Deduction from Wages Unlawful if Repayment Provision Unenforceable

A deduction from wages authorised by the employment contract will not be lawful if the contractual repayment provision is unenforceable as a penalty. Tribunals must consider whether a repayment provision is unenforceable as a penalty when considering whether a deduction has been authorised by the employee’s contract.

In Cleeve Link Ltd v Bryla, B was recruited in Poland to work for C Ltd as a live in care worker. C Ltd paid a recruitment fee of £400 to a company in Poland, paid the cost of C’s flights to the UK and provided her with several days’ training at the start of her employment. Her employment contract provided that if she resigned or was dismissed for misconduct in the first six months, C Ltd would recoup these costs from any money due to her.

B was dismissed for gross misconduct after three months. At that time she was owed £1,200 in unpaid wages. C Ltd exercised its contractual right to recoup it costs, resulting in her being paid nothing. B brought an unlawful deductions claim.

The tribunal held that whilst the deductions were authorised by a provision of B’s contract, the recoupment provision was unenforceable as a penalty and so the deductions from her wages were unlawful.

C Ltd appealed to the EAT. The EAT rejected its argument that a tribunal should not be concerned with whether a clause authorising recovery of a sum is a penalty clause. A deduction contemplated by the contract must be a lawful deduction and, if it is made under a penalty clause, it will not be a lawful deduction as the contractual provision in unenforceable. However, the EAT went on to hold that the repayment provision was not a penalty and so B’s claim failed.

It is unlawful to make a deduction from an employee’s wages unless the deduction is authorised by a provision of the employment contract or the employee has given their prior written consent to the deduction. This case demonstrates that the provision the employer relies on to make the deduction must be enforceable. A provision which requires an employee to pay back money to their employer if they breach the employment contract may be unenforceable as a penalty clause, unless it reflects a genuine pre-estimate of the employer's losses arising from the breach. If the clause is unenforceable, the employer cannot rely on it to make the deduction. If in any doubt about the enforceability of a repayment provision, employers should seek legal advice. If they make a deduction wrongly and have to pay back the money, they will not be able to recover the money via any other route.