable. The EAT did comment that 'any other event' would not include circumstances for which the employee had no control, such as compulsory redundancy or dismissal on the grounds of ill-health.

Best practice

This case provides useful guidance to employers on what type of deductions can be made without infringing the NMW Regulations. It also highlights the importance of ensuring that contracts of employment firstly contain suitable clauses to permit deductions. Employers should always ensure careful drafting so that the 'events' which trigger the employee's liability to reimburse the employer are clear.
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