The case of Mr M Palanki v The Big Table Group Ltd brings attention to the legal complexities surrounding tronc schemes, tipping practices, and unlawful deductions in the hospitality industry. The key issue is the question of who holds the money, and are employees receiving what they’re rightfully owed?

The Law

This case revolves around two key legal claims brought by Mr. M Palanki against his employer, The Big Table Group Limited. The claims were for unpaid holiday pay under the Working Time Regulations 1998 (WTR 1998) and unauthorised deductions from wages under Section 13 of the Employment Rights Act 1996 (ERA 1996). The main legal issue here was whether the discretionary service charge payments (tips) received by the Claimant should be included in the calculation of his average weekly pay for holiday pay purposes.

Employees are entitled to 5.6 weeks of paid holiday annually, with four weeks guaranteed under EU law (regulation 13 WTR 1998) and an additional 1.6 weeks under UK law (regulation 13A WTR 1998). The calculation of holiday pay is based on a "week's pay," which is determined by sections 221-224 ERA 1996. For employees without fixed working hours, weekly pay is calculated based on the average remuneration over the previous 52 weeks.

The Facts

Mr. Palanki has been employed by The Big Table Group Limited since 31 August 2015 as a Front of House employee at the Respondent’s Las Iguanas restaurant in Wembley. His contract included a provision for participation in a tronc system, which is a common arrangement in the hospitality industry for distributing tips and service charges among staff. The tronc system at Las Iguanas Wembley involved a discretionary 12.5% service charge added to customer bills, which was paid by card and credited to the employer’s bank account before being distributed to employees alongside their wages.

Mr Palanki participates in the Respondent’s tronc system and receives a split of all tips received by the Respondent in addition to his hourly wage.

In 2022, Mr. Palanki took one day of approved annual leave and was paid £67.78 for that day. He disputed this calculation, arguing that his holiday pay should have included the tips received through the tronc system, which he believed were part of his average weekly remuneration. The employer disagreed, stating that holiday pay only included his basic wage as tips were considered a non-contractual benefit.

After unsuccessfully raising a grievance and appealing the outcome, Mr. Palanki brought his claims to the Employment Tribunal. He sought £5,444.40 in unpaid holiday pay and an uplift for the alleged failure to follow the ACAS Code of Practice of Disciplinary and Grievances.

The Decision

The Employment Tribunal ruled in favour of Mr. Palanki on both claims. The Judge concluded that the tips received through the tronc system were "payable by the employer to the employee" under s.224 ERA 1996 and should have been included in the calculation of his average weekly remuneration for holiday pay. The Judge also found that excluding tips from holiday pay calculations would deter employees from taking their full holiday entitlement, which is contrary to the principles of EU law.

However, the Tribunal rejected Mr. Palanki’s claim for an uplift in compensation under the ACAS Code. The Judge found that the employer had not acted unreasonably in handling the grievance and appeal process, and the grievance outcome provided a sufficient explanation of the Respondent’s position.

Takeaways

This case confirms that discretionary service charges (tips) distributed through a tronc system can, depending on the specific arrangements, be treated as “payable by the employer to the employee” under section 224 of the Employment Rights Act 1996. As a result, employers must carefully consider whether such tips should be factored into holiday pay calculations. The decision serves as an important reminder for hospitality businesses to review both their holiday pay practices and tronc arrangements to ensure compliance and mitigate the risk of employment tribunal claims.