Appeal Nos. UKEAT/0573/06/CEA
& UKEAT/0574/06/CEA

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
	On 12 April 2007
Judgment handed down on 30 May 2007

Before
HIS HONOUR JUDGE REID QC
MR G LEWIS
DR K MOHANTY JP

MR M MEHMET T/A ROSE HOTEL GROUP	APPELLANT

MR J ADUMA	RESPONDENT

Transcript of Proceedings

JUDGMENT

	APPEARANCES

For the Appellant	MISS LAURA COLLIGNON
(Of Counsel)
Instructed by:
YVA Solicitors
460 Holloway Road
London
N7 6HT	
For the Respondent	MR M ONIBOKUN
Legal Adviser
Instructed by:
Messrs Wisdom Isaacs
Solicitors
2nd Floor
2A Powis Street
London
SE18 6LF	

SUMMARY

NATIONAL MINIMUM WAGE

Inferring discrimination

Injury to feelings

A employed R as night manager at his hotel.  R was a Nigerian but had permission to work in the UK.  A paid R less than the minimum wage on the basis that he was vulnerable.  When R sought to obtain a NI number A first tried to discourage him and then dismissed him.  Was the ET entitled to find race discrimination and (if so) was it entitled to make the awards it did?

HIS HONOUR JUDGE REID QC

1.	This is an appeal against a decision of an Employment Tribunal, held at Stratford on 12 and 13 April 2006, after consultation in chambers on 6 June 2006.  The judgment was sent to the parties on 3 July 2006. By its decision the Tribunal held that the Claimant’s complaints of direct race discrimination were well founded, that his complaint of unauthorised deductions from wages was well founded, that the complaint of unfair dismissal was not well founded and was dismissed, and that he was entitled to one week’s wages as damages for breach of contract.  The matter was adjourned for a remedy hearing to be held on 17 July 2006. At the remedy hearing the Tribunal awarded a total of £19,161.24, comprising unauthorised deduction from wages: £1,091.97, damages for breach of contract: £349.20 and compensation for race discrimination: £17,720.07. The awards included interest amounting to a £630.79

2.	The awards for unauthorised deduction from wages and of compensation for race discrimination were increased by 40% pursuant to section 32(3) of the Employment Act 2002 because the Tribunal found that the grievance procedure had not been complied with. The base award for race discrimination comprised three items: loss of earnings £3026.40; injury to feelings £8,000; and aggravated damages £1000.   

3.	The employer appealed against this decision. The appeal centred on two areas: (1) the findings of race discrimination, and (2) the remedy granted by the Tribunal. The employee cross-appealed asserting that the Tribunal should have reached the conclusions it did on the basis of an actual comparator (the employer’s son, Stephen) and not a hypothetical comparator.

4.	The facts of the case were as follows.  The Appellant employer has a hotel, the Rose Hotel. He also has a dry cleaning business in which his son Stephen is employed. The Respondent employee is a Nigerian, who at the material time was a student.  His visa permitted him to work not more than 20 hours per week during term time, but with no restriction on the hours he could work during his vacations.  He applied for a post with the employer and was appointed as night manager at a weekly wage of £130 from 16 June 2005. He was employed to work six nights a week for 12 hour shifts.  He was not given any contract of employment, despite having asked for one of numerous occasions.  The employer never saw the employee’s passport and therefore did not see the terms of the visa in it. The employee did not have a National Insurance number, but told the employer of his intention to apply for one.  The employer attempted to dissuade him.  Not only did the employer attempt to dissuade him, but one of the employer’s sons, Birol (a solicitor), also tried to persuade him, as did Mohammed, a painter who was working at the premises. The employer said words to the effect “You go ahead and pay tax, but I do not pay tax and do not intend to pay tax.” On 11 July 2005 there was a meeting between the employer, the employee and Soli, a South African who did work at the hotel.  At the meeting the employer raised the matter of an impending interview which the employee was to have with the Department of Works and Pensions and asked the employee to sign an Inland Revenue application form P46.  The employee refused to sign because it referred to him as a porter and not as a manager. When he refused to sign the employer made further references to not paying tax, and suggested that if he persisted in applying for a National Insurance number, their ways would have to part. The next morning, the employer came to the hotel at about 6 a.m. and dismissed the employee.  The employer paid him £80, which was the sum due in respect of wages earned during the period up to that date. Following his dismissal the employee sent a grievance letter to which the employer eventually replied, but then took no steps to arrange a meeting.

5.	As to the employer’s business practices, the Tribunal found:
“8.6 During the Claimant's employment he had not received itemised payslips. We accept the Claimant's evidence that these were not produced to him until much later. The Respondent argued that these were the responsibilities of his accountant but the Respondent, who is a businessman, must have been aware of the responsibilities involved when employing people. Whilst the appropriate tax on the Claimant's earnings was eventually paid, this was not done until December and only after the Claimant's representatives had raised the matter strenuously with the Respondent.
8.7 We find that the Respondent ran a business which was organised to avoid paying relevant taxes. We find that cash receipts were not recorded, the wages paid to the Claimant were not recorded until some time after the event and no steps were taken to register the Claimant's employment with the Inland Revenue. …. He said that he gave favours to relations in return to work and that a lady was given accommodation in return for carrying out cleaning work. Not only does he appear to have very little regard for Revenue regulations but he arranged the terms of the Claimant's employment to avoid the need to pay him the Minimum Wage and to require him to work hours in excess of those prescribed by the Working Time regulations.”

6.	Having made its findings of fact the Tribunal went on to consider the law in relation to race discrimination.  It held that there was no actual comparator, and that therefore they had to consider a hypothetical comparator and decide whether or not that hypothetical comparator would have been treated differently. The Tribunal rejected the employer’s son Stephen as an actual comparator since he worked in a different business albeit also one owned by the employer.

7.	The Tribunal bore in mind that the test to be used to establish whether there had been less favourable of the treatment was not whether or not there had been less favourable treatment than would have been accorded by a reasonable employer in the same circumstances.  It reminded itself that it might be simply dealing with an employer who would always or usually act unreasonably.

8.	The Tribunal then dealt with the first allegation of race discrimination, namely that the employer had discriminated against the employee by employing him at less than the national minimum wage. It held that it must presume for the purpose of considering a hypothetical comparator that the employer was law-abiding and paid employees at least the minimum wage required by law.  It noted that he gave no evidence that he paid any person less than the minimum wage, and therefore had no hesitation in finding it he would have paid a hypothetical comparator at least the minimum wage. The Tribunal therefore held that by paying the employee less than the minimum wage the employer was treating him less favourably.

9.	The Tribunal went on to hold that there was no discrimination on the grounds of the employee’s Nigerian race as such. But it said that it was quite clear that the employer employed the employee “because, as a Nigerian student, he was vulnerable and could be treated less well because of his inferior employment situation, only having limited rights to be employed.” It held that the relevance of the employee’s race was that he came from a country (Nigeria) which did not have automatic rights to work in the United Kingdom and so could be less favourably treated with impunity. It was not because the employer had any antagonism to people from Nigeria, but because of the opportunity which the employee’s race gave him to avoid employment legislation. This, the Tribunal found, was sufficient to constitute "racial grounds" for the purposes of section 1(1)(a) of the Race Relations Act 1976. The Tribunal accordingly found that this situation "could" constitute discrimination. In accordance with section 54A of the Act the Tribunal went on to consider and reject the explanation offered by the employer that the employee was a trainee and should therefore be paid a lower sum of money until he had acquired appropriate skills. It accordingly found that the Claimant was discriminated against in the terms of the employment offered to him.

10.	The Tribunal then turned to the question of race discrimination by the pressure placed on the employee not to apply for a National Insurance number. It found it “hardly conceivable” that such persuasion would be used on an employee who permanently resided in the United Kingdom and had employment rights and found that such pressure would not have been put upon a hypothetical employee although the Tribunal had difficulty in envisaging a situation where such an employee would not already have a National Insurance number (a number of possible unusual situations were posited in the course of the appeal). As the employer did not claim that he put similar pressure on other employees who had a similar employment situation to that of the employee the Tribunal found that such pressure would not have been put upon a hypothetical employee and this conduct constituted less favourable treatment. The Tribunal held its earlier finding of discrimination provided a basis to find an inference of discrimination in this instance. Having rejected the employer’s denial that any pressure was put on the employee and in the absence of any explanation it found that the employer had not proved, on the balance of probabilities, that he had not committed an act of discrimination. It accordingly found that this complaint is well founded.

11.	Thirdly the Tribunal turned to the employee’s dismissal. The employer gave no evidence that he dismissed other persons in similar circumstances, and as the Tribunal rejected the suggestion that the employee was inefficient in his work it found that there was no good reason for the termination of his employment. It found that the hypothetical employee in this situation would not have had his employment terminated, and based upon the same inferences as in its previous findings, found that the dismissal could have been by reason of race discrimination. The Tribunal rejected the employer’s explanation that (a) the employee was inefficient in carrying out his work and (b) because the employer was intending to go abroad for a lengthy period he wished to have someone more reliable in charge of the premises, holding that the Claimant's visit to the Department of Work and Pensions to obtain his National Insurance number was the fundamental issue in the employer’s mind when he terminated the employee’s employment. It followed that the Tribunal found, following section 54A, that the dismissal was discriminatory. 

12.	The Tribunal then added:
“15. We did consider, when making this decision, the fact that there was strong evidence to suggest that Mr Mehmet was very concerned about his own tax position should the Claimant persist in his application for a National Insurance number. If he had put this forward this as his reason, it might have amounted to a discreditable but non-discriminatory reason. As, however, he did not put this case forward, we do not feel entitled to consider it as a reason which we should take into account. In any event, if correct, it is such a discreditable reason it will seem inappropriate that the Respondent should be able to take advantage of it, on the basis of ex turpi causa.”
13.	It was agreed (though there is no reference to it in the decision) that there was evidence before the Tribunal that the employer also had the services of Soli, the South African, a Polish employee and a Turkish housekeeper, in the hotel, none of whom were paid the minimum wage. The employer’s explanation was that they were all family friends or friends of family friends who worked in exchange for their keep and were therefore not employees. The Tribunal made no finding one way or the other as to their employment status.   
14.	We can dispose very shortly of the cross-appeal. The Tribunal held that the employer’s son, Stephen, employed in a different business, was not an actual comparator. There was no error of law in so holding. There were three obvious distinctions: (a) that Stephen was the employer’s son and so hardly a typical employee, (b) that he was employed in an entirely different business, and (c) that he was not a new employee. These were quite sufficient to entitle the Tribunal to hold that Stephen (as the only potential actual comparator) could not properly be regarded as an actual comparator.
15.	As to the appeal on liability, Counsel for the employer argued that:
(1)	The case had been put as one of direct discrimination. The question of indirect discrimination had not been raised and it was too late to seek to introduce a claim for indirect discrimination at this stage.

(2) 	The Tribunal’s decision reasoning contained a central inconsistency: on the one hand it held that the employer was a person who “ran a business which was organised to avoid paying relevant taxes” and on the other hand it acted on the assumption that in dealing with the hypothetical comparator the employer would have acted with scrupulous legality. If that was correct, the first two findings of discrimination could not stand because 

(3)	The appropriate comparator was a British or British based person who wished to approach Department of Work and Pensions in relation to his National Insurance Number.  

(4)	If the Tribunal had approached the case by comparing the treatment the employee had received with the treatment that would have been afforded to a person having all the characteristics as the employee save for his race it should come to the conclusion that the hypothetical comparator would have fared no better. The employer would not have been willing to pay tax for a British or British-based person in a similar situation to that of the employee any more than he was for the employee. The evidence revealed the employer as a person who sought to exploit those in a vulnerable position. The treatment of the employee had occurred not because of the employee’s race but because of his perceived employment status. The Tribunal was wrong in presuming that it must treat the employer as law-abiding and paying at least the minimum wage. 

(5)	The Tribunal was wrong in law in refusing to consider whether the employer’s concern as to his own tax position was the reason for his treatment of the employee when deciding that the employer had not discharged the onus on him of showing that the reason for his conduct towards the employee was not discriminatory. The reference to “ex turpi causa” was entirely mistaken. The question was not whether the employer had “put this case forward” or “pleaded it” but what the evidence disclosed.
(6)	The only proper conclusion for the Tribunal to have reached was that the employee was treated as he was because of his insistence on going to see the Department of Work and Pensions and it was on that ground and not on the ground of his race that he was so treated.

16.	The representative for the employee accepted that the case had only been put on the basis of direct discrimination and argued that the Tribunal was quite entitled to come to the conclusion which it did. The employer was a thoroughly unreliable witness. There was no evidence that he paid any person whom he knew to have the right to work in the UK less than the statutory minimum wage. The employer had not advanced the case that he would have treated everybody equally badly, and could hardly complain that the Tribunal did not consider this case.
17.	In our view the appropriate hypothetical comparator was a person of the Claimant’s characteristics save for being British or British-based. It will be remembered that the employee was entitled to work in the UK (subject to certain limits) and his employment with the employer was not in breach of any of the terms of his visa. We think that this was the hypothetical comparator that the Tribunal must have had in mind since it referred to Chief Constable of Yorkshire v Vento [2001] IRLR 125 and Balamoody v UK Central Council of Nursing [2002] IRLR 228, though the Tribunal did not explicitly spelt it out. It may be that he was taken on because the employer believed he was vulnerable as not being entitled to work but there was no finding one way or the other as to that and we can make no assumption as to what the Tribunal might have found.
18.	The Tribunal rightly reminded itself (at paragraph 10 of its decision) of Zafar v Glasgow City Council [1998] IRLR 36 and that the test was not whether there had been less favourable treatment of the employee than would have been accorded by a reasonable employer.  The Tribunal then went on and referred to the approach to be adopted as established in Barton v Investec Henderson Crossthwaite Securities [2003] IRLR 332 as slightly amended by Igen Ltd v Wong [2005] IRLR 258. It correctly looked at the primary facts found and then asked itself what inferences of secondary fact could be drawn from them. 
19.	The Tribunal held that the employer gave no evidence that he paid any person less than the minimum wage required by law. This was correct: the only employee to whom the employer admitted was his son, Stephen, and Stephen was employed in a different business. Nonetheless he was an employee British-based, in respect of whose tax position there was no criticism and in respect of whom it was never suggested there was underpayment. There were others whom the employee said were employees in the hotel business and whose employment status was (to say the least) questionable, but the employer denied they were employees and the Tribunal made no finding of fact to the contrary.
20.	The difficulty at this point in the decision arises in the Tribunal’s statement in relation to the first allegation of discrimination “We must presume for this purpose [i.e. for the purpose of considering a hypothetical comparator] that Mr Mehmet is law abiding and paid his employees at least the minimum wage required by law.”  Given the other observations made by the Tribunal about the employer it is not surprising that this observation was strongly criticised. However in our judgment, properly read, the observation (though it might perhaps have been better expressed in some other way) is unobjectionable. The key lies in the context. The Tribunal had not made any finding that any  employee (other than the Claimant) was paid less than the minimum wage. The only acknowledged employee (albeit in a different business) was not being paid less than the statutory minimum. The Tribunal were simply applying the old Latin maxim “Omnia rite” to the employer’s dealings with other employees (including the hypothetical employee). So read there is no error of law in the Tribunal’s finding. It was entitled to find that a British or British-based person would not have been underpaid as the employee was.
21.	The attack on the second finding of discrimination effectively fell with the first. Once it is accepted that the Tribunal was entitled to make the findings which it did in relation to the first allegation, it is clear that the Tribunal was entitled to use that finding to infer that the less favourable treatment in relation to pressure over the attempt to obtain a National Insurance number could be on discriminatory  grounds.   
22.	As to the third finding, in relation to the dismissal, there is the difficulty of the Tribunal’s holding at paragraph 15. The conclusions in that paragraph are complicated by the reference to the doctrine of “ex turpi causa”. This reference was inappropriate. There was no question of any action arising out of the employer’s possible misdeeds. The question at that stage was whether by way of defence the employer had shown on the balance of probabilities that the dismissal was for a non-discriminatory reason.
23.	The matter was complicated further by the Tribunal’s expressed view that it “did not feel entitled to consider …as a reason which [it] should take into account” the “strong evidence to suggest that Mr Mehmet was very concerned about his own tax position should the Claimant persist in his application for a National Insurance number.” Again, in our view the difficulty here is in a certain infelicity of language. The passage occurs immediately after the Tribunal had rejected the employer’s case that the dismissal was on the ground of capability. By virtue of section 54A the onus was placed on the employer to prove on the balance of probabilities that he did not commit an act of discrimination in dismissing the employee. Unless the Tribunal was satisfied that he had discharged that onus it was obliged to uphold the complaint. In our judgment the Tribunal was doing no more in this passage than pointing out that there was evidence on which it would have been possible for the employer to mount a case on the basis that his concern was that the tax authorities might become interested in him as a result of the employee’s activities, but that since the employer was not making any such assertion, it did not feel it could hold that he had proved a case he was never asserting. 
24.	It follows that in our view the Tribunal reached a conclusion as to race discrimination which it was entitled to reach.
25.	On the issue of remedy the employer argued (1) that the award of £3026.40 for loss of earnings as part of the award for the race discrimination was wrong in principle; (2) that the award of £8,000 for injury to feelings as part of the compensation was excessive; (3) that this was not a case for aggravated damages; and (4) that the “mark up” of 40 per cent under section 32(3) of the Employment Act 2002 was “unreasonable”.
26.	As to the first point, Counsel was constrained to accept that the Tribunal had been entitled to take the view that but for the race discrimination the employee would have retained the job and that therefore the loss of earnings award could not properly be attacked.
27.	The second point was that the award of £8,000 (the middle of the middle band in Vento v Chief Constable of West Yorkshire Police (No.2) [2003] IRLR 102 at para 65) was excessive. The submission was that there was no evidence of any hurt feelings, pain, loss or suffering, so the award could not be said to be compensatory. At most it could be said that the employee was annoyed and upset. The award was overgenerous by contrast with personal injury awards, and was far too high for someone who was employed only for three weeks. We were reminded of the review of the authorities by Smith J in Prison Service v Johnson referred to in para 53 of Vento, and that awards were compensatory and should be restrained, not a way to “untaxed riches”. Reference was made to the JSB Guidelines on Personal Injury Damages. The case was said to be nowhere near as serious as ICTS(UK) Ltd v Tchoula [2000] IRLR 643. Overall it was submitted that the Tribunal’s indignation at the behaviour of the employer had led it to make an award that was punitive rather than compensatory, and further more there was an element of double recovery in that it had then awarded aggravated damages as well.
28.	In our judgment the tribunal was entitled to take the view that this was a case within the middle Vento band. It could not be said that the discrimination was an isolated or one off occurrence. The entirety of the employee’s employment was posited on the assumption by the employer that he was someone of whom (because of the employer’s inaccurate view of his employment status) the employer could take advantage. Whilst the award may well have been higher than another Tribunal might have awarded it cannot be said, even having regard to the paucity of evidence of hurt feelings and the like, the suggestion (but no more) of double recovery, and cross-referencing to personal injury awards, was outside the wide band of the Tribunal’s judicial discretion. 
29.	The award of aggravated damages was challenged on the basis that there was no high-handed, malicious, insulting or oppressive conduct beyond the discrimination itself and that the award therefore smacked of double recovery. In our judgment the Tribunal was quite entitled to take the view that the conduct complained of attracted a modest award of aggravated damages. The conduct of the employer could well be characterised as high-handed, insulting and oppressive. As the Tribunal observed the employer was seeking to take advantage of the employee for his profit and then sought to defeat the employee’s claim by unfounded allegations of incompetence. The Tribunal discounted the employer’s “suspicious” dealings on tax matters in making its findings. In our judgment the Tribunal was perfectly entitled to find that this was a case which attracted an award of aggravated damages. 
30.	As to the question of the mark up. The Tribunal found that the employer had replied to the employee’s grievance letter but done no more. It found that “non-completion of the grievance procedure was wholly attributable to the failure of the [employer].” The Tribunal went on to hold that there was a “total disregard” for the provisions of the Employment Act 2002. The Tribunal regarded the employer’s assertion that he was unaware of the provisions of the Act as “suspect”, not only because of his record in failing to comply with other regulatory requirements but also because his son was a solicitor.  In these circumstances we take the view that there is no force in the submission that a mark up over 10 per cent was not “appropriate” or that a 40 per cent mark up was “unreasonable”. Again, this was a finding to which the Tribunal in the exercise of its judicial discretion was entitled to come.
31.	For these reason the appeal will be dismissed.