The High Court recently delivered an important decision, which brings some much needed clarity to the law in relation to claims under the Payment of Wages Act 1991 (the Act)1. The High Court held that there is no reason why the Act cannot apply to reductions in wages as opposed to deductions. The decision has finally put to bed the confusion surrounding the wage reduction versus deduction dichotomy which had emerged over the last number of years.

Background

Following an obiter dicta comment (non-binding) in the High Court case of McKenzie and Anor v. Minister for Finance and Anor2, a view emerged that a reduction in wages was not a deduction for the purposes of the Act and accordingly fell outside of the scope of the Act.  The case concerned a reduction in a motor and travel allowance payable. This allowance was in the form of an "expense" which fell outside the definition of "wages" as defined under the Act.  Therefore a reduction in expenses or in an allowance that covers expenses could not have formed the basis of a valid claim under the Act in any event.

Current case

The respondent employer decided to implement a 10 % pay cut in May 2011. The company sought the agreement of the employees and when this wasn’t obtained, they proceeded to introduce the pay cut on the basis of a contractual provision which reserved the right to vary the contract.  The employees successfully brought a claim before the Rights Commissioners which was subsequently appealed by the respondent employer to the Employment Appeals Tribunal (the EAT). The EAT held that the Act requires the prior written consent of the employee and as this was not obtained the pay cut comprised an unlawful deduction. 

The employer appealed further to the High Court arguing that the matter should be remitted to the EAT for fresh consideration on the following grounds:-

  • the EAT lacked jurisdiction to decide the matter under the 1991 Act because (i) the dispute was contractual and (ii) the wage reduction was not an unlawful deduction;  
  • the EAT incorrectly construed the exceptions to the prohibition on wage reductions conjunctively (i.e. by interpreting that prior written consent was necessitated) and failed to interpret the company handbook properly;  
  • the EAT should have used its discretion regarding non-payment of compensation;  
  • the EAT had not discharged its obligation to provide reasons for its decisions.

In response the claimant employees argued:

  • that the High Court is bound to have regard to the doctrine of curial deference;  
  • that the employer had erroneously contrived a wage "reduction", wage "deduction" dichotomy;  
  • that the employer's actions contradicted their claim that authority to reduce wages derived from the company handbook and further that the payment rules and procedure section of the handbook did not permit such reductions;  
  • the EAT was correct not to use its discretion regarding non-payment of compensation as the employer had not provided evidence of its alleged financial difficulties;  
  • the EAT was only required to provide broad reasons for reaching its decision.

Decision

EAT's jurisdiction to hear complaint and interpretation issues

Judge Kearns was satisfied that the EAT's independence and expertise ensured that it was the correct forum for hearing the complaint and referred to the above mentioned McKenzie case. It distinguished it from the case at hand as the expenses payments (which were the payments at issue in that case) were specifically excluded from the scope of the Act.  The court held that there was no reason why the Act could not apply to pay reductions as well as pay deductions.

The next point which the court considered was whether the EAT had erred in considering conjunctively the exceptions to the prohibitions on deductions as set out in sections 5 (1) (a) to (c) of the 1991 Act.  It said that it should have considered each subsection as a separate and potential ground giving rise to the exceptions to the rule that the employer shall not make a deduction from the wages of an employee.  The EAT also failed to interpret the company handbook properly and incorrectly read it alongside section 5(1)(a) of the 1991 Act.

Obligation on the EAT to provide reasons for its decision

Judge Kearns criticised the EAT's short decision as wholly inadequate. It noted that previous decisions of the court have established that the duty to give reasons doesn’t require extensive analysis of every aspect of each complaint, some level of detail as to how a decision is arrived at is required. Kearns J held that the brief determination of the EAT in this case was "wholly inadequate to meet even this low threshold." 

Takeaways

The case is useful for employers as it finally ends the wage reduction versus deduction debate. It also highlights the need for the EAT to give detailed reasons for its determinations. This should be useful for employers and advisors going forward as it should help in providing some level of consistency and precedent value in the issuing of determinations.

Another issue which it raises but doesn’t determine is whether a variation clause in a contract can be relied upon by an employer in effecting a reduction. This is an interesting point which the EAT will undoubtedly have to consider when it looks at the issue afresh as a result of the High Court ruling.