Written by Brabners LLP
You may have seen that Costa Coffee has been in the press recently for deducting pay from employees’ wages.
The BBC has reported that a number of Costa Coffee employees claim to have had their wages docked upon leaving the company to cover training costs.
Last year, in the case of Gyori v Goldex Investments (Essex) Limited t/a Costa Coffee, the Tribunal decided that the Costa Coffee franchise had been wrong to deduct money from Mr Gyori’s wages to cover the costs of training.
For some employers, the cost of training new starters can be significant, and many employers do seek to recoup some of those costs if the employee leaves within, say, 12 months of starting employment. However, simply having a clause to that effect in an employee’s contract does not mean that it is lawful to make the deduction from their pay.
Read on to find out more.
What is the law?
An employer has the ability to make lawful deductions from worker’ wages, where the deduction is permitted under a written contractual provision or where the worker has consented to the deduction in writing. Both the term in the contract and the written consent (if obtained) must make it clear that the deduction may be made from the worker’s wages. However, the written term/statement will still be subject to certain legal constraints.
In order to be enforceable, a contractual term authorising deductions must not be a ‘penalty clause’. This means that deductions cannot be made from wages simply to “punish” an employee, or if the deduction does not correspond to the loss actually suffered by the employer. Instead, deductions clauses need to reflect a realistic estimate of the loss suffered by the employer, and this amount should be evidenced or reasonably rational rather than arbitrary.
If an employer is relying on the written consent of an employee, they must ensure that the deduction is made clear and that the consent is obtained before the deduction takes place.
Retail workers are also protected by additional provisions. For deductions from wages made due to cash shortages or stock deficiencies (excluding the final payment of wages), the deduction must not exceed 10% of the amount of the wages payable to the worker on that particular day.
However, to be clear, employers are allowed to make deductions in the case where there has been an overpayment of wages or expenses.
The case – Gyori v Goldex Investments (Essex) Limited t/a Costa Coffee
At the beginning of their employment, Costa employees are required to attend training (a fairly standard requirement on commencing work).
Mr Gyori’s contract contained a clause which said that there would be a deduction of his last working week’s hours from his final wages which would contribute towards training given to him. Mr Gyori only worked for Costa Coffee for 3 days and his wages would have been £121.77. My Gyori did not receive any pay for the days which he had worked.
At Tribunal, the Respondent (which was a Costa Coffee franchise store managed by Goldex Investments (Essex) Limited) argued that it cost around £600 to train an employee and that therefore the deduction from Mr Gyori’s wages (which effectively meant that he did not receive any pay at all) was lawful. The Judge dismissed this argument and declared that Costa Coffee had unlawfully deducted the wages of Mr Gyori. The Judgment found that the clause in My Gyori’s contract authorising deductions was a penalty clause. The Judge found that the deduction did not appear to bear any relationship to the costs of training (and, on the facts, it appeared that Mr Gyori had actually received relatively little by way of training).
Practical tips for employers
What is clear is that if employers wish to rely on a contractual deductions provision, the worker must be notified in writing of any clauses authorising deductions at the outset of employment and before any deduction is made. The amount of the deduction should reflect a genuine pre-estimate of the loss that the employer would suffer and it should not be excessive or arbitrary. Employers should keep any records evidencing the financial cost to justify the rationale behind the deduction. It is also good practice to sit down with workers and make sure that they understand what the clause means.
It is also important for employers to consider the power balance in the relationship between themselves and the worker. Whilst in some circumstances it is perfectly lawful to make a deduction from a worker’s wage, an employer should be asking themselves ‘is this really necessary?’ Contract or not, deductions can have a significant impact on an employee or worker (particularly those who are receiving the national minimum wage) and employers should be mindful of this.
This bulletin is for general guidance purposes only and should not be used for any other purpose. Brabners is a Limited Liability Partnership
