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Coffee connoisseurs Costa Coffee is in the spotlight, with allegations mounting that they have been ‘illegally’ deducting sums from employees wages.

What are the deductions?

The BBC has reported that many employees have had £200 deducted from their final wages for training costs. This is said to be the equivalent of one weeks pay for some (part time staff), with other employees going further, alleging that the global coffee giant routinely deducts money from their wages to account for:

• till discrepancies and running costs;
• lateness;
• training costs;
• running costs;
• balance the tills.

 Costa confirm

A spokesperson for Costa confirmed that branches under Franchise agreements were “run independently” and in response to the suggestion that contracts did not permit deductions from wages added “some staff contracts [do] have clauses relating to deductions”. “Deductions are circumstantial and reviewed on a case by case basis”.

Twitter furore

Staff began highlighting the deductions on social media after it was reported an employee was told to pay back £280 that was stolen from the till whilst on shift. In response to the allegations, Costa confirmed that an internal investigation into the incident was being conducted and said “no workers had been asked to repay the stolen money”.

Unlawful deductions from wages

The protection in law against unlawful deductions from wages goes further than just protecting employees, but is wider in scope and protects all workers. It is unlawful for an employer to make a deduction from a worker’s wages unless:

• The deductionis required or authorised by statute or a provision in the worker’s contract; or
• The worker has given their prior written consent to the deduction.

Claims

Unlawful deductions claims can be brought in respect of unpaid (or underpaid) wages in the employment tribunal, even during the working relationship. It is noteworthy to mention here that a breach of contract claim which is the other head of claim under which such claims can be issued would only have jurisdiction in the employment tribunal after the working relationship has ended and has a cap of £25,000. This does not prevent a claim in the country or high court, although a claim cannot be brought for the same sums in both arenas.

There is no qualifying period of service required by a worker in order to bring a claim for unlawful deductions from wages.

What are “wages”?

For the purposes of an unlawful deduction of wages claim, wages are defined by section 27 of the Employment Rights Act 1996 (“ERA 1996”).

Wages means “any sums payable to the worker in connection with employment”, and includes:

• Any fee, bonus, commission, holiday pay or other emolument referable to the worker’s employment, whether payable under their contract or otherwise.
• Non-contractual bonus
• Statutory payments such as sick pay, maternity pay, shared parental leave pay, adoption pay (although the employment tribunal does not have jurisdiction to determine entitlement to such statutory payments in the event of a dispute).
• Statutory guarantee payments;
• Payments that the employee is entitled to such as taking time off for antenatal care, on suspension, adoption appointments.

Payments excluded from definition of wages

Wages expressly excludes:

• Advances of wagesor payments under a loan agreement;
• Expenses;
• Pension payments;
• Redundancy payments or compensation for loss of office.

What is a “deduction”?

A deduction is where the total wages paid on any occasion by an employer to a worker is less than the net amount of the wages “properly payable” on that occasion, the deficit counts as a deduction, unless it is attributable to an “error of computation” (section 13(3) and (4), ERA 1996). Where the employer makes an unlawful deduction but, at the same time, increases another element of the worker’s remuneration so that there is no overall reduction in pay, there will still be an unlawful deduction from wages

Retail workers

Special protection

Special protective provisions apply to deductions from the wages of workers in retail employment, where deductions are made because of cash shortages or stock deficiencies. The protection is regardless of whether the amount of the deduction is designed to reflect the exact amount of the shortage or deficiency, including circumstances where the deduction is made because of:

• Any dishonesty or other conduct
• Any other event in respect of which they have any contractual liability

How much

When a deduction is made in these circumstances, the amount (or aggregate amount) of any deduction or deductions from a retail worker’s wages must not exceed 10% of the gross amount of the wages payable to the worker on a particular pay day. This does not prevent the employer from deducting the whole amount of any shortage or deficiency over a number of pay days, but limits the rate at which deductions may be made.

The deduction has to be made within 12 months of the date when the existence of the shortage or deficiency was established, or (if earlier) the date when it ought reasonably to have done so. Where there is a series of deductions relating to a shortage or deficiency, only the first deduction in the series needs to have been made within the 12-month period.

Contractual agreements

If there is a bespoke agreement which specifies that the worker’s wages are to be calculated based on any cash shortages or stock deficiencies, the difference between the amount payable when shortages or deficiencies occur and the amount payable if there had not been any cash shortages or deficiencies is treated as a deduction from wages. The difference must again not exceed 10% of the larger amount.

There is always a but……

The 10% limit on deductions does not apply to deductions made from a retail worker’s “final instalment of wages“. This enables an employer to recoup any outstanding amount in respect of a deficiency or shortage from either a worker’s last pay packet, or, if paid after the worker’s last pay packet, any payment in lieu of notice. As the allegations continue, it remains to be seen whether Costa have been acting outside any agreement and the special provisions applicable to retail workers.

Remedies

A worker can bring a claim for an unlawful deduction from wages in the employment tribunal and seek:

• A declaration; and / or
• Payment of the unlawfully deducted (or received) by the employer;
• Compensation for further financial loss (in some cases).

Time limits

Subject to the rules on early conciliation a claim must be brought within three months beginning with the date of payment of the wages from which the deduction was made; or

Where there has been a series of deductions , the time limits begin to run with the last deduction or payment in the series, or the last of the payments so received.

An employment tribunal may still consider a complaint presented outside the time limit if it is satisfied that it was not reasonably practicable for the complaint to be presented before the end of the three-month period, and the claimant has presented it “within such further period as the tribunal considers reasonable”.

For further advice on unlawful deductions from wages and employment related matters please contact Kaajal Nathwani on This email address is being protected from spambots. You need JavaScript enabled to view it. or 020 8363 4444.

Please note that this briefing is for guidance purposes only.