PROCEDURE

The case originated in an application (no. 42295/98) against the United Kingdom of Great Britain and Northern Ireland lodged with the European Commission of Human Rights (“the Commission”) under former Article 25 of the Convention for the Protection of Human Rights and Fundamental Freedoms (“the Convention”) by Mr Sandro Nerva, an Italian national, and three Spanish nationals, Mr José Pulleiro, Mr Julio Rodriguez and Mr José Gigirey-Cabo (“the applicants”), on 18 August 1997. The first two applicants are currently living in London, England. The fourth applicant lives in Spain. The third applicant is since deceased. His application is being pursued in his name by his brother, Mr José Antonio Rodriguez Montega, who lives in Spain.

The applicants, who had been granted legal aid, were represented before the Court by Ms C. Scrivens, a lawyer employed with the Central London Law Centre. The United Kingdom Government (“the Government”) were represented by their Agent, Ms J. Foakes, of the Foreign and Commonwealth Office.

The applicants alleged, in particular, that their rights under Article 1 of Protocol No. 1 and under Article 14 of the Convention taken in conjunction with Article 1 of Protocol No. 1 had been breached given that the domestic courts of the respondent State had ruled that money which was left to them as tips by customers passed to their employer to be used as it wished and, in their case, to discharge the employer’s statutory obligation to pay them a basic minimum wage.

The application was transmitted to the Court on 1 November 1998, when Protocol No. 11 to the Convention came into force (Article 5 § 2 of Protocol No. 11).

The application was originally allocated to the Third Section of the Court (Rule 52 § 1 of the Rules of Court), which declared it admissible on 11 September 2001.

On 1 November 2001 the Court changed the composition of its Sections (Rule 25 § 1). The application was allocated to the Second Section of the Court. Within that Section, the Chamber that would consider the case (Article 27 § 1 of the Convention) was constituted as provided in Rule 26 § 1.

The Government, but not the applicants, filed observations on the merits (Rule 59 § 1). The Chamber decided, after consulting the parties, that no hearing on the merits was required (Rule 59 § 2 in fine).

THE FACTS

I. THE CIRCUMSTANCES OF THE CASE

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 “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 register a sum equivalent to the tip paid by cheque or credit card and placing it in the tronc, out of which 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 was 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 the method hitherto 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 submitted 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 highlighted their view that this was not a new practice, but that it 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 maintained that the dispute centred on whether the “additional pay” constituted money paid to the applicants by their employer or, they emphasised, 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 for their use. In Lord Justice Staughton’s opinion, it was decisive that the employer was paying the tips with its 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 the understanding that it 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 its 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 applicants 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.