After a two-year battle off the pitch, Middlesbrough FC won the right to pay staff less than the minimum wage when factoring in the cost of their season tickets.
An employment tribunal in Teesside Magistrates' Court on Monday overturned a ruling that the Championship football club had broken employment laws when deducting the cost of 2016/17 cards over several weeks from the pay of staff receiving the National Minimum Wage (NMW).
The team had argued for two years that it was only responding to the wishes of employees who requested the arrangement, but HMRC was steadfast in its position that the club had ignored laws and was liable for prosecution.
Despite being roundly criticised for pursuing the action, HMRC refused to back down and said it will continue to chase cases where employers pay under the NMW threshold. This has led experts to warn that businesses must be on top of all minimum wage matters, even when they believe they are helping low-paid employees with perks and other benefits.
Never a penalty
After a string of claims against corporates including Iceland Foods, which tripped up over a Christmas savings scheme, retailer John Lewis which paid £36m to cover its payroll error, and fusion eatery Wagamama which was fined for its minimum wage infraction, HMRC went into the legal encounter full of confidence.
Government lawyers said Middlesbrough had the “benefit and use” of the season ticket payments, which were paid directly into the club’s bank account, and as a result, must be found in breach of the legislation.
However, Robin Bloom, the club’s barrister, responded that it was “a deduction that has been made on the behest of the employee and for the benefit of the employee”, and at the end of the day, the court agreed.
“On the face of it, this seems a sensible result,” said Charlie Barnes, associate director and employment lawyer at RSM UK. “When assessing NMW compliance there are certain deductions which must, by law, be taken into account.”
He said these include when a deduction is for expenditure in connection with the worker’s employment or if the deduction is for the employer’s own use or benefit.
“The benefit for the worker was that they could spread the cost of the season ticket over the course of the year rather than pay for it in one lump sum,’ said Barnes. “Assuming the workers were not compelled to buy a season ticket and watching the football was not a requirement of the job, the deduction should not have counted towards NMW.”
Boro chairman Steve Gibson blasted HMRC’s tactics, stating the case was “a huge waste of public money”.
“Ultimately it is the taxpayers who are paying for this shambles and our politicians need to take notice and demand a more professional approach in the future,” Gibson said in a statement.
He said in addition to one witness, HMRC had a barrister, a lawyer and three other observers at court, signalling “the waste and inefficiency” within the civil service.
“I believe this is symptomatic of a bureaucratic civil service who are out of touch with the real world,” Gibson said. “I am delighted that our appeal has been successful.”
Funny old game
Current legislation in this area paints a confusing picture, both for employer and employee and the Middlesbrough FC case is an illustration of why clearer guidance is needed, according to Philip Richardson, partner and head of employment law at Stephensons Solicitors.
Where an employee elects to deduct a percentage of their salary towards a benefit provided by their employer, such as a season ticket, in this case, tribunals may be hesitant to intervene with that scenario, Richardson said, irrespective of whether that then takes employees below the national minimum wage.
“The employee has ultimately consented to that deduction for a benefit that they wanted,” he said, but HMRC remains myopic over NMW violations, whether they are intentional or not.
“Many employees will welcome that level of scrutiny, but for employers, it means there is absolutely no room for error,” Richardson told AccountingWEB.
In March 2018, the Government outed 180 businesses for not paying the NMW, with TGI Friday and Marriott Hotels included along with the aforementioned businesses.
The agency’s enforcers recovered £15.6m for over 200,000 workers not paid the NMW in 2017/18. The figures were up almost 50% from the amount claimed last year.
Boro’s successful appeal will have others eyeing the outcome and looking to fight back instead of simply accepting the charges.
Retailer Iceland is preparing for its day in court. The supermarket became embroiled in a dispute over a voluntary savings scheme that allowed its staff to squirrel away cash from their wages into a separate “account”, which they can then withdraw on demand, typically at Christmas.
As this often resulted in wage payments below the threshold, HMRC stepped in and accused Iceland of underpaying staff by about £3.5m per year over a six-year period. Along with approximately £21m in back pay, Iceland faces significant fines if it loses.
HMRC was unrepentant in its allegation that Iceland was paying staff less than the statutory minimum required by law, drawing a stern response from the chain’s founder, Sir Malcolm Walker.
Seen them given
Despite the setback, HMRC said it was entitled to make the case against Middlesbrough, and would do so again.
A spokesman said: “HMRC is unapologetic in its enforcement of national minimum wage for workers, and will ensure that we do everything we can to get people the money that they are legally due.”
They said minimum wage laws are protective legislation and no worker can agree to receive less than the relevant NMW rate.
"The legislation does not draw a distinction between breaches arising from uncertainty or mistake and deliberate underpayment which means HMRC has no discretion to make these distinctions either,” the spokesman said. “Employers are either compliant and pay their workers correctly, or they do not.”
The government’s refusal to accept the position or acknowledge its legitimacy is a concern, experts agreed, heightening the need for extra caution.
“Many other employers in Middlesbrough FC’s position may not have the resources or the stomach to challenge HMRC’s findings at an employment tribunal,” RSM’s Charlie Barnes added. “The unfortunate consequence of the stance HMRC took in this case is that workers might start losing out. Employers operating similar schemes may soon withdraw them rather than run the risk of being penalised and named and shamed by HMRC for not complying with NMW.”
With a consultation on NMW due to run until March 1, this one looks to be heading for extra time.