Statutory sick pay - Employer's liability

Seaton v Revenue and Customs Commissioners: Upper Tribunal (Tax and Chancery Chamber) (Sir Stephen Oliver QC and Edward Sadler): 22 July 2011

The taxpayer was employed by her employer from 1996. Due to ill-health, her last working day was 18 May 2006. She notified her employer on 22 May that she was unable to attend work for reasons of ill-health. She claimed statutory sick pay for the period from 22 May until 1 December 2006. She had received payslips for March, April and May 2006 but she did not receive any payment of her wages for those months.

Following a successful claim in the employment tribunal against her employer for ‘unlawful deduction of wages’, the taxpayer was awarded net wages for those months, which she received on 30 August 2006. At the time that she had become unable to work, her weekly earnings had been £264. The lower earnings limit in the period from April 2006 until April 2007 had been £84 per week.

The First-tier Tribunal upheld the contention of the Revenue and Customs Commissioners (the revenue) to the effect that the taxpayer’s average weekly earnings had not exceeded the lower earnings limit for the relevant period specified in the Social Security Contributions and Benefits Act 1992 (the 1992 act); in consequence the tribunal decided that she was not entitled to receive statutory sick pay for the period from 30 May 2006 to 3 December 2006. The taxpayer appealed.

The issue was whether the circumstance specified in paragraph 2(c) of schedule 11 to the 1992 act existed such that the taxpayer’s entitlement to statutory sick pay did not arise. Those circumstances would be present if at the relevant date the taxpayer’s normal weekly earnings were less than the lower earnings limit then in force. The revenue contended that for earnings to qualify as ‘normal weekly earnings’ within section 163(2), they had not only to be sums to which the employee was contractually entitled; they had also to have been paid to him for his benefit. It followed that if the sums had not been paid, they could not count toward 'normal weekly earnings', so that the taxpayer's earnings had been less than the lower earnings limit. The appeal would be allowed.

Where an employer failed to pay an employee wages to which the employee was entitled, the fact that an employee received no income was not a circumstance which fell within the exception provided by schedule 11 paragraph 2(c) of the 1992 act (see [27] of the judgment).

The parliamentary intention was shown by the words ‘normal weekly earnings’ in schedule 11 paragraph 2(c) of the 1992 act which, on their ordinary meaning had to mean the actual entitlement under the contract of service. There was no need to seek to adopt a purposive construction of the special definition in section 163(2) that produced a different result by, for example, deeming something less than the lower earnings limit to have been paid when in fact nothing had been paid.

If the obligation to pay the earnings had been completely ignored by the employer, the circumstances fell without those prescribed in paragraph 2(c) of schedule 11 to the 1992 act. Accordingly, that provision did not apply, and the tribunal had erred in law in applying it (see [27], [29]-[30] of the judgment). The tribunal declined to state whether the ruling was applicable only to the facts of the instant case or whether it applied to other circumstances (see [32] of the judgment).

C R Bagley (instructed by the Citizens Advice) for the taxpayer. Aparna Nathan (instructed by the Revenue and Customs Commissioners) for the revenue.