The law states that employers can only make deductions from workers’ wages in certain, defined circumstances. In Cleeve Link Ltd v Bryla the Employment Appeal Tribunal (EAT) held that a tribunal was entitled to decide whether a repayment clause in a contract was, in reality, an unlawful penalty clause (and therefore an unlawful deduction).

Basic facts

Ms Bryla was recruited by a company in Poland called Miracles Recruitment to work as a live-in care worker in the UK for Cleeve Link Ltd. As part of the arrangement, Cleeve Link paid Miracles Recruitment a standard candidate fee of £400 as well as the cost of her flight to the UK.

Her employment agreement with Cleeve stated that if she resigned or was dismissed for misconduct within the first six months, the employer could recoup all their expenses by deducting the money from her final pay. After six months, the costs would reduce by one-sixth for each month of completed employment.

After 12 weeks, following a disagreement about her work roster, Ms Bryla was dismissed summarily by her employer allegedly for gross misconduct. Her employer deducted their costs from the wages that she was owed (just over £1200), leaving her with nothing. She brought a claim for unauthorised deductions from wages under section 13(1) of the Employment Rights Act 1996.

Tribunal decision

The tribunal judge found that although the figures in the agreement represented a genuine pre-estimate of the cost of recruiting Ms Bryla, it was not a genuine pre-estimate of the employer’s actual loss when she was dismissed.

Pointing out that Cleeve Link Ltd had benefited from the work that Ms Bryla had done for three months before dismissing her, the arrangement overcompensated the company and was unenforceable as a penalty clause. The judge instead awarded her just over £780 which was the sum she was owed less holiday pay.

The company appealed on the grounds that in a claim for unlawful deduction of wages, the employment judge should have looked simply at whether the contractual agreement fitted the parameters set out in section 13 and not whether the term in the agreement was a penalty clause or not.

EAT decision

The EAT found that as the deduction in the contract had to be a lawful one, the tribunal was entitled to consider whether or not it was a penalty clause (which would not be lawful).

To do so, the judge should have asked whether, at the time the parties entered into the contract (as opposed to the time of the breach), the function of the clause was to deter Ms Bryla from breaking the contract or to compensate the company for its loss. That could be worked out by comparing the amount that would be payable on breach with the loss that the company might incur.

However, the judge had only considered the situation at the time of the breach and had not looked at whether there was an “extravagant or unconscionable” gulf between the maximum amount that could be recovered in a common-law action for damages for breach as opposed to the sum stipulated in the agreement.

The EAT determined that the deduction by Cleeve Link Ltd was a genuine pre-estimate of loss (a liquidated damages clause) and therefore lawful both at common law and under the Act.

Comment

This is a disappointing case for employees. The judgment provides employers with “flexibility” on the calculation of financial loss that may be recovered from an employee leaving employment in circumstances such as these.