NERVA v. THE UNITED KINGDOM

THIRD SECTION

FINAL DECISION

AS TO THE ADMISSIBILITY OF

Application no. 42295/98
by Sandro NERVA and Others
against the United Kingdom

The European Court of Human Rights, sitting on 11 September 2001 as a Chamber composed of

MrJ.-P. Costa, President,
MrW. Fuhrmann,
MrL. Loucaides,
SirNicolas Bratza,
MrsH.S. Greve,
MrK. Traja,
MrM. Ugrekhelidze, judges,
and Mrs S. Dollé, Section Registrar,

Having regard to the above application introduced with the European Commission of Human Rights on 18 August 1997 and registered on 20 July 1998,

Having regard to Article 5 § 2 of Protocol No. 11 to the Convention, by which the competence to examine the application was transferred to the Court,

Having regard to the Court’s partial decision of 11 July 2000,

Having regard to the observations submitted by the respondent Government and the observations in reply submitted by the applicants,

Having deliberated, decides as follows:

THE FACTS

The applicants are Sandro Nerva, an Italian national, born in 1938, and three Spanish nationals, Jose Pulleiro, born in 1938, Julio Rodriguez, born in 1934, and Jose Cabo, born in 1939. The first two applicants are currently living in London, England. The third applicant is now dead. His application is being pursued in his name by his brother, Jose Antonio Rodriguez Montega. The fourth applicant lives in Spain. The applicants are represented before the Court by Ms C. Scrivens, a lawyer employed with the Central London Law Centre. The respondent Government are represented by their Agent, Ms J. Foakes, Foreign and Commonwealth Office, London.

A.  The circumstances of the case

The facts of the case, as submitted by the parties, may be summarised as follows.

The applicants were employed as waiters at the material time. When the applicants received a tip in cash directly from a customer the money was placed in a box called a “tronc” and distributed proportionately among the waiters at the end of the week by the so-called tronc master.

Initially, tips left by customers which were paid to the restaurant by way of an addition to a sum paid by cheque or credit card were dealt with by removing from the cash till a sum equivalent to the tip paid by cheque or credit card and placing it in the tronc where it would be distributed at the end of the week in the same way as cash tips.

In 1979, following an inspection from the tax authorities, the applicants’ employer was required to treat tips left by cheque or credit card within the “Pay-As-You-Earn” (“PAYE”) system. Under the PAYE system an employer had to ensure that employees’ income tax and national insurance contributions were deducted from the sums paid, and that employers’ national insurance contributions were paid on those sums. In the applicants’ view, the tax authorities in 1979 were simply insisting that as cheque and credit card tips passed through the hands of the employer the latter acted as the person responsible for distribution and should be responsible for ensuring that tax and national insurance were properly deducted through PAYE.

Rather than distributing cash sums equivalent to those left by customers on cheque and credit card vouchers, the applicants’ employer included “additional pay” in their weekly pay slip. It would appear that the method of distribution was the same as that which applied to tronc money.

Although initially opposed, this new system was eventually agreed to by the staff. The first applicant was already a staff member at the time of the introduction of the system. The remaining applicants agreed to the system when they took up employment. The applicants submit that the staff agreement to the new system was not intended to alter the fact that the gratuities were to be paid in full to employees.

The cheque and credit card gratuities were the subject of deductions by the employer in respect of tax and national insurance contributions. The employer bore the charges of the credit card companies, varying at the time from 3% to 5% on the amount of the gratuities. When a credit card voucher was improperly completed and rejected by a credit card company, the employer wrote off the amount and, it would appear, did not seek to recover any sums distributed to waiters in respect of any gratuity included on the voucher; it does not appear either that the employer sought to recover from the waiters any sums which it did not receive as a result of dishonoured cheques. The applicants highlight their view that this was not a new practice, but applied before 1979.

At the relevant time there was a legal requirement that various categories of workers, including waiting staff like the applicants, be paid a minimum sum as remuneration. This requirement was embodied first in the Wages Councils Act 1979 and then, as from 1 January 1987, in the Wages Act 1986.

The applicants sued their employer for breach of contract and challenged the employer’s right to count the tips included in cheque or credit card payments as part of their statutory minimum remuneration. The applicants’ claim covered the six-year period prior to 6 March 1989 and therefore straddled both of the above-mentioned Acts. In the Government’s view, the issue between the parties was whether the “additional pay” constituted money paid to them by their employer. If the applicants’ claim was upheld, the consequence would have been that their employer had been paying them remuneration less that the statutory minimum over a period of years, in breach of contract, entitling them to substantial damages. The applicants maintain that the dispute centred on whether the “additional pay” constituted money paid to the applicants by their employer or, they emphasise, by their employer in respect of time worked.

On 25 May 1994 a High Court judge, Mr Justice Mance, held on a preliminary point that tips included in cheque and credit card transactions did count against the minimum remuneration requirement. Mr Justice Mance rejected the applicants’ submission that the tips paid in this manner were held in trust for them by the employer. In his judgment, the employer obtained the legal title to a tip paid by credit card or cheque, with the result that it became the employer’s property.

The applicants appealed to the Court of Appeal. By the time of the hearing before the Court of Appeal, the applicants had accepted that property in the cheque and credit card tips passed to their employer and no longer relied on the argument that they were to be considered beneficiaries of money held on trust for them by the employer.

In its judgment of 15 May 1996 the Court of Appeal dismissed the applicants’ appeal.

Lord Justice Staughton observed that it was not disputed that the relevant legislation (the Wages Councils Act 1979 and the Wages Act 1986) embodied the rule that what was paid by the employer and not by any other person counted as remuneration for the purpose of that legislation. For that reason, tips paid in cash to waiters or to the tronc did not count as remuneration. However, he considered that the same reasoning could not apply to tips which were built into payments made by cheque or credit card to their employer since the amounts became the latter’s property. The employer thereafter paid an equivalent amount to the applicants. In his view, tips paid in this manner should count against the minimum remuneration requirement. Lord Justice Staughton rejected the attempts of the applicants’ counsel to interpret the applicable legislation differently. He further rejected counsel’s argument that the applicants had a right to the cheque and credit card tips as money had and received to their use. In Lord Justice Staughton’s opinion, it was decisive that the employer was paying the tips with his own money even if they had been paid by the customers to the employer in the belief that the latter would pass the tips on to the waiters and on terms that he would do so.

As to the issue of the customers’ intention when adding the tip to the cheque or credit card payment, Lord Justice Staughton considered:

“This is relevant ... in deciding whether the money became the property of the Employers or the waiters. But it is clear and (in this court) uncontroverted in this case that it became the property of the Employers. Beyond that, as it seems to me, the intention of the customers has no part to play. ... ”

Mr Justice Douglas Brown concurred. As to the applicants’ reliance on customer intention, Mr Justice Douglas Brown stated that the intention of the different customers could only be the subject of speculation.

Lord Justice Aldous dissented. As to tips paid by cheque or credit card, Lord Justice Aldous accepted that the amount was paid to the employer and therefore it could not be said that the tip so paid never became the employer’s property. However, in his opinion the intention of the customer was the same when paying a tip by credit card or cheque as when paying by cash and in either case the customer had no intention of giving anything to the employer. Lord Justice Aldous stated:

“It was paid to the employer by the customer as a gratuity with the intention that it should be passed to the staff in the same way as cash payments would be and was accepted upon that basis as was apparent from the way that it was operated. The money added to the slip was taken out of the till and added to the tronc. That being so, I do not believe that tips paid by way of cheque or credit card should be considered ‘remuneration’ when cash tips would not be.”

Lord Justice Aldous further observed that there was no difference in principle between tips paid in cash and tips paid by cheque or credit card. In his opinion, the only difference was that in the latter cases the employer acted as agent for the customer and, when doing so, had to carry out his duties under the relevant tax legislation to ensure that tax was levied on the tips. However, the fact that tax on cheque and credit card tips was deducted under the PAYE system, instead of being paid by the waiters, did not affect the relationship between the customer and the employee and the intention of the customer that his tip would find its way into the hands of the employee rather than enriching the employer’s bank account.

On 14 June 1996 the applicant applied for leave to appeal to the House of Lords. On 28 October 1996 the applicants were informed that the Appeal Committee had provisionally decided that leave to appeal should be given and that the applicants’ employer was invited to submit objections to the applicants’ petition before 11 November 1996. On 4 February 1997 the Appeal Committee referred the matter for an oral hearing before three Law Lords.

On 20 February 1997 the hearing was held. The applicants’ counsel was given the opportunity to speak to the petition for leave and to address the employer’s written objections. The hearing lasted five minutes. On the same day the Appeal Committee refused leave to appeal without giving reasons.

B.  Relevant domestic law

Section 1 of the Wages Councils Act 1979 provided for the establishment of wages councils by order of the Secretary of State for Employment in respect of those workers described in the order and their employers. Under section 14, wages councils were empowered inter alia to fix the rate of remuneration for any workers in relation to which they operated. Under section 15, contracts of employment providing for payment of less than the minimum remuneration prescribed by a wages council would have effect as if the contractual rate were superseded by the statutory minimum rate. A wages council was established for workers in licensed residential establishments and licensed restaurants. Minimum remuneration for those workers was laid down in the Wages (Licensed Residential Establishment and Licensed Restaurant) Order 1982. Paragraph 3 of the 1982 Order specifies the minimum rate to be paid for forty-hours work as well as the rates for overtime, night work, etc. Paragraph 12 of the 1982 Order provided that if in any week in which a worker performs some work for his employer the total amount of gratuities from customers received by the worker is less that GBP 8.40, the employer shall pay to the worker such sum as the amount of gratuities falls short of GBP 8.40. There must be a written agreement between the worker and the employer to this effect. Where such an agreement exists, the worker shall be paid the appropriate amount reduced by twenty-one pence per hour for the first forty hours worked by him in any week.

Section 17 of the Wages Councils Act 1979 defined remuneration as the amount obtained or to be obtained in cash by the worker from his employer after allowing for the worker’s necessary expenditure, if any, in connection with his employment.

The definition of remuneration under section 17 of the Wages Act 1986 also took as its starting point the total amount of any money payments made by the employer to the worker. The applicants draw attention to the terms of section 17(I)(a), which provided:

“For the purposes of determining, for the purposes of this Part, the amount of remuneration paid to a time worker by an employer in respect of time worked by the employee in any week there shall be added together -

(a) the total amount of any money payments made by the employer to the worker, on or before the relevant pay day, by way of remuneration in respect of time worked by him in that week, ...”

The applicants stress that they were regarded as time workers at the material time.

The Wages Act 1986 made provision for the continued existence of wages councils, although with reduced powers. Under section 16, a worker could claim as additional remuneration the difference between a statutory minimum set by a wages council and the amount he was actually paid under contract.

Under section 1 of the Wages Act 1986 (now re-enacted in section 13 of the Employment Rights Act 1996) employers were prevented from making deductions from the wages properly payable to their employees, save in certain defined circumstances and in particular where the employee has given prior consent to the deduction in writing.

In Saavedra v. Aceground Ltd t/a Terazza Est ([1995] Industrial Relations Law Reports 198), the Employment Appeal Tribunal held that a restaurant owner who kept for himself a proportion of the sums paid by customers as a service charge had contravened section 1 of the Wages Act 1986. Whilst the restaurant owner had a discretion as to how the tronc was allocated, this did not extend to permitting him to allocate some of the money to himself.

COMPLAINTS

The applicants complain under Article 1 of Protocol No. 1 to the Convention that the decision of the domestic courts amounts to an interference with their right to the peaceful enjoyment of their possessions. The effect of the judgment is that money which was left to them by customers is adjudged to pass to their employer to be used as he so wishes and, in their case, to discharge statutory obligations to pay a basic minimum wage.

The applicants further complain, with reference to Article 14 of the Convention, that the effect of the domestic courts’ decision is discriminatory since they, as waiters, are treated less favourably than employees in other service industries.

THE LAW

1.  The applicants contest the decision of the domestic courts to treat tips included by customers in cheque or credit card payments, and intended for them, as the property of their employer with the result that the latter was entitled to treat such tips as remuneration. In the applicants’ submission, the effect is to interfere with their right to the peaceful enjoyment of their possessions, in breach of Article 1 of Protocol No. 1 to the Convention, which states:

“Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.

The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.”

The applicants maintain that at the moment a gratuity was handed over by a customer there arose in the waiter a right to receive a share in it, which was capable of computation at that point. This was so whether the gratuity was paid in cash into the tronc administered by the tronc master or a cheque/credit card payment to be administered by the employer. In either case, the employee had a legal right to claim the payment from the intermediary. That legal right was a property right. In their submission, the applicable legislation made it clear that they were to receive remuneration for time worked and their employer in reality appropriated their entitlement to shares in the tips left by customers who paid by cheque or credit card in order to discharge its statutory obligations.

The Government emphasise that shares in the tips left by customers in cheque and credit card vouchers were in fact paid to the applicants by their employer. The applicants obtained property in those sums. It was clear from the terms of their contract of employment that they did have a legitimate expectation that the tips would pass to them - but only after the tips had become the property of their employer. However, the applicants cannot rely on the principle of legitimate expectation to base an argument that it was the intention of the customers to transfer property in the tips directly to them without the tips first becoming the property of their employer. The domestic courts rejected their customer intention plea and the Government rely on the reasons given by the domestic courts in this connection.

Furthermore, the applicants could not have had a legitimate expectation that the cheque and credit card tips would not be treated as remuneration. The Government stress in this respect that it had been the consistent position in domestic law over many years that, with the exception of payments in respect of an employee’s business expenses, all payments by an employer would count as remuneration, both for minimum wage and other purposes. In addition, it was not disputed by the applicants in the Court of Appeal proceedings that their employer paid them the equivalent, indeed slightly greater sums, out of its own money; nor should it be overlooked that the applicants themselves agreed that cheque and credit card tips should be paid to them through the PAYE system.

In the Government’s submission, it is crucial to bear in mind that the applicants received their agreed share in the tips left by the customers in cheques and credit card vouchers. Indeed, they received more than the employer actually received in respect of tips from those customers since the employer paid the burden of cheque and credit card transactions and of bad debts. Furthermore, the applicants received the money days or weeks before it was received by the employer and could hold the employer to account under domestic law if the latter did not pay the amount due to them.

The applicants state that none of the judges in the domestic proceedings suggested that customers intended to assist the employer in paying its wages bill. The applicants rely in particular on the reasoning of Lord Justice Aldous in the Court of Appeal proceedings. They further maintain that it is irrelevant that the employer paid the entire sum collected by way of tips on credit cards and cheques rather than make deductions to cover matters such as transaction charges. Had the employer wished to avoid having to bear the burden of such charges, it could have agreed a different scheme with the waiting staff, for example by insisting that customers always paid tips in cash.

The Government stress that in so far as the applicants complain that there was an interference with their right to a basic salary since the tips at issue were counted towards the calculation of their statutory minimum wage, it is not open to them to invoke Article 1 of Protocol No. 1. That provision protects the peaceful enjoyment of existing possessions; it does not confer any right to secure further possessions in the future. Should the Court not accept that reasoning in the instant case and find that that there had been an interference with the applicants’ possessions, the Government contend that it is entirely consistent with the objectives of the minimum wage legislation (to curb unduly low pay), and it is not manifestly without reasonable foundation, to treat all payments from an employer as counting towards the minimum level of remuneration. Accordingly, any interference with the applicants’ possessions was reasonable and proportionate, and does not disclose a breach of Article 1 of Protocol No. 1.

The Court considers, in the light of the parties’ submissions, that the complaint raises serious issues of fact and law under the Convention, the determination of which should depend on an examination of the merits. The Court concludes therefore that this complaint is not manifestly ill-founded within the meaning of Article 35 § 3 of the Convention. No other ground for declaring it inadmissible has been established.

2.  The applicants further submit that the impugned decision is discriminatory since they, as waiters, are treated less favourably than employees in other service industries. Such unjustified discrimination amounts, in their view, to a breach of Article 14 of the Convention, taken in conjunction with Article 1 of Protocol No. 1 to the Convention. Article 14 provides:

“The enjoyment of the rights and freedoms set forth in the Convention shall be secured without discrimination on any ground such as sex, race, colour, language, religion, political or other opinion, national or social origin, association with a national minority, property, birth or other status.”

The Government submit that the definition of “remuneration” in the applicable legislation was of general application and did not apply only to particular industries or groups. They point out the applicants themselves conceded in a letter of 18 August 1997 to the Commission that the Court of Appeal’s judgment affects the nature of the practice of leaving tips in “any service industry”. Accordingly, they cannot complain of discriminatory treatment.

The applicants contend that only Part I of the 1986 Wages Act was of general application, dealing as it did with unlawful deductions from wages. However, the Wages Councils Act 1979 and Part II of the Wages Act 1986 applied only to those industries and workers whose terms and conditions were governed by wages councils, such as shops, hotels, restaurants and public houses - businesses which typically employ high levels of ethnic minorities and immigrant labour and where there is limited trade union representation.

The Court considers, in the light of the parties’ submissions, that the complaint raises serious issues of fact and law under the Convention, the determination of which should depend on an examination of the merits. The Court concludes therefore that this complaint is not manifestly ill-founded within the meaning of Article 35 § 3 of the Convention. No other ground for declaring it inadmissible has been established.

For these reasons, the Court by a majority

Declares the application admissible, without prejudging the merits of the case.

S. DolléJ.-P. Costa
RegistrarPresident

Full & Egal Universal Law Academy