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Is an employee is entitled to payment for accrued time off in lieu?

A recent Employment Appeal Tribunal case, Vision Events (UK) Ltd v Paterson [2013] looked at whether, in the absence of any express clause in a contract of employment, a dismissed employee is entitled to a payment in lieu of accrued hours that could otherwise have been taken as time off in lieu.

Time off in lieu

Mr Paterson was employed by Vision Events as a multimedia producer. He was entitled to participate in a flexi-hours scheme, which allowed him to take time off in lieu if he worked more than his contractual 45-hour week. He had no entitlement to overtime.  The terms of the flexi-hours scheme were set out in the employee handbook and stated that: “If overtime is payable, then the employee will normally be paid 50% of their outstanding flexi-hours as overtime each month.” Vision insisted that time off in lieu of extra hours worked had to be taken at a time to suit the business. The handbook did not deal with what the position would be on termination of employment.

In 2012, Mr Paterson was made redundant and sought payment of £1,042.84 in accrued hours of flexi-time. Mr Paterson complained to an Employment Tribunal that he had been unfairly dismissed and that the failure to pay him for his accrued flexi-time was an unlawful deduction from wages.

Employment Tribunal decisions

The Employment Tribunal held that Vision Events had made unlawful deductions from Mr Paterson’s wages (although he was not unfairly dismissed).  The Employment Tribunal found that Mr Paterson should not have to work hours for which he would not be paid and that there was an “implied term” in the contract that payment would be made for accrued flexi-hours.

When the express terms of a contract fail to deal with an issue, the Employment Tribunal will consider whether to imply a term to fill a gap in the specific contract and whether a term is implied “in fact”. The ET will look objectively at whether it was both parties’ intentions to create such a term and will not imply a term simply to make the contract fair (Liverpool City Council v Irwin [1977]).

There are two tests the Employment Tribunal may consider:

  • The ‘business efficacy’ test: the Tribunal may imply terms necessary to make the contract workable;
  • The ‘officious bystander’ test: if the term is so obvious it goes without saying.

Other implied terms can include those implied through custom and practice, or if they are seen as characteristic terms of the employment relationship.

Unlawful deductions of wages

Section 23 (1) of the Employment Rights Act 1996 gives employees the right to claim an unlawful deduction from their wages.  The starting point for the Employment Tribunal is to consider what sum is properly payable to the employee by considering the terms of the contract (whether express or implied), before looking at whether a deduction from that sum is authorised by the contract, by prior agreement in writing from the employee or by a statutory provision.

Employment Appeal Tribunal

The majority decided that the Employment Tribunal was wrong to imply a term that the employee would be paid for his accrued flexi-hours on termination of his employment.

It was not necessary for business efficacy to imply such a term and it was “clearly” not a term that both parties believed should be implied. The Employment Tribunal erred in law in deciding that a term should be implied in order to make the contract fair; this was not the correct test. Any inequality for the employee was not relevant to the officious bystander test.

The minority would have upheld the Employment Tribunal’s decision that there was an implied term in the contract; it was obvious that the employee had not agreed to work for no pay and this must also have been clear to the employer. The contract provided that time off would be offered in respect of flexi-hours. As time off was no longer available on termination of employment, it must have been an implied term of the contract that if the work done could not be paid by offering time, then it must be paid in money.

Practical points for employers

Although the employer succeeded in this case, this followed two stages of litigation.  The case is therefore a salient reminder of the importance of clear policies and contracts.   If Mr Paterson’s entitlement had been set out clearly in his contract or a policy, it is likely that he would not have issued his wages claim and he may also have refrained from issuing the unfair dismissal claim.

For more information on this case or for help drafting a flexi-time policy for your business, contact our Employment Law team or call us 0117 904 6000.

Posted on Mar 19th, 2014 by Lyons Davidson

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