CIS/400/94

The Office of Social Security and Child Support Commissioners
 
SOCIAL SECURITY CONTRIBUTIONS AND BENEFITS ACT 1992 SOCIAL SECURITY ADMINISTRATION ACT 1992 

APPEAL FROM DECISION OF SOCIAL SECURITY APPEAL TRIBUNAL ON A QUESTION OF LAW 

DECISION OF THE SOCIAL SECURITY COMMISSIONER

Social Security Appeal Tribunal: Sunderland

1. This is a claimant's appeal, brought by leave of the Commissioner, against a decision of the social security appeal tribunal dated 18 January 1994 which confirmed a decision issued by the adjudication officer on 24 September 1993. My own decision is that the aforesaid decision of the appeal tribunal is not erroneous in point of law. 

2. In paragraphs 3 to 5 of his submission dated 2 August 1994 the adjudication officer now concerned submits that there was error of law in the appeal tribunal's decision; and he invites me to send the case back so that a fresh appeal tribunal may make findings of fact and record a conclusion in respect of a consensual variation of the claimant's contract of employment. As I seek to demonstrate below - 
(a) I do not regard that submission as well founded; and 
(b) in any event, if a fresh tribunal were to embark on the suggested exercise, there is only one conclusion to which, on the evidence disclosed by the papers, it could reasonably come. 
The case concerns the manner in which an employee's terminal payment falls to be treated for the purposes of entitlement to income support. The treatment of such payments in the context of unemployment benefit has for long been the subject of (from time to time amended) legislation - and has been the subject of many decisions by the Commissioner. As I demonstrate below, however, although the unemployment benefit and income support provisions have much in common, there are significant differences between those respective provisions. I suspect that the adjudication officer now concerned may have (subconsciously) approached this case in the light of principles established in the unemployment benefit field. 

3. The central facts are straightforward and not in dispute. The claimant was born in 1957. She is separated from her husband. She looks after her son and daughter. At the time when form AT 2 was completed she was in receipt of child benefit and lone parent benefit. She also received £30 a week by way of maintenance for the children. From 12 May 1987 until 30 April 1993 she worked for a food company, to which I shall refer as "the Employers". The papers contain a copy of the contract of employment. There is no question but that - under the terms of that contract - she was in April 1993 entitled to five weeks notice of termination of employment. (That was also her statutory entitlement.) I need make only two other comments in respect of that contract: 
(a) The period of notice lengthened with each year of service, but up to "a maximum of twelve weeks notice after 12 years service". 
(b) Paragraph 8(e) of the contract provided thus: 
"(e) The Company may pay salary in lieu of notice."

4. In the early months of 1993 the Employers decided to reduce their staff level. Volunteers were invited for redundancy. In a time of high unemployment, of course, some inducement had to be on offer. In the case of this claimant (and, no doubt, in the cases of other employees), the offer included 12 weeks pay in lieu of notice. In other words, the volunteer was to be treated as if he or she had put in 12 years of service to the Employers. The claimant decided to explore the possibilities. She had a discussion with management. She decided to accept the terms on offer. The upshot was a letter (undated) written to the claimant by the Personnel Manager of the Employers. It was a clear and explicit letter. I make no apology for quoting almost the whole of it; for once it has been read, it can be seen how straightforward is this case: 
"This is to confirm the outcome of our recent discussion. 
You have decided to take advantage of the Company's offer of Voluntary Redundancy and your request has been accepted. 
Your last working day with [the Employers] will be 30/4/93. You will receive your last pay cheque on 21/5/93 and any adjustments will be implemented next month when you will receive your P45. 
I enclose a cheque for £5013.50 which is made up as follows: 
Redundancy Payment £2017.50 
12 weeks pay in lieu of notice £2421.00
Good Service Payment £375.00
Profit Related Pay £200.00 
(for Q1 1993) 
This payment is not subject to tax. 
[There followed a paragraph relating to benefits flowing from the Employers' pension fund.] 
Should you require any further information do not hesitate to contact me." 
It could hardly be clearer. The appeal tribunal commented upon the care with which the parties had itemised the constituent elements of the total severance sum. I am bound to say that the task of the adjudicating authorities would be rendered less laborious if other parties were equally meticulous; and eschewed such unparticularised phrases as "Final ex gratia payment" and "Global terminal sum". 

5. It is to be noted that nowhere in the papers has the claimant herself made any suggestion either - 
(a) that the aforesaid letter does not accurately reflect what was orally agreed between herself and the Employers; or 
(b) that she did not appreciate that she had agreed to accept 12 weeks pay in lieu of notice as part of the "package" which induced her to volunteer for redundancy. 
She attended the hearing before the appeal tribunal - so she had the opportunity to suggest as in (a) or (b) immediately above. So far as I can see from the relevant form AT3, however, her representative did not call her to give evidence. And - to be fair to that representative - he himself made no such suggestions. He confined - and still confines - the claimant's case to an application to the Employers' letter of what he contends to be the true construction of the relevant legislation. 

6. That legislation is, in fact, remarkably clear. The relevant passages are admirably set out in the submission of the adjudication officer now concerned. I need not here repeat those quotations at any length. I summarise thus: 
(a) "A person in Great Britain is entitled to income support if ... he is not engaged in remunerative work. ..." 
(Section 124(1)(c) of the Social Security Contributions and Benefits Act 1992) 
(b) "(5) A person who was, or was treated as being, engaged in remunerative work and in respect of that work earnings to which regulation 35(1)(b) to (d) and (i) (earnings of employed earners) applied are paid shall be treated as engaged in remunerative work for the period for which those earnings are taken into account in accordance with Part V." (Regulation 5(5) of the Income Support (General) Regulations 1987)
[NOTE: The quotations which follow in this paragraph are from Part V of the General Regulations] 
(c) Regulation 29 of the General Regulations is headed 
"Calculation - of earnings derived from employed earner's employment and income other than earnings". 
Paragraph (2)(a) provides that the period over which a payment is to be taken into account shall be - 
"(a) in a case where it is payable in respect of a period, a period equal to the length of that period;".
(d) Regulation 35 of the General Regulations is headed 
"Earnings of employed earners". Paragraph (1)(c) provides thus: 
"(1) Subject to paragraphs (2) and (3) [which do not bear upon this appeal], 'earnings' means in the case of employment as an employed earner, any remuneration or profit derived from that employment and includes – 
…
(c) any payment in lieu of notice;".

7. So there it is. The claimant received 12 weeks pay in lieu of notice. That pay fell to be treated as "earnings" - see sub-paragraph (d) of paragraph 6 above. Those earnings fell to be taken into account over a period equal to a period of 12 weeks - see sub-paragraph (c) of paragraph 6 above. In consequence, the claimant fell to be treated as engaged in remunerative work throughout that period - see sub-paragraph (b) of paragraph 6 above. So the claimant was not entitled to income support at any time during that period - see sub-paragraph (a) of paragraph 6 above. And that was the decision made by the local adjudication officer and confirmed by the appeal tribunal. The period of non-entitlement was specified as from 3 May 1993 to 20 July 1993. That is slightly longer than 12 weeks; but at the end of May 1993 the claimant had received 3 days of accrued holiday pay. Those days were reflected in the period of non-entitlement; and no challenge has been made to that. 

8. The contentions of the claimant's representative can be summarised thus: 
(a) The appeal tribunal erred in law in finding that the claimant received 12 weeks wages in lieu of notice. Both by contract and by statute the claimant was entitled to only 5 weeks notice. 
(b) The sum of £2421.00 paid to the claimant was not wages in lieu of notice but compensation for loss of a capital asset. 
(c) If there was any payment in lieu of notice, such payment can only have been in respect of 5 weeks and should have been treated as earnings for no more than 5 weeks. 
(d) In all this, the appeal tribunal paid no heed to the provisions of regulation 29(4B) and (4D). 
I deal with each of those contentions in turn. 

9. The contention summarised in paragraph 8(a) above 

The appeal tribunal's finding was the only finding which accorded with the realities of the situation. Both the claimant and the Employers had agreed that 12 weeks wages in lieu of notice should be paid as part of the inducement to the claimant to volunteer for redundancy. The parties were perfectly free to make that agreement. This is an area of human activity in which there is still a substantial measure of freedom of contract. Minimum periods of notice are prescribed by statute. But there is no provision which says that, when negotiating termination of employment, an employee must accept and an employer must pay wages in lieu of a period which is neither shorter nor longer than the statutory (or, for that matter, contractual) period of notice. If an employee is entitled to 5 weeks notice but agrees with his employer that - as part of the severance agreement - he will accept only 3 weeks wages in lieu, he will have no subsequent right of action in respect of the 2 lost weeks. Likewise, if in such a case the employer says that - as part of the arrangement - he will raise the wages in lieu from 5 weeks to 12 weeks, no court would permit him to resile from that on the basis that the statutory (or contractual) period of notice had, at the relevant time, been only 5 weeks. As I demonstrate below, the claimant's representative (in common with the adjudication officer now concerned) has allowed the corresponding provisions in respect of unemployment benefit to cause him to attribute to the statutory/contractual period of notice a degree of significance which it does not enjoy in the income support legislation. The appeal tribunal in this case was quite right to stress the word "any" in regulation 35(1)(c): "any payment in lieu of notice". 

10. The contention summarised in paragraph 8(b) above 
This contention flies in the face of what the parties actually agreed between themselves. Are we really supposed to accept that when the claimant and the Employers said "12 weeks pay in lieu of notice, £2421.00", they actually meant "Compensation for loss of a capital asset, £2421.00"? (If it really was such compensation, they put an extraordinarily precise price upon it.) The claimant's representative seeks to support his contention by invoking CU/364/1985. (That case was decided in the light of regulation 7(1)(d) of the Social Security (Unemployment, Sickness and Invalidity Benefit) Regulations 1983 as sub-paragraph (d) stood before it was replaced with effect from 9 October 1989.) Quite justifiably, in CU/364/1985 the Commissioner referred to the nexus between the relevant payment and entitlement to notice. But in the case now before me, that nexus is self-evident. The parties themselves provided it. They agreed terms of severance upon the basis that the claimant was entitled to 12 weeks notice. 

11. The contention summarised in paragraph 8(c) above 

This contention is, in substance, answered by what I have already said above. It is devoid of essential merit. Sight must not be lost of the fact that income support is a non-contributory means tested benefit of last resort. (In that, it is to be contrasted with unemployment benefit, a contributory benefit which is not means tested and still reflects some of the aspects of an ordinary insurance policy.) An employer negotiates terms of severance with an employee. It is agreed that no notice will be worked out; and the employer says: "Instead, I will pay you 12 weeks of wages, tax free. That will tide you over while you look for another job." It would be an affront to commonsense - not to mention the taxpaying public - if that employee were, in those 12 weeks, to draw a means tested benefit of last resort upon the basis that he had no income by way of earnings. As I demonstrate below, in the unemployment benefit legislation payments in lieu of notice are closely tied to "the period of notice of termination of employment to which a person is entitled by statute or by contract"; whereas in the income support legislation there is no such tie. 

12. The contention summarised in paragraph 8(d) above 

Before the appeal tribunal the claimant's representative canvassed paragraphs (4B) and (4D) of regulation 29 of the General Regulations. In its recorded reasons the tribunal said: "Paragraphs (3) and (4A) to (4D) have no relevance to this case." ("(4A)" has been mistranscribed as "(48)" on the typed-up AT3; but the manuscript is clear.) The representative complains that the tribunal gave no explanation of its terse dismissal of paragraphs (4B) and (4D). I cannot really fault the tribunal on that count. The immateriality of those paragraphs was self-evident from the clear words of the legislative provisions. I demonstrate: 

(1) Paragraphs (4B) to (4D) of regulation 29 were inserted with effect from 9 October 1989. They - combined with insertions into regulation 35 which took effect from the same date - brought into the income support legislation the term of art "compensation". It was with effect from that same date that "compensation" made its entry upon the unemployment benefit scene - via the substituted sub-paragraph (d) of regulation 7(1) of the USB Regulations 1983. But - and it does seem somewhat lamentable - "compensation" for unemployment benefit purposes does not bear a meaning identical to its meaning for income support purposes; and I suspect that it is a failure to appreciate that which was misled both the claimant's representative and the adjudication officer now concerned. 
(2) For the purposes of unemployment benefit "compensation" is defined in regulation 7 (6) of the USB Regulations 1983: 
"'compensation' means any payment made to or for a person in respect of the termination of the employment other than - 
(a) …" 
There then follow, under (a) to (f), various types of payment such as holiday pay, payments in respect of any emolument of the employment which has accrued before the termination thereof and redundancy payments. What does not feature in the list of payments excluded from the scope of "compensation" is any reference to payments in lieu of notice. And, of course, anyone with any knowledge of Commissioners' decisions given on the post-October 1989 version of sub-paragraph (d) of regulation 7(1) of the USB Regulations 1983 will be aware that it is the part which "period of notice" plays in determining the relevant "compensation" that has given rise to so many complexities. "Ineligible period", "due date" and "standard date" are examples of the terms of art which fall for consideration in this context. But none of those three terms features in the comparable income support legislation. 
(3) By contrast, "compensation" for the purposes of income support does not embrace payments in lieu of notice. Indeed, if a payment has been made which reflects the full period of notice, there cannot, in respect of that claimant, be any "compensation" at all. I quote in full the definition from the paragraph (3) which was, with effect from 9 October 1989, added to regulation 35 of the General Regulations: 
"(a) 'compensation' means any payment made in respect of or on the termination of employment in a case where a person has not received or received only part of a payment in lieu of notice due or which would have been due to him had he not waived his right to receive it, other than - 
(i) any payment specified in paragraph (1)(a) to (h); 
(ii) any payment specified in paragraph (2)(a) to (d); 
(iii)any redundancy payment within the meaning of section 81(1) of the Employment Protection (Consolidation) Act 1978, and 
(iv) any refund of contributions to which that person was entitled under an occupational pension scheme within the meaning of section 66(1) of the Social Security Pensions Act 1975;" (My emphasis) 
Payments in lieu of notice are, of course, the subject of paragraph (1)(c) of regulation 35; so (regardless of the period to which they relate) they are excluded from "compensation" by paragraph (3) (a)(i). Holiday pay - the subject of paragraph (1)(d) - is likewise excluded from "compensation" (as, indeed, it is from unemployment benefit "compensation"). It will be recalled that regulation 35 is headed "Earnings of employed earners" (cf my paragraph 6(d) above). So, with holiday pay included in the list of "earnings" set out in regulation 35(1), the combination of section 124(1)(c) of the Contributions and Benefits Act 1992 and regulation 5(5) and 29(c) of the General Regulations (see, respectively, my paragraph 6(a), (b) and (c) above) resulted in this claimant's not being entitled to income support for a period equal to the period the subject of her holiday pay. 
(4) When "compensation" came upon the income support scene (with effect from 9 October 1989), there also came upon the scene another term of art, "specified period" - see regulation 29(4B)(b) of the General Regulations. For the purpose - and expressly for the sole purpose - of defining "specified period", the term "period of notice" was defined - see regulation 29(4D)(b). That latter definition mirrors verbatim the definition of "period of notice" in regulation 7(6) of the USB Regulations 1983. It cannot be too strongly emphasised, however, that, in the context of income support, the legislative definition of "period of notice" plays no part whatever unless the relevant case involves "compensation". The case now before me does not involve "compensation". The legislative definition of "period of notice" is of no materiality thereto. 
(5) I have devoted four detailed - and somewhat indigestible - sub-paragraphs to demonstrating to this claimant's representative why regulation 29(4B) and (4D) have no bearing whatever upon this case. Since on any showing, this claimant was paid her full entitlement of wages in lieu of notice, it is not easy to see why a full-time representative - as distinct from an unrepresented and untutored claimant - should ever have invoked paragraphs (4B) and (4D); let alone have pursued them before the Commissioner. But there it is. 

13. On form OSSC 1, signed on 2 June 1994, the claimant states that, in the context of a claim for unemployment benefit, only 5 weeks wages in lieu of notice were taken into account. That may well be so - but it cannot affect this decision. I have explained above - at some length - certain fundamental differences in the treatment of terminal payments in the unemployment benefit legislation, on the one hand, and in the income support legislation, on the other. The claimant may, in fact, have been fortunate in her unemployment benefit decision. The relevant adjudication officer may have turned aside from considering whether there was a material variation of the term of notice provided for in the written contract of employment. On form OSSC 3 - with reference to the submission of the adjudication officer now concerned in this case - it seems to be suggested that, since "no new contract has been agreed upon and produced", the five weeks period of notice must be accepted as having endured contractually to the very end. That, of course, is a misconception of the position in law. If the parties wished to vary the relevant period of notice, there was no need for a new contract of employment to be drawn up. Such a variation could be - and appears in fact to have been - effected orally; and in this case such oral variation was confirmed in writing. 

14. It may also be that - in the light of the unemployment 
benefit decision - this whole decision of mine has been of little or no practical importance to the claimant. On any showing, she could not have received income support for the first five weeks. In the remaining seven weeks of the 12 weeks period, she was in receipt of - 
(a) child benefit, plus the lone parent addition;
(b) £30 a week maintenance; and
(c) unemployment benefit. 
If her applicable amounts exceeded that income, it can hardly 
have been by very much. 

15. The claimant's appeal is disallowed.
 
(signed) J Mitchell
Commissioner

21 March 1995