An employer’s efforts to claw back costs incurred through damage to a company vehicle by an employee have been ruled unlawful.

The Court of Appeal decided that without proving voluntary fault or serious negligence, the employer had no right to claim the cash back. This was despite the deduction being in accordance with the employee’s employment contract.

The case involved a company in Luxembourg, where the restrictions on an employer are markedly different to the rules a UK company has to abide by.

But differences in the law between the two countries does not guarantee success for UK employers, according to experts in employment law.

Rebecca Lynch, a partner in the employment department of legal firm Davenport Lyons, explained how the law works here. She said: “In the UK, no single statutory code sets out an employer’s position in relation to making deductions to an employee’s salary for vehicle damage.

“To make a deduction from an employee’s wages for damage to a vehicle, an employer will need to demonstrate that the employee owes the employer money and that the employer has the right to deduct those sums from the employee’s wages.”

Section 13 of the Employment Rights Act 1996 contains the framework under which deductions from wages can be made and allows deductions if it is required by statute, there is a ‘relevant provision’ in the employee’s contract, or the employee has previously signed an agreement or consented to it in writing.

Dr Mark Butler, a lecturer in employment law at Lancaster University, told Fleet News that section 13 “is merely interested in ensuring that the worker has had knowledge of the term and agreed to it, rather than focusing on the fairness and reasonableness of the term”.

He  added: “The simplest way of ensuring that such costs can be recovered is through inserting a suitably-worded clause into the worker’s contracts, and then providing the worker with a copy of that contract.

“The alternative approach, in the event of not wanting to amend workers’ contracts, is to have a separate freestanding document containing a recovery of costs clause, and ensuring that the worker has signed it. This would represent a suitable agreement.”

However, if an employer doesn’t have the contractual right to make deductions from an employee’s wages, they would have to rely on suing the employee to recover the money.

Lynch said: “In reality, this may be difficult to demonstrate when the employee is simply carrying out his or her duties. But if, for example, an employee drove a company vehicle drunk, the employer will be more likely to be able to make a case of negligence.”

Employers therefore must ensure they have the contractual right to make deductions from their employee’s wages before making deductions of any sort.

“Failure to do so could lead to claims for unlawful deductions from wages claims,” said Lynch. “Great care must be taken in ensuring that the contractual wording is sufficient.”

In a case involving damage to a company car operated by Fire Security Installations in the UK, a tribunal found that the deduction of £1,830.91 from an employee’s wages was unlawful.

A field sales engineer employed by the company was provided with a company car. The employee handbook contained a clause, which stated “whenever a vehicle is returned the driver shall ensure that the interior and exterior are reasonably clean and tidy… Any damage over and above wear and tear may be charged to the driver”.

When the employee decided to move jobs, he returned the car to the company. However, the inside was covered in dog hair, a seat adjuster had been broken and there was a cigarette burn in the upholstery. The £1,830.91 was deducted from the former employee’s final pay packet to cover the cost of fixing and cleaning the car.

The contract allowed for a deduction, but did not specify that the deduction would come from the employee’s wages. In deducting the costs from the emplyee's wages the company had therefore acted illegally.

However, if the employer does have the contractual right to make deductions, they will still be subject to the principles of UK contract law, which will require a level of ‘reasonableness’ in contract terms.

Lynch explained: “Terms which attempt to unfairly impose liability on employees for actions which are not their fault are likely to fall foul of this legislation.

She continued: “Employers should keep in mind that, even if they are able to show an employee has caused loss and even if they have the right to deduct from the employee’s wages in relation to this loss, there may still be debate over the quantum that can be recovered.

“Contractual provisions should provide as much clarity as possible in terms of assessing quantum."

There are no defined limitations on the deductions that the employee can agree to in his or her contract.

“The employer should keep in mind, however, that there is an implied mutual duty of trust and confidence between the employer and employee,” explained Lynch.

“Particularly onerous or unfair deductions being made from an employee’s wages could be in breach of this clause.

“If it is a serious enough breach, the employee may seek to argue that the company is in repudiatory breach of his or her employment contract, and that he or she is forced to resign. This could lead to the employer facing a claim for constructive unfair dismissal.”

Butler added: “As such, it would be wise to limit the operation of such deductions to the damage caused, and to the circumstances in which the worker was at fault.”

In a case involving Beresford Swift Communications, Butler says that the employment appeals tribunal had no issue with a clause that stated: “All repair costs incurred by the company through driver negligence/liability for an accident will be recharged from the individual at a monthly rate dictated by the financial director. This can be anything from the minimum insurance excess of £500 to the full amount depending on the circumstances of the accident.”

Butler continued: “However, even this clause could be tightened up through expressly enabling recovery of any outstanding balance from the final wage instalment in the event of leaving employment. This makes recovery of all losses explicit.”

Clauses relating to deductions from employee’s wages should be as clear and unambiguous as possible.

Butler said: “It would certainly strengthen an employer’s position if when offering employment to a worker they highlighted this clause to them, explained the consequences of the clause and required them to sign that contract, before handing a copy to them.

“This could be taken even further in having such a meeting witnessed by a member of the Human Resources team.

“This would make it very difficult for a worker to later argue that they had no knowledge of that clause or what it meant.”

Lynch concluded: “If a clause is unclear, the legal principle will be that it will be interpreted against the person who is seeking to rely on it.”
 

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