The EAT allowed the appeal on both grounds. On the first ground, it held that the National Minimum Wage Regulations need to be interpreted with reference to its purpose: to ensure that the lowest paid and most vulnerable workers in society receive a basic floor of income.
The EAT determined that a strong line was needed to secure this, even if it might prohibit arrangements that otherwise seem fair; simplicity and certainty is needed to ensure that the National Minimum Wage is properly paid.
As to this particular arrangement, where it could be said that the workers might have been entitled to the deducted monies under contract law, the EAT highlighted that workers in a vulnerable position should not need to understand or enforce rights that may exist under contract or even trust law to ensure that they receive the National Minimum Wage. The EAT also highlighted that, although Lees’ intentions were laudable, another employer might not be so honourable, commenting that a contractual obligation is worthless if it is not honoured.
The EAT’s response to the second ground largely reinforced the points made above. It held that it was fundamental to the purpose of the Regulations that workers were able to easily work out whether they were receiving the National Minimum Wage. It was especially important for workers to be able to easily calculate what was owed to them if they did not. The EAT determined that the ET’s approach did not allow for this.
Finally, perhaps in an effort to clarify what the employer should have done, the EAT confirmed that there would have been no problem if Lees had deposited the funds in a third-party savings account (i.e., not an account held in its own name).
How does this impact employers?
Most employers will already know how important it is to pay the National Minimum Wage.
However, this case highlights that even well-intentioned employers can fall foul of the Regulations, even if they, on the face of it and even in the eyes of one Employment Judge, have done nothing wrong.
Despite the EAT’s drive for simplicity and certainty, cases related to the National Minimum Wage are often anything but. To avoid the financial cost and the reputational cost of being named and shamed by HMRC, we strongly encourage businesses with workers on or close to the National Minimum Wage to take advice to ensure that they are not exposed to any risk.
Please note that this information is for general guidance only and should not substitute professional legal advice. If you have specific concerns, we recommend consulting one of our legal experts.