Duty to Pay Wages in Contracts of Employment and Its Limitation in Practice - Essay Example

Duty to Pay Wages in Contracts of Employment and Its Limitation in Practice A legal agreement between an employer and an employee entailing certain reciprocal responsibilities is termed as an employment contract. This contract comes into force the moment that the employee commences work in accordance with the terms set by the employer. These terms can be implied, oral or written. However, a written agreement defines precisely the terms of employment and minimizes disagreements and misinterpretations at a later date. The statute requires employers to furnish a written statement of employment to all their employees1. The employees should receive this statement not later than two months from the date of commencement of employment. It should contain the names of the employer and employee, date of commencement of employment2; rate and periodicity of remuneration, terms and conditions of the working hours, entitlement to holidays, terminal benefits, length of notice that the employee has to either receive or give if termination of employment is desired, job title of the employee3, etc. There is no restriction on the method of payment to be made to employees. Moreover, these methods are to be negotiated between the employer and the employees. However, if the agreed upon method of payment is subsequently altered by the employer and if such a departure leads to financial loss for the employee, then the employee is entitled to prefer a claim in respect of breach of contract. Nevertheless, the statute makes available to employees, the right to protection from unauthorized deductions from their wages and such protection is applicable even to persons working on a contract basis or as apprentices. Moreover, such protection has been extended to Crown servants and persons working on board a ship registered in the UK. Moreover, employers are well within their rights to make statutory deductions like those relating to income tax or insurance. Further, it is permissible to make deductions in instances of overpayment of wages, judicial decisions and participation in strikes4. In respect of retail work, additional protection has been afforded by the statute. A retail worker is any person carrying out retail transactions selling, which have been defined as the supplying of goods or services5. However, this additional protection has not been provided to those who transact only with companies. Moreover, an employer cannot make deductions in excess of a tenth of the gross wages in respect of shortages or stock deficiencies6. The time limit for making such deductions has been set at twelve months, unless the deduction forms part of a series of such deductions in respect of shortages or deficiencies. Furthermore, such deductions have to be made subsequent to informing the employee the exact amount due from him. Such communication of information has to be in writing and has to be made on a pay day7. Any employee, irrespective of the length of service put up, who is of the opinion that an unlawful deduction from wages has been made by the employer or if the employee has been required to make an unlawful payment may approach the Employment tribunal in order to obtain redressal for such grievance. The time limit for lodging such complaints is in general three months from the due date of payment of the wages or within such period as permitted by the Employment tribunal8. This three months limitation period in respect of payments by the worker to the employer is determined from the date of receipt of payment by the employer. If a series of deductions or payments are involved, then under such circumstances this three months period is to be reckoned from the date of the last deduction or payment in the series. However, this time limit can be extended by a further three more months under specific circumstances as per the provisions of the statutory dismissal, disciplinary and grievance procedures introduced from the 1st of October 20049. Wages have been defined to construe, as per this act as denoting amounts payable to employees by their employers in connection with their employment. Such payments are fees, bonuses, commissions, etc, made in relation to the worker's job; statutory payments like Statutory Sick Pay and Statutory Maternity Pay and meals vouchers, gift tokens, etc. some examples of certain other types of payment, which are beyond the purview of this act and which have to be redressed by taking recourse to a breach of contract action are advances of wages; payments of expenses incurred in employment and payments pertaining to pension and other terminal benefits. Any dispute between the employer and the employee in respect of the accuracy of calculation of the gross amount of wages due have to be resolved as per the provisions of the law of contract in the civil courts during the period of employment. The employment tribunals have to be approached for such redressal, once the employment has come to an end. Instances where the employer decides to withhold partially or totally the gross wages due under the worker's contract are tantamount to deductions and the worker can seek redressal for such acts of the employer by approaching an employment tribunal under the legislation on unlawful deductions from wages10. Implied terms in employment contracts are first, the requirement that employees have to accept the reasonable instructions of their employer, non - disclosure of the employer's trade secrets to the competition, etc. Second, terms that are essential for the contract to be viable and third, terms established by custom and practice in that particular organization or industry. Moreover, certain implied terms are enforced by law, for example, the right to a National Minimum Wage and paid holidays, the right of employees to be provided with a safe working environment by the employer and the duty of employees to be honest and careful whilst working for their employer11. In addition, an Employment Contract can be amended only if the employee and the employer are in agreement to effect such change. Agreement to such changes can be endorsed either verbally or in writing. Another method for engendering such change is by means of the process of collective bargaining. Sometimes, the very contract itself contains provisions that permit employers to change the duties of employee12. In Christian Salvesen Food Services Limited v Osmond Ali and others13, the line of activity of the appellants, Christian Salvesen Food Services Limited, was the processing and storage of vegetables. The appellants decided to pay their workers a standard wage14 on the basis of a roster, which provided for a total of 1824 of working hours in the twelve months commencing on the 1st of June 1992 and ending on the 31st of May 1993. Up to that time these workers had been paid on an hourly basis with entitlement to overtime. These hours, and the applicable standard wage had been calculated assuming forty hours per working week15, suitably adjusted to account for holiday entitlement. Subsequently, each employee entered into an individual contract of employment with the appellant, which was effective from the same date for all the employees. This contract further incorporated the collective agreement and further there was a specific provision in the individual contracts of employment, which enabled either side to terminate the contract by giving a seven day's notice. Osmond Ali, the respondent to this appeal and an employee of the appellant was made redundant after he had worked for only twenty - two weeks out of the fifty - two weeks indicated on his annual roster. Ali contended that the hours of work that he had put in that period were in excess of the "norm" of working hours on whose basis his standard wage had been calculated. Accordingly, Ali approached an industrial tribunal to obtain a declaration in respect of his entitlement which he argued was to be paid pro rata for the excess hours of work performed. The Industrial Tribunal did not countenance his claim and stated that in the absence of any specific provision to deal with premature termination of employment during the currency of the roster, Ali had to perforce abide by the standard wage assured to him by the collective agreement, irrespective of the actual hours of work put in by him. Ali appealed against this decision to the Employment Appeal Tribunal. The employment appeal tribunal took a different view and opined that legally there should have been implied into the individual and collective agreements, provision of a term that would entitle an employee whose employment had been terminated by the employer prior to the end of the pay year, to be paid the amount due in accordance with the standard hourly rate for the hours actually worked by him in excess of 40 hours per week. It was the culmination of a very carefully negotiated compromise between conflicting intentions, namely the aspiration of the employees to obtain an assured rate of weekly pay for a long period of time irrespective of the actual number of hours for which they would work; and the aim of the employers to refrain from having to pay the high cost of overtime rates for work performed during periods of heavy demand. This agreement had to be applicable to many different and varied situations and in this very important matter of universal applicability it revealed several flaws. It has to be borne in mind that the task of formulating these agreements was daunting in the extreme and perhaps this could be attributed as the reason for the omission of any contingency for dealing with the premature termination of contracts of employment prior to the end of the roster period. Several variations on this theme of premature termination are possible and some of them are the instance of an employees who have to be dismissed because of their illness, before their roster has been worked; employees who have to be dismissed during the currency of the roster on grounds of misconduct; and employees who make a belated entry into the roster and works for substantially longer hours in order to be at par with the regular workers but nevertheless significantly failing to complete the required 1824 hours. Furthermore, premature termination of contract was one of the several eventualities in respect of which the agreement was silent. In addition, it was difficult if not well nigh impossible to formulate for any particular eventuality, a term in respect of which it could be reasonably assumed that the negotiating parties would have accorded their acceptance, as unhesitatingly as if it had been available in the agreement. Thus, the appeal was rejected by the House of Lords. In order to endow contracts with business efficiency implied terms can be introduced into them16. Such implied terms should represent obligations, which are capable of being generalized in respect of a type of contractual relation as representing what transpires usually in such a type of contract. However, there is a absence of a fixed or conventional classification of contracts with the result that a court will imply a rule into a contract of employment, first, as a normal incident connected with contracts of employment, second, as a customary occurrence of a specific type of employment relation or third, as a usual event of a group of contracts into which the contract of employment can be classified. An example of the first condition is the implied term of trust and confidence, which is applicable only to contracts of employment and not other contracts17. The second condition is illustrated by the implied duty of disclosure of information regarding changes in terms and conditions, which grant employees highly advantageous opportunities when such changes are collectively negotiated or introduced unilaterally as part and parcel of the organization by the employer18. A further example is provided by the implied duty to supply work imposed on the employer, whenever the payment mechanism, as per the terms of the contract, is dependant and is determined by the completion of tasks like piece work19. The third condition is elucidated by the possibility of implied terms to be applicable to a class of commercial contracts that contain employment relations. In instances of commercial contracts that do not have a definite duration, the courts interpret the term that such contracts can be independently by either by furnishing reasonable notice20. The strategy of redressing unbalanced information in respect of the terms of the contract has not received much attention, especially with regard to contracts of employment. Till quite recently, most contracts of employment were either informal or oral. Despite the omission of the disciplinary code of the factory in the contract of employment, the employer has extensive disciplinary powers under the standard implied terms of the contract. Therefore, in law it is immaterial whether the notices available in factories are part of the terms of the contract. Hence, it was not considered necessary to make the employer aware of the content of the notices before the formation of the contract, since, the employee would be construed to have acquiesced to the practices of the trade or the workshop21. The status in respect of this problem is that the extant statutory regulation has managed to address it only partially. The employer has to furnish employees with a statement of the terms and conditions of employment incorporating explicitly the relevant collective agreements and works rules, which must be made available with reasonable access to all the employees22. However, such a statement is not considered to be incontrovertible proof of the terms of the contract by the courts, but merely the employer's view of what these terms should contain23. Usually employers obtain the employee's assent to this statutory statement as a record of the terms of the contract of employment with the result that employees are legally bound to all the incorporated documents of the contract, regardless of the fact as to whether or not they had inspected them and irrespective of the fact as to whether or not these incorporated documents contain any arduous and unusual obligations. In Scally v Southern Health and Social Services Board24, the employees, who were junior doctors, were members of the employer's occupational pension scheme. Consequent, to negotiations with the professional association, the terms of the superannuation scheme were modified in such a way that doctors could acquire extra years of service qualification on beneficial terms, resulting in an enhancement of their final pension. This prospect was conferred as a contractual right for one year. Later on the employer decided to bestow upon itself, without informing the doctors, the right to grant permission for the purchase of additional years of service and the applications of these doctors, on applying for this benefit, were rejected by the employer. This resulted in their filing a successful suit for breach of contract. If unilateral wage cuts take place then the affected employees can recover the amount due under the contract, if they do not agree to the difference. Such employees can continue to work under the contract, but they have to clearly indicate that they do not consent to the proposed variation25. Despite the existence of a collective agreement for wage reduction between the employer and a recognized trade union, the employees are well within their rights to refuse to accept the variation, due to the fact the union cannot act as an agent for the employees in UK law26. Further, if employees attempt to change the terms of the contract independently, either by working for less number of hours27, or by reduced duties28, the employer has the right to decline the resultant variation and refuse to pay any wages at all. The contemporary working environment is such that employers are on the lookout for flexibility in work tasks and reductions in wage costs. Hence, the right of employees to express dissent to contractual variations constitutes significant bargaining power. However, such strength is not absolute as the employer can terminate the services of employees who do not consent to the new terms and conditions. Moreover, an employment tribunal is quite likely to hold that the dismissal was fair and that the employee is not entitled to any compensation29. Furthermore, the restriction on variations is restricted to contractual terms; hence an employer can engender modification to the working practices if the contract bestows such power upon the employer without any express restriction30. Forced changes in contracts are invalid as has been demonstrated in Stilk v Myrick31. In this case a sailor claimed extra wages on the basis of a promise made by the ship's captain to pay additional wages during a long voyage. However, the claim was not entertained as there was an absence of fresh consideration, because the sailor had not consented to perform extra work for the extra wages. The important fact to note is that in commercial contexts the need for fresh consideration has proved to be unrealistic. In long term contracts, the parties to the contract may decide to create changes in the terms of the transaction and on several occasions such alterations will represent a disadvantage to one of the parties to the contract. In case of consent to such change the court will consider such change to be valid. This result can be realized either by the promissory estoppel32, or by asserting that commercial advantages were obtained due to the agreed detrimental variation, which satisfies a watered down conception of the doctrine of consideration33. The doctrine of economic duress serves to control opportunism or coerced variations in commercial contexts34. In order to preserve continuity of service, which is essential for acquiring several statutory employment rights, it is necessary to consider that these events do not terminate the relation35. The above discussion clearly indicates how the duty to pay wages has been incorporated into employment contracts and how this duty can be limited. 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