What can employers learn from the Tomahawk Steakhouse case?

Kirsty Thompson outlines the legalities and the implications of businesses asking to borrow money from their employees’ furlough pay

While many businesses have struggled to stay afloat during the pandemic Tomahawk Steakhouse’s unusual stance was one that did not go down well with the unions or employees. Although it is not illegal, employers need to be extremely careful if they choose to go down a similar route.

What happened?

The restaurant chain asked their 500 staff to sign an agreement to lend them 10 per cent of their wages to cover the company’s pension and national insurance contributions. 

According to unions, employees said that if they did not agree, their ‘suitability for the role’ would be ‘reviewed’. Tomahawk denied the claim that staff were told they might lose their jobs if they did give their consent.

It was reported that all employees agreed, but shortly after the restaurant chain – which has branches in Yorkshire, the north east and London – paid back the money with 20 per cent extra.

What did this mean legally?

Essentially, the employees were being asked to sign new contracts of employment under which they agreed to loan 10 per cent of their wages. 

Employees and unions were up in arms because of the principle of asking for this and then allegedly threatening dismissals if employees didn’t agree. They also argued that it was an abuse of the furlough scheme as employers are supposed to pay people’s wages with that money and not take it back off them.

So, can an employer legally do this and was it an abuse of the furlough scheme? 

The key requirement for any employer wanting to make a deduction from wages is that it must have the right to do so – either under the contract already, under law, or with the employee’s consent. 

Tomahawk was seeking to amend employee contracts to give them the right to do this. Changing contracts in this way is technically possible if you follow the correct process to get the necessary consent from your employees. If consent is given then the subsequent deduction is lawful. 

As everyone gave their consent, the issue of how Tomahawk would have dealt with employees who did not never arose. But I would not recommend any employer dismiss a member of staff for refusing to agree to this as it would be very difficult to defend at an employment tribunal. 

On the abuse of the furlough scheme, the rules are clear that authorised deductions from wages can continue to be made from furlough pay provided they are not charges, fees or costs in connection with employment. The loan deductions would not have amounted to charges, fees or costs and therefore this was not an abuse of the furlough scheme. 

What should employers do?

If you are considering doing this, the first thing is think twice before you do. If there are other ways of raising the money that you need, I would suggest that it might be a good idea to explore those first.

If you still want to go down this path, then you need to make sure you have a clear, open and transparent communications strategy. Make sure you are clear in telling your staff about what you are doing, why you are doing it and what the consequences will be. 

Employee buy-in is key to get consent and to avoid negative headlines. If you can’t get consent from all employees, I would advise against dismissal, at least for those employees with more than two years’ service who could claim unfair dismissal, because I believe it would be incredibly difficult to persuade a tribunal that dismissal was reasonable.

In all my years as an employment lawyer I have never heard of a case like this where a business has asked their staff to lend them back their wages. I imagine it was very much a ‘last resort’ decision by Tomahawk. Even though what Tomahawk did was legal, I wouldn’t suggest other employers should follow suit as it clearly had a negative impact on employee relations as well as causing reputational damage.

Kirsty Thompson is an employment partner at national law firm Devonshires