Wage deductions are unlawful unless authorised
Section 13 of the Employment Rights Act 1996 sets out the provisions that protect workers from unauthorised deductions (known as unlawful deductions) being made from their wages.
It is unlawful for an employer to make a deduction from a worker's wages unless the deduction is required or authorised by statute or a provision in the worker's contract or the worker has given their prior written consent to the deduction.
Unlike breach of contract claims which can only be brought after the employment has ended, employees can bring unlawful deductions claims in the Employment Tribunal while their employment is ongoing.
The protection against unlawful deductions from wages applies to all workers, anyone who is on the payroll regardless of whether they are full-time, part-time, casual, direct agency hire or zero-hours is protected.
Late payment of wages counts as a deduction. However, if an employer subsequently pays the wages in full, a tribunal would not order the sum to be paid again, although it may order the employer to compensate the worker for consequential loss.
An employer can lawfully make a deduction from a worker's wages if the payment is required or authorised by statute, such as deductions for income tax and national insurance contributions under the PAYE system and deductions made pursuant to the Attachment of Earnings Act 1971 (i.e. where the courts have made an attachment of earnings order).
But for ‘deductions allowed if authorised by a provision in the worker’s contract’, a deduction will not be unlawful if it has been authorised by a provision of the worker’s contract. The contractual provision must make it clear that the deduction may be made from the worker's wages and the employer must also be able to demonstrate that the event justifying the deduction has occurred.
In short, employers should always make sure that their employment contracts contain a specific clause to authorise deductions from wages or other payments due to the employee in the event that the employee owes money to the company.
It is always advisable to obtain prior written consent from the employee in cases where, for example, the employer pays enhanced maternity/paternity/shared parental or adoption pay but reserves the right to recover the enhanced payment if, for example, the employee does not return to work; loans the employee a sum of money (say a season ticket loan) or pays an employee’s course fees or the cost of training but reserves the right to recover all or some of the cost if, for example, the employee does not complete or fails the course.
One more thing
There is a further sting in the tail. Once an employment tribunal has ordered an employer to pay back an amount that has been deducted unlawfully, the employer cannot attempt to recover that money later in another way, for example by bringing a civil action in the county court. This rule applies even though the sum may have been properly due from the employee to the employer. The fact that the employer has sought to recover it unlawfully effectively extinguishes the previous debt and the employer does not get a second bite at the cherry.
Andrew Rayment is a partner in the employment department of law firm Walker Morris.
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