Patel v Marquette Partners (UK) Ltd
Employees can bring a claim for unlawful deductions of wages under the 1996 Employment Rights Act, unless it constitutes an exception under the Act. In Patel v Marquette Partners (UK) Ltd (IRLR 2009, 425), the Employment Appeal Tribunal (EAT) said that deductions by employers following communication from Her Majesty’s Revenue and Customs (HMRC) constitute such an exception.
Basic facts
Mr Patel began working for the company as a trader in November 2001, for which he received basic pay and a substantial bonus paid in December each year. For the tax years 2002/2003 and 2003/2004, his bonus was paid by dividends on shares distributed to employees through an employee benefit trust.
In October 2006 HMRC wrote to the employer, indicating that the bonuses gave rise to PAYE liability and requesting payment. The company did not respond so HMRC wrote again in December saying that if the money was not paid voluntarily, it would take formal action.
However, it did not make any formal “determination” that the money was due under regulation 80 of the Income Tax (Pay As You Earn) Regulations 2003. The employer then made a deduction of £65,000 from Mr Patel’s bonus payments in response to HMRC’s threat of enforcement action.
Mr Patel lodged a grievance letter, but then left the company and claimed unlawful deduction of wages under section 13 ERA.
Relevant law
Section 13 states that employers are not allowed to make deductions from wages without their employee's written consent, unless the “deduction is required or authorised to be made by virtue of a statutory provision or a relevant provision of the worker's contract.”
Section 14(3) states that section 13 does not apply “in pursuance of a requirement imposed on the employer by a statutory provision to deduct and pay over to a public authority amounts determined by that authority as being due to it from the worker if the deduction is made in accordance with the relevant determination of that authority”.
Tribunal decision
The tribunal dismissed Mr Patel’s claim on the basis that the deduction made by the employer was an “excepted deduction” under section 14(3) of the Act and that it had no jurisdiction to hear his claim.
Mr Patel appealed, arguing that a “determination” under section 14(3) referred exclusively to a determination under regulation 80 of the PAYE Regulations. As HMRC had not made a formal determination in this case, his employer had not been entitled to make the deduction from his salary.
EAT decision
But the EAT agreed with the tribunal, saying it had no jurisdiction to hear the claim.
It pointed out that the 1996 Act is designed so that disputes arising in specific fields can be determined by specific designated authorities. In the case of PAYE, that authority is HMRC. The whole system starts off with a notice of coding being issued to the employee by the Revenue, which it then follows up with instructions to the employer indicating what deductions should be made.
That system, said the EAT, constituted a “determination” for the purposes of section 14(3). It therefore stood to reason that "an employer who makes a deduction following a communication from the Revenue to make deductions according to the employee’s notice of coding, will be making it in a way which is authorised by reason of s.14(3)".
The term “determination” in section 14(3) was not therefore limited exclusively to determinations under regulation 80 of the PAYE regulations, but included all decisions “by which a direction is given to an employer by a public authority” in accordance with statute to make a deduction from an employee's wages.
In this case, the “direction” had been given by HMRC in its letter of December 2006 to the company to the effect that if the deadline for payment was not met, the Revenue would take formal steps to enforce it. As such the company had to pay up or face litigation which means a “determination.”