Unlawful deduction of wages / breach of contract

[R0b]

mariefab Ula

I have a scenario which I am hoping you could provide some assistance on or at least your views.

The employee has signed a contract with her employer and under the terms of the employment contract it specifically references a clause relating to deductions. This clause says that the employer reserves the right to make deductions from any monies due to the employee from the employer and goes on further to say that by way of illustration it also includes the right to recover money under any loans made by the employer to the employee.

The above clause is all clear and understandable in my view however, the employer and the employee then entered into a separate loan agreement with separate terms. Those terms and conditions simply state that where the employee leaves the business they will have to repay the loan based on the sliding scale (in this case 40%). It does not say that it has to be immediately, in full or on demand.

So, two questions:

1. I understand there is an exemption for unlawful deduction of wages relating to loans. So any claim brought by the employee would effectively be a breach of contract - do you agree?

2. Are you aware of any case law that suggests the terms of the employment contract overrides any subsequent agreement in relation to loans? My initial thought is that the clause under the employment contract for the right to deduct wages where there is an outstanding loan, is nothing more than an agreement to agree. Secondly, the employee and the employer entered into a separate agreement entirely for the loan and under the usual rules of contract, the clause in the employment contract was never incorporated within the '4 corners' of the loan agreement. So any terms of the agreement for the loan overrule the general terms under the employment contract.

So if the employer tried to deduct any wages from the employee concerning the loan agreement, would you think that could amount to breach of contract?

The employee has no concern about making the repayments of the loan and is happy to do so, her main worry is that upon leaving her current employer she will have no wages to see her through until her next payment at her new job.

[jaguarsuk]

mariefab Ula

I have a scenario which I am hoping you could provide some assistance on or at least your views.

The employee has signed a contract with her employer and under the terms of the employment contract it specifically references a clause relating to deductions. This clause says that the employer reserves the right to make deductions from any monies due to the employee from the employer and goes on further to say that by way of illustration it also includes the right to recover money under any loans made by the employer to the employee.

The above clause is all clear and understandable in my view however, the employer and the employee then entered into a separate loan agreement with separate terms. Those terms and conditions simply state that where the employee leaves the business they will have to repay the loan based on the sliding scale (in this case 40%). It does not say that it has to be immediately, in full or on demand.

So, two questions:

1. I understand there is an exemption for unlawful deduction of wages relating to loans. So any claim brought by the employee would effectively be a breach of contract - do you agree?

2. Are you aware of any case law that suggests the terms of the employment contract overrides any subsequent agreement in relation to loans? My initial thought is that the clause under the employment contract for the right to deduct wages where there is an outstanding loan, is nothing more than an agreement to agree. Secondly, the employee and the employer entered into a separate agreement entirely for the loan and under the usual rules of contract, the clause in the employment contract was never incorporated within the '4 corners' of the loan agreement. So any terms of the agreement for the loan overrule the general terms under the employment contract.

So if the employer tried to deduct any wages from the employee concerning the loan agreement, would you think that could amount to breach of contract?

The employee has no concern about making the repayments of the loan and is happy to do so, her main worry is that upon leaving her current employer she will have no wages to see her through until her next payment at her new job.

Does the loan agreement reference the employment contract? Something like:

1. These Terms (together with the XX Ltd Employment Contract) are between the Company and the Employee, and govern the obligations of both parties under any contract for the provision of the Loan.

[mariefab]

How has the employee been repaying the loan?
Has it been by deduction from wages or by making separate payments?

[R0b]

jaguarsuk No it doesn't however, it might be best if I clarify some points.

Clause A says that the loan agreement forms part of the "Principal Agreement" which is defined as the contract of employment made between the employer and the employee.

Clause B is a boiler plate entire agreement clause which says that "This Agreement" (being the loan agreement) represents the entire agreement between the employer and the employee and replaces and supersedes all prior agreements, arrangements, statements etc. with respect to the subject matter.

There are two things that I would make from the above. The first is that "forms part of the Principal Agreement" in my view means that essentially they form one agreement as a whole. However, I would say that it is arguable that there might be a conflict between the deduction clause in the employment contract and the obligation to repay the outstanding amount under the loan agreement. For further clarity there is no order of precedence in the employment contract or conflict of terms clause.

The second point is that by virtue of Clause B, it refers to the loan agreement which supersedes all prior arrangements or agreements so I would like to think that the employee is on comfortable ground in saying that if the employer decides to deduct any wages from the employee, they would be in breach of contract on the face of it, since there is no term under the loan agreement to deduct the outstanding balance from the wages or thats how I see it anyway.

mariefab Sorry I forgot to add that the loan is not repayable unless the employee leaves within 2 years of completion of a course (on a sliding scale). So there is no repayment being made by the employee but she suspects they will want to deduct her wages on leaving part way through the month.

[mariefab]

Having a separate agreement to repay training costs is normal good practice. It's almost a requirement as the employer can only recoup the costs if there's a signed agreement.

Clause A and the specific mention in the contract of employment of the right to make deductions to recover money due from loans may be sufficient to permit the employer to deduct all of the final wage to partially recoup the loan.

I'd suggest not waiting to see whether the employer deducts the money.
Raise the deduction/repayment conflict.
Point out that there's no timescale in the agreement for repayment of the loan.
Offer a payment plan.

P.S. If your friend did not resign she would have to receive at least the minimum wage.

[jaguarsuk]

jaguarsuk No it doesn't however, it might be best if I clarify some points.

Clause A says that the loan agreement forms part of the "Principal Agreement" which is defined as the contract of employment made between the employer and the employee.

Clause B is a boiler plate entire agreement clause which says that "This Agreement" (being the loan agreement) represents the entire agreement between the employer and the employee and replaces and supersedes all prior agreements, arrangements, statements etc. with respect to the subject matter.

There are two things that I would make from the above. The first is that "forms part of the Principal Agreement" in my view means that essentially they form one agreement as a whole. However, I would say that it is arguable that there might be a conflict between the deduction clause in the employment contract and the obligation to repay the outstanding amount under the loan agreement. For further clarity there is no order of precedence in the employment contract or conflict of terms clause.

The second point is that by virtue of Clause B, it refers to the loan agreement which supersedes all prior arrangements or agreements so I would like to think that the employee is on comfortable ground in saying that if the employer decides to deduct any wages from the employee, they would be in breach of contract on the face of it, since there is no term under the loan agreement to deduct the outstanding balance from the wages or thats how I see it anyway.

mariefab Sorry I forgot to add that the loan is not repayable unless the employee leaves within 2 years of completion of a course (on a sliding scale). So there is no repayment being made by the employee but she suspects they will want to deduct her wages on leaving part way through the month.

Clause B essentially contradicts clause A due to A ruling they form one agreement and then B superseding all previous agreements, how is it possible for the employment contract to form part of that agreement in A if it has been superseded?

[mariefab]

Because it "supersedes all prior agreements, arrangements, statements etc. with respect to the subject matter." The subject matter being training costs.
Sometimes employees embark on another training course before 2 years have passed since the last course so an updated agreement is required..

[jaguarsuk]

Because it "supersedes all prior agreements, arrangements, statements etc. with respect to the subject matter." The subject matter being training costs.
Sometimes employees embark on another training course before 2 years have passed since the last course so an updated agreement is required..

Ah, missed that. Thanks

[R0b]

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