Mrs L Kitson v Chadwell St Mary Day Nursery Ltd (England and Wales : Unlawful Deduction from Wages)

Factual and Procedural Background

The Plaintiff commenced employment with the Defendant, a company operating multiple nurseries, on 24 February 2020 as a Nursery Practitioner with a gross annual salary of £18,250. The Plaintiff resigned by email on 26 May 2020, with her last working day being 28 May 2020. The dispute arose after the Plaintiff submitted a claim for arrears of pay on 23 July 2020, alleging unauthorised deductions and breach of contract by the Defendant.

The Defendant contended that it was contractually entitled to place the Plaintiff on lay-off due to a temporary shortage of work caused by the Covid-19 pandemic and to make corresponding pay deductions under lay-off and recoupment provisions in the employment contract. The Defendant also asserted entitlement to recover alleged overpayments made in error, specifically furlough payments under the Government’s Coronavirus Job Retention Scheme (CJRS).

The Employment Tribunal hearing was conducted remotely by telephone on 22 February 2021. The Plaintiff represented herself, and the Defendant was represented by a consultant. Both parties agreed on the sums earned and paid to the Plaintiff, with the central issues being the contractual validity of the lay-off clause and the Defendant’s right to deduct overpayments.

Legal Issues Presented

1. Whether the lay-off clause in the Employee Handbook was incorporated into the Plaintiff’s employment contract.
2. Whether the Defendant was contractually entitled to place the Plaintiff on lay-off and reduce her salary accordingly.
3. Whether the Defendant was entitled to make deductions from the Plaintiff’s pay to recoup alleged overpayments made in error, specifically furlough payments under the CJRS.

Arguments of the Parties

Plaintiff's Arguments

• The lay-off provision contained in the Employee Handbook did not form part of the employment contract.
• The Plaintiff was entitled to receive full pay throughout her employment, except for days absent due to sickness.

Defendant's Arguments

• The lay-off clause in the Employee Handbook was expressly incorporated into the employment contract by reference in the Statement of Main Terms of Employment.
• The Defendant was contractually entitled to reduce the Plaintiff’s pay under the lay-off clause due to a temporary shortage of work caused by the pandemic and lockdown.
• The furlough payments made in April 2020 were paid in error because the Plaintiff was ineligible for CJRS funding, and the Defendant was entitled to recover these overpayments under the contractual deduction clause.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Edwards v Chesterfield Royal Hospital NHS Foundation Trust [2012] 2 AC 22	Statutory written statement is persuasive evidence of terms of employment contract.	Used to support that terms in statements and referenced documents can form part of the contract.
Hussein v Mallenash Ltd EAT/53/96	Express incorporation of terms by reference in a statutory statement can give contractual effect to policies.	Supported finding that the Employee Handbook was incorporated into the contract.
Alexander v Standard Telephones & Cables Ltd (No.2) [1991] IRLR 286	Factors determining whether a provision is apt for incorporation as a contractual term.	Guided evaluation of the lay-off clause’s appropriateness for incorporation.
Hussain v Surrey and Sussex Healthcare NHS Trust [2012] CLY 1528	Non-exhaustive factors relevant to incorporation of terms into contracts.	Assisted in assessing the contractual status of the lay-off clause.

Court's Reasoning and Analysis

The Tribunal first examined whether the lay-off clause in the Employee Handbook was incorporated into the Plaintiff’s contract. It found that the Statement of Main Terms expressly incorporated the Employee Handbook by reference, similar to the wording upheld in Hussein v Mallenash Ltd. Although the Plaintiff was not provided the Handbook at the start, it was accessible to her, fulfilling requirements for incorporation. The lay-off clause was deemed apt for incorporation as it was important to the contractual relationship, clear, detailed, certain, and workable.

Next, the Tribunal considered whether the Defendant was entitled to reduce the Plaintiff’s pay under the lay-off clause. Given the temporary shortage of work caused by the Covid-19 pandemic and national lockdown, the Defendant’s action to place the Plaintiff on lay-off and reduce pay to statutory guarantee levels or pay for hours worked was lawful and constituted a relevant contractual provision under s.13 of the Employment Rights Act 1996. Thus, deductions made under this clause were authorised.

Finally, the Tribunal addressed whether the Defendant was entitled to recoup the furlough payments made in April 2020. It was undisputed that the Defendant could deduct overpayments under the contract’s ‘Deductions’ clause. The furlough payments were mistakenly made due to the Defendant’s incorrect assumption the Plaintiff was eligible for CJRS funding. The Tribunal concluded these payments were made in error and properly recoverable under the contract.

Consequently, all deductions from the Plaintiff’s pay were authorised by relevant contractual provisions, and no breach of contract occurred.

Holding and Implications

The Tribunal DISMISSED the Plaintiff’s claims for unauthorised deductions and breach of contract.

The direct effect of the decision is that the Defendant was entitled to reduce the Plaintiff’s pay under the incorporated lay-off clause and recover overpayments made in error. No breach of contract was found. The judgment does not establish new legal precedent but affirms existing principles on incorporation of handbook terms and authorised deductions under employment contracts.