Holidays
Cases
DWT176
FULL RECOMMENDATION
WTC/16/87
DETERMINATIONNO.DWT176
ADJ-00000462 CA-00000645-002/3
SECTION 28 (1), ORGANISATION OF WORKING TIME ACT, 1997
TAPASTREET LIMITED v JOSEPH MITCHELL
SUBJECT:
1. An appeal of an Adjudication Officer’s Decision No ADJ-00000462.
BACKGROUND:
2. The Employer appealed the Decision of the Adjudication Officer to the Labour Court on the 12th July 2016 in accordance with Section 28(1) of the Organisation of Working Time Act 1997. A Labour Court hearing took place on the 12th January 2017. The following is the Decision of the Court.
DETERMINATION:
This is an appeal by Tapastreet Limited against the Decision of an Adjudication Officer under the Organisation of Working Time Act 1997 (the Act) where Mr Joseph Mitchell claimed that his former employer had breached the Act when he was not paid his outstanding entitlement to annual leave on the cessor of his employment on 16 October 2015 and he was not provided with public holiday entitlements for Easter Monday and 3rdAugust in 2015. The Adjudication Officer held that the complaint was well-founded and awarded him six days’ pay for annual leave and three days’ pay for public holidays.
For ease of reference the parties are given the same designation as they had at first instance. Hence Mr Joseph Mitchell will be referred to as “the Complainant” and Tapastreet Limited will be referred to as “the Respondent”.
The Complainant referred his claim under the Act to the Workplace Relations Commission on 5thNovember 2015. By application of the time limit provided for at Section 27(4) of the Act the cognisable period for the purpose of this claim is confined to the six-month period ending on the date on which the complaint was presented to the Workplace Relations Commission, therefore, the cognisable period covered by the claim is the six-month period from 6thMay 2015 until 5thNovember 2015.
Background
The Respondent is a Dublin-based technology start-up which was founded in 2012. The Complainant was a co-founder and Chief Executive Officer of the Respondent. His employment terminated on 16 October 2015.
Annual Leave
Mr Ger Connolly, Solicitor, Mason Hayes & Curran, Solicitors, on behalf of the Complainant, stated that in accordance with his contract of employment he was entitled to 23 days’ annual leave per year and had accrued twenty days’ annual leave at the date of the termination of his employment. He availed of seven days’ annual leave from 4thto 12th June 2015 and one day in August 2015. The Respondent produced evidence to the Court indicating that the Complainant availed of annual leave on 7th, 8th and 11th May 2015 and the Complainant conceded that point. Therefore he submitted that he had a balance owing to him.
Mr Peter O’Brien, B.L., instructed by Patrick F. O’Reilly & Co., Solicitors, on behalf of the Respondent, disputed the claim in respect of annual leave andsubmitted that the Complainant, as CEO, was the person responsiblefor managing his own workschedule and takingand recording his ownstatutory holiday entitlements.
The cognisable period covered by the claim is the six-month period from 6thMay 2015 until 5thNovember 2015. The relevant leave year is defined by Section 2(1) of the Act, it provides that a leave year is a year commencing on 1stApril. Hence, any contravention of the Act arising from the Respondent’s failure to pay the Complainant in respect of outstanding annual leave on the cessation of his employment accrued within the period, i.e. from 1stApril to 16thOctober 2015. In so far as the complaint relates to the Respondent’s failure to pay the Complainant in respect of annual leave taken on dates prior to those dates, it is statute-barred and, to that extent, it is not cognisable by the Court.
Section 19 of the Act provides that an employee is entitled to a maximum of 20 days paid leave in a leave year. As the Complainant worked six and a half months in that leave year, he accrued a statutory entitlement of 10.8 days annual leave. As the Complainant accepted that he has exceeded that entitlement therefore the Court does not find in favour of his claim. Accordingly, the Court does not find that the Respondent was in breach of Section 23 of the Act.
Public Holidays
The Complainant claimed that he had an outstanding entitlement to three public holidays, Easter Sunday, Easter Monday and the first Monday in August 2015. As Easter Sunday is not a public holiday there is no statutory obligation to give an entitlement in respect of that day. The Court must examine the complaints in respect of each public holiday which fell within the cognisable period. As Easter Monday fell on 6 April 2015, it is outside the cognisable period and therefore that claim is statute barred. The Respondent conceded that the Complainant had not received his entitlement in respect of the August 2015 public holiday, and as the Complainant accepts that he did not work on that day, the Court finds that he is entitled to a day’s pay in respect of that day.
Determination
Based on the findings above the Court varies the Decision of the Adjudication Officer and awards the Complainant the sum of €269.23 in respect of the breach of Section 21 of the Act.
The Court so Determines.
Signed on behalf of the Labour Court
Caroline Jenkinson
CR______________________
2nd February, 2017Deputy Chairman
British Gas Trading Ltd v Lock & Anor
[2016] EWCA Civ 983 [2016] WLR(D) 512, [2016] IRLR 946, [2017] ICR 530, [2017] 4 All ER 291, [2016] EWCA Civ 983, [2017] ICR 1, [2017] 1 CMLR 25
Sir Colin Rimer:
Introduction
This appeal is by British Gas Trading Limited (‘British Gas’). It is against an order of the Employment Appeal Tribunal (‘EAT’) dated 22 February 2016 made by Singh J, sitting alone, dismissing British Gas’s appeal against a judgment of the Leicester Employment Tribunal (Employment Judge Ahmed, sitting alone) (‘the ET’) dated 23 March 2015 and sent, with written reasons, to the parties on 25 March. The sole issue before the tribunals was one of statutory interpretation. The practical question that is raised is whether the holiday pay of an employee with statutorily defined ‘normal working hours’, whose remuneration does not vary with the amount of work done during such hours, should (i) be calculated solely by reference to his basic pay; or (ii) include an element referable to the amount of the results-based commission he normally earned.
On 10 April 2012, Mr Lock, a British Gas employee (respondent to the appeal), presented a claim in the ET complaining that British Gas had wrongly failed to calculate his holiday pay so as to include such a commission element. The complaint was formally one of alleged unauthorised deduction from his wages contrary to section 13 of the Employment Rights Act 1996. There is no dispute that, as a matter of European Union (‘EU’) law, article 7 of the applicable Directive required a commission element to be included. The dispute is as to whether the Working Time Regulations 1998, the UK legislation enacted to give domestic effect to the Directive, can be interpreted as incorporating that requirement.
The ET’s decision was that they can, although in so deciding it found it necessary to read words into them whose apparent effect is to amend the provision applying to Mr Lock’s case. Singh J, in the EAT, upheld that decision. Because of the importance of the point, he gave permission to British Gas for this further appeal. We were told that some 918 like claims against British Gas and thousands of like claims against other employers have been stayed pending its outcome. We had able arguments from Mr Cavanagh QC, for British Gas; Mr Ford QC and Mr Cheetham, for Mr Lock; and Mr Tolley QC, for the Secretary of State for Business, Innovation and Skills, who supported Mr Lock’s case.
The facts
These are agreed and I take them from the EAT’s judgment. Mr Lock became employed by British Gas on 1 February 2010 although he has since moved to other employment. His role was to persuade business customers to purchase British Gas’s energy products. At the material time, his annual salary was £14,670 but he was also entitled to the benefit of a commission scheme. He was entitled to 25 days’ holiday per year, plus public and bank holidays. Whilst on leave, he was paid at the rate of his basic salary of £1,222.50 per month. His claim related to the pay he received for the leave he took from 19 to 30 December 2011 and for the statutory holidays on 26/27 December 2011 and 2 January 2012: he complained that British Gas failed to include in it a commission element. He alleged an unlawful underpayment of £1,500.
The commission scheme of which Mr Lock was a beneficiary was designed to ‘provide an incentive to encourage and reward individual performance’ if, and only if, sales he had negotiated had ‘gone live’, that is to say, the customer had begun to take gas from British Gas. There were three methods of achieving a sale: (i) ‘cold calling’; (ii) ‘hot leads’, namely where a potential customer had already been contacted by British Gas, the conversion rate in such cases being much higher; and (iii) ‘upgrades’, which involved existing customers not under contract, but who are persuaded to enter into one, the conversion rate in such cases being even higher. The scheme was contained in a document separate from his employment contract but it is agreed that Mr Lock’s entitlement under it was a contractual right. His entitlement was based purely on success, namely a sale negotiated by him resulting in the customer beginning to take energy products from British Gas. As Singh J explained:
’14. … the amount of work done by him in normal working hours did not vary in the sense that the payment was not based on the amount of work done. Rather, payment of commission was based on the outcome of that work, whether or not it was due to good performance. The amount of the commission was not based on the amount of work he carried out during any particular period. It was simply dependent on the outcome of his work: that is the number and type of new contracts which customers entered into.’
The commission that Mr Lock earned greatly exceeded his basic salary. Whilst on leave, he was paid any commission earned in previous periods that fell due for payment during his leave; but he says that his leave pay should have been calculated so as also to include a commission element: his argument is that as his remuneration normally included commission, so should his leave pay.
The reference to the Court of Justice of the European Union
There is no dispute that if Mr Lock’s entitlement under the WTR to holiday pay is assessed through a domestic legislative lens, his case is covered by section 221(2) of the ERA, with the consequence that his pay is confined to his basic salary and excludes any commission element. The length of the journey from the presentation of Mr Lock’s claim in 2012 to the appeal in this court in July 2016 is in part explained by the fact that on 16 November 2012 the ET stayed the proceedings and made a reference to the CJEU for a preliminary ruling. The ruling sought was as to whether, in the case of a worker like Mr Lock whose remuneration normally consists of a basic salary and commission, with the amount of the latter being fixed by reference to contracts entered into as a result of sales he achieves, article 7 of the Directive limits his holiday pay to remuneration composed only of his basic salary.
By its judgment of 22 May 2014 (Lock v. British Gas Trading Ltd (Case C-539/12); [2014] ICR 813, the CJEU (First Chamber) held that that is not the effect of article 7. As to Mr Lock’s salary and commission arrangements, the court said:
’10. For December 2011, his remuneration was composed of the basic pay of £1,222.50 and commission which he had earned over previous weeks amounting to £2,350.31. In 2011, Mr Lock earned on average monthly commission of £1,912.67.
11. Given that Mr Lock did not carry out any work during his period of annual leave, he was not able to make any new sales or follow up on potential sales during that period. Accordingly, he was not able to generate commission during that period. Since this had adverse effects on the salary Mr Lock received during the months following his annual leave, he decided to bring an action before the referring tribunal for outstanding holiday pay in respect of the period from 19 December 2011 to 3 January 2012.’
The court re-affirmed its case law (dating from 2006) that the entitlement of every worker to paid annual leave was a particularly important principle of EU law from which there can be no derogation ‘and whose implementation by the competent national authorities must be confined within the limits expressly laid down by’ the Working Time Directive, the Directive and the court’s case law. It continued:
’16. Although the wording of article 7 does not give any express indication as regards the remuneration to which a worker is entitled during his annual leave, the court has already stated that the term “paid annual leave” in article 7(1) means that, for the duration of “annual leave” within the meaning of that Directive, remuneration must be maintained and that, in other words, workers must receive their normal remuneration for that period of rest: see Robinson-Steele v. RD Retail Services Ltd (Joined Cases C-131/04 and C-257/04) [2006] ICR 932; [2006] ECR I-2531, para 50, and Stringer v. Revenue and Customs Comrs (Joined Cases C-350/06 and C-520/06) [2009] ICR 932; [2009] ECR I-179, para 58.
17. Directive 2003/88 treats entitlement to annual leave and to a payment on that account as being two aspects of a single right. The purpose of providing payment for that leave is to put the worker, during such leave, in a position which is, as regards his salary, comparable to periods of work: see Robinson-Steele, para 58, and Stringer, para 60.’
The court rejected British Gas’s case that Mr Lock did receive remuneration during his leave period comparable to what he earned during his periods of work. British Gas’s point was that his leave pay comprised not just his basic salary but also the commission arising during his leave period resulting from sales he had achieved during the weeks preceding his leave. The court appears to have recognised that that meant that Mr Lock’s leave pay was comparable to his remuneration earned during periods of work. But the flaw in the argument was, in its view, that he still faced the disadvantage that, whilst on leave and so not working, he was unable to generate commission that would be paid to him subsequently, an inability adversely affecting the remuneration he later received. That adverse consequence might, in the court’s view, deter a worker such as Mr Lock from actually taking his annual leave; and it noted that that was all the more likely in a case like Mr Lock’s whose results-based commission represented on average over 60% of his remuneration. The court said that such a reduction of remuneration in respect of annual leave, one liable to deter the worker from taking such leave, was contrary to the objective of article 7; and it referred to British Airways plc v. Williams (Case C-155/10) [2012] ICR 847; [2011] ECR I-8409, para 21.
The court’s conclusion was, therefore, that article 7(1) precluded national legislation and practice under which a worker whose remuneration was comprised of basic salary and results-based commission was entitled to holiday pay comprised exclusively of his basic salary. As to how the holiday pay of a worker like Mr Lock should be calculated, the answer was that it should correspond to his ‘normal remuneration’; and, where such remuneration is composed of several components, ‘the determination of the normal remuneration to which the worker in question is entitled during his annual leave requires a specific analysis’, and the court referred again to para 21 of Williams. It thus made it clear that the commission received by a worker such as Mr Lock must be taken into account in calculating the pay in respect of his annual leave; but it left it to the national court to work out the commission element to which he was so entitled.
There is, therefore, no dispute that Mr Lock’s holiday pay was not calculated in accordance with what article 7 required and that, as a matter of EU law, it ought, in addition to his basic salary, to have included an element referable to the commission he ordinarily earned when working. Only then would his holiday pay be comparable to his ‘normal remuneration’.
I add that it is agreed that the CJEU’s ruling in Lock applies only to the four weeks of annual leave provided for by regulation 13 of the WTR. It does not apply also to the extra 1.6 weeks of annual leave provided for, as a matter of UK domestic law, by regulation 13A (which does not derive from the Directive), nor does it apply to any additional contractual leave period.
The decision of the ET
Following the decision of the CJEU, the case returned to the ET, which of course recognised Mr Lock’s entitlement as a matter of EU law. His problem, however, was that it was said against him by British Gas that, whilst the sense of article 7 was clear, the WTR giving domestic effect to the Directive not only do not provide for results-based commission to be taken into account when determining the amount of his holiday pay, their interpretation shows it is not to be taken into account. That was a crucial point since, although a Directive which has not been correctly or fully transposed into national law may be directly relied upon by an individual against the member state concerned, or against state bodies, the same does not apply in relation to an individual’s claim against a private sector entity such as British Gas. If Mr Lock was to succeed he had, therefore, to show that the WTR could be interpreted in conformity with article 7 as now explained by the EU.
None of that was in dispute before the ET. What was in dispute was whether the WTR can be so interpreted. The ET described the issue as being:
‘2. … whether … domestic law, in the form of the [WTR], can be read consistently with EU law and if not whether words can and should be added in interpreting those regulations so that the calculation of a week’s pay is in conformity with EU law.’
The ET explained that the scheme of sections 221 to 224 of the ERA distinguished between workers with normal working hours (to whom sections 221 and 222 apply) and those who do not (to whom section 224 applies). It was agreed that: (i) section 221(3), which applied where the employee’s remuneration for his normal hours of work ‘varied with the amount of work done in the period’ was not Mr Lock’s case; (ii) nor did section 222 apply, that section applying to shift workers, which was also not his case; (iii) nor did section 224 apply, since he did have normal working hours. It was and is agreed that the only provision applying to Mr Lock’s case is section 221(2).
After reviewing recent decisions of the CJEU, including the Lock case, the ET considered the domestic law. It referred to this court’s decision in Evans v. The Malley Organisation Ltd (t/a First Business Support) [2003] ICR 432, where the material facts were indistinguishable from Mr Lock’s case and the court held that, as the case fell within section 221(2), there was no question of commission payments being brought into account in the calculation of holiday pay. The court gave no consideration to whether its interpretation was consistent with the requirements of article 7. That is not surprising: the decision pre-dated the first CJEU case (in 2006) explaining that ‘paid annual leave’ in article 7(1) means that, for the duration of annual leave within the meaning of the Directive, a worker’s ‘normal remuneration’ must be maintained: see Robinson-Steele v. RD Retail Services Ltd (Case C-131/04) [2006] ICR 932, at para 50. The ET accepted that:
’42. … having regard to the Court of Appeal’s judgment in Evans, domestic legislation cannot, in accordance with the normal rules of statutory interpretation, be read so as to require employers to take results-based commission payment into account when calculating pay for annual leave.’
It nevertheless rejected the submission that the interpretation applied to section 221(2) in Evans rendered impermissible an interpretation of the WTR in conformity with the requirements of article 7 as since understood.
The ET referred next to the EAT’s decision in Bear Scotland Ltd v. Fulton and another [2015] ICR 221 as to whether ‘non-guaranteed’ overtime had to be included in leave pay for the purposes of article 7 (that is, overtime the employer can require the employee to work but which it has no duty to offer). Having held it did, the EAT inserted additional words into the WTR having the apparent effect of amending them so as bring them into line with the requirements of article 7 of the Directive. That decision was cited to the ET as decided by a ratio said to apply also to Mr Lock’s case. The ET then engaged in a review of the authorities and of the parties’ submissions, observing en route that (a) most of British Gas’s arguments had been run and rejected in Bear Scotland and (b) that the remaining arguments were without substance.
The ET concluded (in essence) that the issue in Bear Scotland was no different in principle from that in Mr Lock’s case; that it accepted Bear Scotland’s answers to British Gas’sobjections against a conforming interpretation of the WTR; that it was permissible and necessary to imply words into the WTR ‘for it to comply with EU law’; that such an exercise did not involve going against the grain of the legislation or its underlying thrust; that it would do no violence to the intention of Parliament, nor would it amount to ‘judicial vandalism’ (a phrase used by Lord Bingham of Cornhill in R (Anderson) v. Secretary of State for the Home Department [2003] 1 AC 837, para 30); rather, it would fulfil the duty of interpretation; the ET was satisfied that, in enacting the WTR, Parliament’s intention was to comply with the Directive.
The ET accepted, however, that the language of the WTR (and the provisions of the ERA it incorporates) cannot be read in a way conforming with article 7 without reading words into it enabling it to be so read. After considering four suggested alternatives, the ET’s judgment adopted this wording:
‘Regulation 16(3) of the Working Time Regulations 1998 is to be interpreted and applied as if it had the following paragraph added to it:
(e) as if, in the case of the entitlement under Regulation 13, a worker with normal working hours whose remuneration includes commission or similar payment shall be deemed to have remuneration which varies with the amount of work done for the purpose of section 221.’
The effect of the new para (e) is to deem a ‘commission or similar payment’ case that, but for such paragraph, would fall within section 221(2) as instead falling within section 221(3) and so to bring into play the 12-week averaging exercise for which it provides. We were told that, following the parties’ subsequent agreement, the ET delivered a separate judgment recording expressly that the reference periods for the calculation of Mr Lock’s ‘normal remuneration’ should be the same periods as provided by section 221(3).
The decision of the EAT
I can take this shortly. In support of British Gas’s appeal against the ET’s decision, it was submitted (i) that Bear Scotland was distinguishable; alternatively (ii) that Bear Scotland wrongly ignored what was said to be this court’s binding decision in Bamsey [2004] EWCA Civ 359; [2004] ICR 1083 that the WTR were not capable of the claimed conforming interpretation; alternatively (iii) that Bear Scotland should anyway not be followed. Singh J held that Bear Scotland was not distinguishable. He considered whether, as it was a decision of the EAT, he could or should depart from it. In his view, the only bases on which he might or should do so were if it was ‘manifestly wrong’ or there were ‘exceptional circumstances’ justifying it. He held that neither case applied and dismissed the appeal.
The appeal to this court
The EAT’s decision in Bear Scotland is not binding on this court and I shall come to what it decided. Although the EAT granted the employers in that case permission to appeal, no appeal was pursued. The heart of Mr Cavanagh’s submission was that Bear Scotland was wrongly decided and that this case is not one in which it was open to the ET, as he said it did, to amend the WTR under the guise of interpretation. He submitted in the alternative, albeit with express moderation, that Bamsey anyway binds us to allow the appeal.
The rest of this judgment follows this course. I shall: (i) refer to the principal authorities on ‘conforming interpretation’; (ii) explain the decision in Evans; (iii) do likewise in relation to the decisions in Bamsey; and (iv) Bear Scotland; (v) summarise the submissions; and (vi) express my conclusions.
(i) Authorities on conforming interpretation
The ECJ’s decision in Marleasing S.A. v. LA Comercial Internacional de Alimentacion S.A. (Case C–106/89) [1992] 1 CMLR 305 is a well known authority on ‘conforming interpretation’. The ECJ said, at para 8:
‘… It follows that, in applying national law, whether the provisions in question were adopted before or after the directive, the national court called upon to interpret it is required to do so, so far as possible, in the light of the wording and the purpose of the directive in order to achieve the result pursued by the latter and thereby comply with the third paragraph of Article 189 EEC.’
Ghaidan v. Godin-Mendoza [2004] UKHL 30; [2004] 2 AC 557 is a decision of the House of Lords on the application of section 3 of the Human Rights Act 1998, which requires that ‘[s]o far as it is possible to do so, primary and subordinate legislation must be read and given effect in a way which is compatible with Convention rights.’ It was agreed before us that the principles applicable to the section 3 interpretative obligation are the same as those applicable to the Marleasing interpretative obligation: in his speech in Ghaidan, Lord Steyn noted, at para 45, that the draftsman of section 3 had resorted to the analogy of that obligation.
The question in Ghaidan was whether the surviving homosexual partner of the deceased protected tenant of a flat succeeded to his tenancy as a statutory tenant by succession as his surviving ‘spouse’ within the meaning of paragraph 2 of Schedule 1 to the Rent Act 1977, which extended the word ‘spouse’ to persons living with the deceased tenant ‘as his or her wife or husband’. The House held that, unless the legislation could be read as extending to the partner’s case, his Convention rights were violated. There thus arose the question whether section 3 enabled a Convention-compliant interpretation to be applied to Schedule 1. Upholding the Court of Appeal, the House held (Lord Millett dissenting) that it could.
Lord Nicholls of Birkenhead noted that the operation of section 3 does not depend on there being an ambiguity in the legislation in question: even if there is no doubt as to its meaning according to the ordinary principles of interpretation, section 3 may nonetheless require it to be given a different meaning. He gave this guidance:
’30. From this it follows that the interpretative obligation decreed by section 3 is of an unusual and far-reaching character. Section 3 may require a court to depart from the unambiguous meaning the legislation would otherwise bear. In the ordinary course the interpretation of legislation involves seeking the intention reasonably to be attributed to Parliament in using the language in question. Section 3 may require the court to depart from this legislative intention, that is, depart from the intention of the Parliament which enacted the legislation. The question of difficulty is how far, and in what circumstances, section 3 requires the court to depart from the intention of the enacting Parliament. The answer to this question depends upon the intention reasonably to be attributed to Parliament in enacting section 3.
31. On this the first point to be considered is how far, when enacting section 3, Parliament intended that the actual language of a statute, as distinct from the concept expressed in that language, should be determinative. Since section 3 relates to the “interpretation” of legislation, it is natural to focus attention initially on the language used in the legislative provision being considered. But once it is accepted that section 3 may require legislation to bear a meaning which departs from the unambiguous meaning the legislation would otherwise bear, it becomes impossible to suppose Parliament intended that the operation of section 3 should depend critically upon the particular form of words adopted by the parliamentary draftsman in the statutory provision under consideration. That would make the application of section 3 something of a semantic lottery. If the draftsman chose to express the concept being enacted in one form of words, section 3 would be available to achieve Convention-compliance. If he chose a different form of words, section 3 would be impotent.
32. From this the conclusion which seems inescapable is that the mere fact the language under consideration is inconsistent with a Convention-compliant meaning does not of itself make a Convention-compliant interpretation under section 3 impossible. Section 3 enables language to be interpreted restrictively or expansively. But section 3 goes further than this. It is also apt to require a court to read in words which change the meaning of the enacted legislation, so as to make it Convention-compliant. In other words, the intention of Parliament in enacting section 3 was that, to an extent bounded only by what is “possible”, a court can modify the meaning, and hence the effect, of primary and secondary legislation.
33. Parliament, however, cannot have intended that in the discharge of this extended interpretative function the courts should adopt a meaning inconsistent with a fundamental feature of legislation. That would be to cross the constitutional boundary section 3 seeks to demarcate and preserve. Parliament has retained the right to enact legislation in terms which are not Convention-compliant. The meaning imported by application of section 3 must be compatible with the underlying thrust of the legislation being construed. Words implied must, in the phrase of my noble and learned friend, Lord Rodger of Earlsferry “go with the grain of the legislation”. Nor can Parliament have intended that section 3 should require courts to make decisions for which they are not equipped. There may be several ways of making a provision Convention-compliant, and the choice may involve issues calling for legislative deliberation.’
Lord Rodger’s concurring speech contains valuable observations on the extent and limits of the section 3 interpretative power. He devotes material parts to illustrating the difference between the permissible interpretation of a statute by an exercise under that power and the impermissible amendment of it by a purported such exercise (see paras 110–113). From those paragraphs, I shall simply cite the following extract from para 111, which discussed the decision of the House of Lords in R (Anderson) v. Secretary of State for the Home Department [2003] 1 AC 837:
‘111. … In these circumstances, in the words of Lord Bingham of Cornhill [2003] 1 AC 837, 883, para 30:
“To read section 29 as precluding participation by the Home Secretary, if it were possible to do so, would not be judicial interpretation, but judicial vandalism:it would give the sections an effect quite different from that which Parliament intended and would go well beyond any interpretative process sanctioned by section 3 of the 1998 Act …”
The “judicial vandalism” would lie not in any linguistic changes, whether great or small, which the court might make in interpreting section 29 but in the fact that any reading of section 29 which negatived the explicit power of the Secretary of State to decide on the release date for murderers would be as drastic as changing black into white. It would remove the very core and essence, the “pith and substance” of the measure that Parliament had enacted – to use the familiar phrase of Lord Watson (in a different context) in Union Colliery Co of British Columbia Ltd v. Bryden [1899] AC 580, 587. Section 3(1) gives the courts no power to go that far. …’
Lord Rodger’s observations in the following paragraphs (referring to authorities on the Marleasing interpretative principle) are also important:
‘121. For present purposes it is sufficient to notice that cases such as Pickstone v. Freeman plc [1989] AC 66 and Litster v. Forth Dry Dock & Engineering Co Ltd [1990] 1 AC 546 suggest that, in terms of section 3(1) of the 1998 Act, it is possible for the courts to supply by implication words that are appropriate to ensure that legislation is read in a way which is compatible with Convention rights. When the court spells out the words that are to be implied, it may look as if it is “amending” the legislation, but that is not the case. If the court implies words that are consistent with the scheme of the legislation but necessary to make it compatible with Convention rights, it is simply performing the duty which Parliament has imposed on it and on others. It is reading the legislation in a way that draws out the full implications of its terms and of the Convention rights. And, by its very nature, an implication will go with the grain of the legislation. By contrast, using a Convention right to read in words that are inconsistent with the scheme of the legislation or with its essential principles as disclosed by its provisions does not involve any form of interpretation, by implication or otherwise. It falls on the wrong side of the boundary between interpretation and amendment of the statute.
122. When Housman addressed the meeting of the Classical Association in Cambridge in 1921, he reminded them that the key to the sound emendation of a corrupt text does not lie in altering the text by changing one letter rather than by supplying half a dozen words. The key is that the emendation must start from a careful consideration of the writer’s thought. Similarly, the key to what it is possible for the courts to imply into legislation without crossing the border from interpretation to amendment does not lie in the number of words that have to be read in. The key lies in a careful consideration of the essential principles and scope of the legislation being interpreted. If the insertion of one word contradicts those principles or goes beyond the scope of the legislation, it amounts to impermissible amendment. On the other hand, if the implication of a dozen words leaves the essential principles and scope of the legislation intact but allows it to be read in a way which is compatible with Convention rights, the implication is a legitimate exercise of the powers conferred by section 3(1). Of course, the greater the extent of the proposed implication, the greater the need to make sure that the court is not going beyond the scheme of the legislation and embarking upon amendment. Nevertheless, what matters is not the number of words but their effect. For this reason, in the Community law context, judges have rightly been concerned with the effect of any proposed implication, but have been relaxed about its exact form. See, for example, Lord Keith of Kinkel and Lord Oliver of Aylmerton in Pickstone v. Freemans plc [1989] AC 66, 112D, 126A–B.’
Lord Millett dissented on the outcome of the case, but we were referred to what he said at para 68:
‘In my view section 3 does not entitle the court to supply words which are inconsistent with a fundamental feature of the legislative scheme; nor to repeal, delete or contradict the language of the offending statute. …’
I would not regard the first part of that, down to ‘legislative scheme’, as out of line with what others said in Ghaidan. There may be a question as to whether, by comparison, his remaining observations favoured too narrow an approach.
Vodafone 2 v. Revenue and Customs Commissioners [2009] EWCA Civ 446; [2010] Ch 77 is a decision of this court in which Sir Andrew Morritt C set out the following summary of the principles of conforming interpretation:
’37. We were referred in the parties’ respective written arguments and orally to a number of reported cases on the principles to be observed in looking for a conforming interpretation in either the European Community or Human Rights contexts. In chronological order they are Pickstone v. Freemans plc [1989] AC 66; Marleasing SA v.La Comercial Internacional de Alimentacion SA [1990] ECR I-4135; Litster v. Forth Dry Dock & Engineering Co Ltd [1990] 1 AC 546; Imperial Chemical Industries plc v. Colmer (No 2) [1999] 1 WLR 2035; Ghaidan v. Godin-Mendoza [2004 2 AC 557; R (IDT Card Services Ireland Ltd) v. Customs and Excise Comrs [2006] STC 1252; Revenue and Customs Comrs v. EB Central Services Ltd [2008] STC 2209 and the Fleming/Condé Nast cases [2008] 1 WLR 195. The principles which those cases established or illustrated were helpfully summarised by counsel for HMRC in terms from which counsel for V2 did not dissent. Such principles are that:
“In summary, the obligation on the English courts to construe domestic legislation consistently with Community law obligations is both broad and far-reaching. In particular: (a) it is not constrained by conventional rules of construction (per Lord Oliver of Aylmerton in the Pickstone case, at p. 126B); it does not require ambiguity in the legislative language (per Lord Oliver in the Pickstone case, at p. 126B and Lord Nicholls of Birkenhead in Ghaidan’s case, at para 32); (c) it is not an exercise in semantics or linguistics (per Lord Nicholls in Ghaidan’s case, at paras 31 and 35; per Lord Steyn, at paras 48–49; per Lord Rodger of Earlsferry, at paras 110–115); (d) it permits departure from the strict and literal application of the words which the legislature has elected to use (per Lord Oliver in the Litster case, at p 577A; per Lord Nicholls in Ghaidan’s case, at para 31); (e) it permits the implication of words necessary to comply with Community law obligations (per Lord Templeman in the Pickstone case, at pp 120H–121A; per Lord Oliver in the Litster case, at p 577A); and (f) the precise form of the words to be implied does not matter (per Lord Keith of Kinkel in the Pickstone case, at p 112D; per Lord Rodger in Ghaidan’s case, at para 122; per Arden LJ in the IDT Card Services case, at para 114).”
18. Counsel for HMRC went on to point out, again without dissent from counsel for V2, that:
“The only constraints on the broad and far-reaching nature of the interpretative obligation are that: (a) the meaning should ‘go with the grain of the legislation’ and be compatible with the underlying thrust of the legislation being construed’: see per Lord Nicholls in Ghaidan v. Godin-Medoza [2004] 2 AC 557, para 53; Dyson LJ in Revenue and Customs v. EB Central Services Ltd [2008] STC 2209, para 81. An interpretation should not be adopted which is inconsistent with a fundamental or cardinal feature of the legislation since this would cross the boundary between interpretation and amendment (see per Lord Nicholls, at para 33, Lord Rodger, at paras 110–113 in Ghaidan’s case; per Arden LJ in R (IDT Card Services Ireland Ltd) v. Customs and Excise Comrs [2006] STC 1252, paras 82 and 113); and (b) the exercise of the interpretative obligation cannot require the courts to make decisions for which they are not equipped or give rise to important practical repercussions which the court is not equipped to evaluate: see the Ghaidan case, per Lord Nicholls, at para 33; per Lord Rodger, at para 115; per Arden LJ in the IDT Card Services case, at para 113.’
In Swift (trading as A Swift Move) v. Robertson [2014] UKSC 50; [2014] 1 WLR 3438, the Supreme Court, in a unanimous judgment, said this:
’20. A national court must interpret domestic legislation, so far as possible, in the light of the wording and purpose of the Directive which it seeks to implement. This is now well settled. Thus in Schulte v. Deutsche Bausparkasse Badenia AG (Case C-350/03) [2003] All ER (EC) 420, para 71 the CJEU said:
“when hearing a case between individuals, the national court is required, when applying the provisions of domestic law adopted for the purpose of transposing obligations laid down by a Directive, to consider the whole body of rules of national law and to interpret them, so far as possible, in the light of the wording and purpose of the Directive in order to achieve an outcome consistent with the objective pursued by the Directive (see Pfeiffer v. Deutsches Rotes Kreuz, Kreisverband Waldshut eV (Joined Cases C-397/01 to C-403/01) [2005] ICR 1307, para 120).”
21. The breadth and importance of the principle was authoritatively set out in Vodafone 2 v. Revenue and Customs Comrs [2010] Ch 77 …
and the court cited the material parts of the passages I have cited.
Finally, in United States of America v. Nolan [2015] UKSC 63; [2015] ICR 1347, another decision of the Supreme Court, Lord Mance said, at para 14:
‘Taking the first point of construction, it is a cardinal principle of European and domestic law that domestic courts should construe domestic legislation intended to give effect to a European Directive so far as possible (or so far as they can do so without going against the “grain” of the domestic legislation) consistently with the Directive ….’
(ii) Evans v. The Malley Organisation Ltd
Evans ([2003] ICR 432) explains why an interpretation of the WTR exclusively through a domestic lens mandates a calculation of Mr Lock’s holiday pay confined to his basic pay and excluding any element referable to the commission he normally earned as a result of his successful efforts to induce customers to sign up to British Gas’s energy products.
The facts in Evans are not relevantly distinguishable from those of Mr Lock’s case. Mr Evans’s contract provided for his rate of holiday pay to be his ‘normal basic rate’, a reference to his basic salary of £10,000 a year. He was also entitled to commission under his contract, which arose and was payable in a like way as Mr Lock’s. His claim, also reliant upon the WTR, was that his holiday pay should have been his average salary (by reference to his basic salary and commission), not just his basic salary, which is all his employer paid him.
The ET dismissed his claim. It held that Mr Evans was an employee who was remunerated for employment in normal working hours, whose remuneration did not vary with the amount of work done in the period and whose case thus fell within section 221(2) of the ERA. It also referred to the fact that his contract provided for his holiday pay to be at the basic rate, although I do not understand that consideration to have been central to the ET’s decision.
On Mr Evans’s appeal, subject to the effect of section 221(4) of the ERA, the EAT agreed with the ET’s interpretation of sections 221(1) to (3). In delivering the EAT’s judgment, His Honour Judge Wilkie QC said, at para 12:
‘The amount of work done in the period of normal working hours did not vary in the sense that payments were not based on the amount of work done. Rather payment of commission was based on the outcome of that work, whether fortuitous or due to good performance. Therefore, as these three [subsections] stand, one would have thought that the natural meaning was that commission would not be included as part of the payment, so that the averaging out provisions of subsection (3) would not apply.’
The EAT then, however, departed from the ET by holding that section 221(4) operated to override the ordinary meaning of section 221(3) and so bring Mr Evans’s case within section 221(3) rather than section 221(2). The result was that the EAT allowed his appeal.
On the employer’s further appeal, this court unanimously disagreed with the EAT’s interpretation of section 221(4) and restored the ET’s decision. Pill LJ said:
’23. I am unable to accept Mr Cohen’s submission. The distinction between subsection (2) and subsection (3) of section 221 turns on whether or not the employee’s remuneration does or does not vary with the amount of work done in the normal working hours. I am unable to conclude that it does. Work is done and the amount of work does not depend on the number of contracts obtained. Time spent unsuccessfully to persuade a client to sign a contract is as much work as a successful encounter with a client. I am not able to read the expression “amount of work done” as meaning that amount of work and that part of the work which achieves a contract. The amount of work resulting in a contract may vary, but the result achieved by the work is a different concept from the act of working.
24. In my judgment subsection (4) does not bear upon the issue whether a contract falls within subsection (2) or (3). That must first be determined in accordance with the test plainly stated in the section and already identified. Subsection (4) is not relevant to that decision. What subsection (4) and its predecessors achieve is to make clear that once the categorisation is made, the relevant remuneration may include commission or similar payments such as a bonus. It is not otiose because it is easy to envisage situations in which remuneration does vary with the amount of work done, once a specified level of productivity has been achieved. The reference to commission in subsection (4) does not require or permit all contracts in which commission is a part of the remuneration to be placed within subsection (3). …
26. What the use of the averaging method does tend to confirm, however, is the fit between subsection (3) and pieceworking in the traditional sense. Where there are marked variations in the amount of work done as between one week and another fairness can be achieved by calculating the amount of holiday pay by reference to an average. That objective is a fair but limited one. Its inclusion in the statute does not require that contracts such as the present should be forced into the subsection (3) category.’
Judge LJ said:
’35. Mr Evans was of course expected to work conscientiously, and if he did it was hoped, both by him and his employers, that he would be successful in obtaining contracts. For these efforts he was paid his basic salary, which was due to him whether he succeeded in obtaining any contracts or none. If by working conscientiously he also achieved what it was hoped that he would achieve, he would then, but not otherwise, have earned commission in addition to his salary. Therefore the payment of commission did not depend on the length of his working week, and his remuneration for his employment was linked, not with the amount of work which he did, but with its success. Naturally it was hoped, indeed anticipated, that harder work and more skilful salesmanship would increase the number of contracts obtained by Mr Evans and so increase his resulting commission. But taken on their own, admirable though they are, hard work and skill which produced no contracts entitled him to no more than his basic salary.
36. For the purposes of section 221 of the Employment Rights Act 1996 Mr Evans’s remuneration did not vary with the amount of work he did during his working week. Any commission due to him was payable by virtue of earlier success, usually many months previously. It was unconnected with the amount of work he did during the 12-week period before his employment came to an end, which forms the basis of any calculation under section 221(3), and on which the decision of the Employment Appeal Tribunal was founded.
37. Unlike the appeal tribunal, I do not believe that section 221(4) overrides section 221(3) or, as seems to be implicit in its decision and was supported in argument by Mr Cohen, that cases in which commission forms part of a remuneration package must automatically be treated as falling with section 221(3). Rather, section 221(4) amplifies section 221 and, where remuneration does in fact vary with the amount of work done, enables commission and bonuses and similar payments to be included in the calculation of an employee’s week’s pay.’
Hale LJ said:
’43. There are several good reasons to conclude that although this remuneration varied it did not vary “with the amount of work done”: (i) “work done” would ordinarily mean tasks undertaken, such as researching potential clients, making telephone calls, writing letters, meeting potential clients: it would not mean “success achieved”. Mr Cohen quite rightly says that work done leads to success achieved: but that does not mean that the words have the same meaning. (ii) The ordinary meaning of the “amount” of work done would refer to its quantity and not to its quality or its results. (iii) The variation in remuneration in this case was not “with” the amount of work done in the period but with success achieved as a result of work done in a completely different period, usually nine months earlier. (iv) The concept of averaging over 12 weeks is difficult to fit with the concept of success fees relating to a completely different period.’
After citing para 12 of the EAT’s judgment (see para 44 above), Hale LJ continued:
’45. There is nothing in section 221(4) to change that. This is clearly defining remuneration for the purpose of what is included as remuneration but that still has to be within the overall criterion of varying with the amount of work done.’
The decision in Evans thus focussed solely on the interpretation of the relevant provisions of the WTR and their referential incorporation of the ERA as a matter of domestic law: it gave no consideration to whether such interpretation conformed with the requirements of article 7. I have explained why there was a good reason for that (see para 23 above). Whilst, however, the court did not recognise it, the court was in fact answering essentially the same question: namely, whether under the WTR and the incorporated provisions of the ERA, Mr Evans’s holiday pay should have been calculated by reference to his average (or normal) remuneration and not just his basic salary. That required the court to consider whether it was possible to construe the legislation as entitling him to what might be called a ‘normal remuneration’ calculation; and the court held it was not.
Evans shows to my satisfaction that it is not possible to interpret the WTR by conventional domestic canons of construction as entitling Mr Lock to holiday pay that includes any commission element. The ET also recognised that but it was concerned with what it rightly recognised as the different question of whether, in compliance with its duty to adopt so far as possible an interpretation of the WTR conforming with the CJEU’s post-Evans explanation of the meaning of article 7, it was able so to interpret the WTR. The ET held that it was, although only by reading into the WTR the words it did. The authorities show that a conforming interpretation may require the court to read words into the relevant legislation and that, subject to the qualifications they identify, the scope for doing so is very wide. The question in this appeal is whether it was permissible for the ET to interpret the WTR in the way it did.
(iii) Bamsey and others v. Albon Engineering and Manufacturing plc
Bamsey ([2004] ICR 1083), also a decision of this court, concerned a question similar to that later destined to arise in Bear Scotland, which declined to follow it. Mr Cavanagh submitted that Bamsey binds us to allow this appeal. Like Evans, Bamsey was decided before Robinson-Steele, the first CJEU decision to indicate that the holiday pay to which workers are entitled under article 7 means their ‘normal remuneration’.
Mr Sturge (the test case appellant in one of several appeals) was employed under a contract requiring him to work 39 hours a week and up to nine hours of overtime if required. His overtime was thus ‘non-guaranteed’, meaning he had to work it if required to do so, but that he was not entitled to be offered overtime. His holiday pay was fixed at the pay rate for his 39-hour week and included nothing reflecting the normal amount of overtime he had earned during the prior 12-week period. His claim that this breached regulation 16 of the WTR and article 7 of the Directive was dismissed by the ET. His appeal to the EAT failed as also did his further appeal to this court (Auld, May and Jacob LJJ).
A central question was the meaning of ‘normal working hours’ for the purposes of sections 221 to 224 of the ERA. They are defined in section 234, which, the court held, make clear that the hours of non-guaranteed overtime worked by Mr Sturge were not part of his ‘normal working hours’ for the purposes of the calculation of his holiday pay. There was, however, a dispute as to whether regulation 16 incorporated not just sections 221 to 224 of the ERA (to which it refers expressly) but also section 234 (to which it does not). It was agreed that, if regulation 16 did incorporate section 234, the appeals must fail.
The appellants’ argument was that articles 2 and 7 of the Directive required member states to ensure that a worker’s holiday pay was calculated by reference to their normal pay (a submission of notable prescience, the ECJ not having yet so decided); that regulation 16 should be purposively construed to achieve that result; that there was nothing in sections 221 to 224 of the ERA, read without section 234, to preclude that construction; and that, even if section 234 did govern sections 221 to 224 for the purposes of the ERA, it should, for variousreasons, be ignored when construing regulation 16. The advocate tto the court’s contrary argument was that the Directive was silent on there being a minimum requirement as to the level of a worker’s holiday pay; there was therefore no basis for interpreting the ERA as if section 234 did not apply to sections 220 to 224; and even if the WTR were contrary to the Directive, they could anyway not be construed in a conforming way.
Auld LJ delivered the lead judgment, with which May and Jacob LJJ agreed. He held that, in a case where overtime was involved, section 234 was an essential aid to the determination of whether or not the hours of overtime formed part of the worker’s ‘normal working hours’; and that regulation 16 did incorporate section 234 even though it did not refer to it expressly.
Auld LJ also held that there was nothing in the Directive to require the purposive interpretation for which the appellants contended. That was because article 7 left it to ‘national legislation and/or practice’ to determine the conditions of entitlement to, and granting of, a worker’s paid annual leave, which necessarily included the ‘definition of the basis upon which payment is calculated for such period of leave’ and the level of such payment. He concluded that part of his discussion with these paragraphs:
’39. … common sense also points to the conclusion that the Directive had to leave it to member states to decide how to calculate the amount of remuneration payable in respect of the absolute entitlement to four weeks’ paid annual leave. The pay systems of different employers across the European Union differ; a workable common definition would, therefore, be difficult to achieve. In the United Kingdom alone, sections 221-224 illustrate the range of issues that would need resolution, for example where pay variesaccording to the amount of work done, or time worked or where there are no normal working hours, questions as to what benefits are to be included in pay for this purpose and whether pay should be calculated at basic or enhanced overtime rates. It follows, in my view, that, unless the conditions of entitlement laid down by regulation 16, as I have construed it, are such that they can be said to negate or frustrate the very purpose of the Directive, the court must look at the regulations unassisted in this respect by the Directive.
40. In my view, there is nothing in regulation 16 on which the Marleasing [1990] ECR I-4135 principle of construction can bite, especially where, as I have concluded, the content and framework of the 1998 Regulations, when read with the 1996 Act, show that their draftsman clearly intended to apply the Act’s well established domestic definition of “a week’s pay” save in the immaterial respects for which he specifically provided in regulation 16(3). In particular, there is no basis for reading article 7 of the Directive as requiring a broad equivalence of pay for work done, namely overtime, which the employer was not bound to provide under the contract of employment, with payment on annual leave for overtime work not done at all. And, in any event, sections 221 to 224, with or without section 234, will not necessarily achieve that. As I have mentioned, section 223 is capable of producing in individual cases as “week’s pay” that may be more or less than an employee actually earned over the 12-week period.
41. Further, although the Directive was intended to have the effect of encouraging workers, for the sake of their health, to take their full leave entitlement, which they might not if their holiday pay is significantly less than their normal working pay, it could equally be said that it was not intended to encourage them to enter into contractual arrangements in which they submitted themselves to obligatory long and unhealthy working hours for 11 months of the year by the additional carrot of a level of holiday pay to match such hours when they were not actually working them. There was no evidence before the appeal tribunal or other basis upon which it could have found that employees would or might as a generality be discouraged from exercising their entitlement to paid annual leave where their weekly pay for the purpose is calculated by reference to section 234 of the Act.’
Mr Cavanagh relied upon para 40 in his submission that Bamsey binds us to hold that the WTR are not susceptible of an interpretation conforming with article 7 as explained by the CJEU. I shall return to this when summarising his submissions.
(iv) Bear Scotland Ltd v. Fulton and another
Had Bamsey come before the courts just a few years later, it would have arisen against a background in which the European landscape had changed significantly: namely, that contrary to the court’s unanimous view, article 7 in fact worked a secret magic that the Directive’s language does not betray – that member states do not have a free hand as to the basis of the calculation of holiday pay but must ensure that it at least matches a worker’s normal remuneration. That was decided by the various CJEU authorities that the CJEU cited in its judgment in Lock. Thus the premise upon which this court in Bamsey assessed the requirements of the Directive in relation to the determination of the level of holiday pay under the WTR proved to be false.
The like question then, however, arose in Bear Scotland ([2015] ICR 221). This decision lay at the heart of British Gas’s undoing before the ET and the EAT. It was a decision of the EAT, whose judgment was delivered by Langstaff J, the President, a judge with very considerable employment law experience. There were in fact two appeals before the EAT, each raising similar questions. The central issue was whether the remuneration in respect of the employees’ non-guaranteed overtime should have been (but was not) taken into account in calculating their holiday pay.
The EAT accepted that article 7 required non-guaranteed overtime to be paid during the employees’ annual leave. The next question was whether the ET had been right to find that the WTR could be interpreted in a way conforming with article 7 and so achieve that result. A material part of the EAT’s discussion of that addressed, and rejected, the employers’ argument, one disclaimed before us, that the Marleasing principle required a narrower interpretative approach than the like interpretative obligation under section 3 of the Human Rights Act 1998.
The EAT then also held that the employees’ interpretation did not go against the grain of the WTR. Langstaff J said:
’64 … First, the Working Time Regulations 1998 were specifically made to implement the Working Time Directive. It can be presumed that the intention of Parliament was to fulfil its obligation to do so fully and accurately. If, seen through a modern lens, the words do not achieve that, then to adopt a conforming interpretation is not doing violence to the intention of Parliament but instead respecting it.’
Langstaff J acknowledged that that view produced a result contrary to that of Bamsey but he said that case pre-dated the later cases in the CJEU which decided that, contrary to the court’s understanding in Bamsey, the Directive did not leave it to the member states to decide how to calculate the remuneration payable. Langstaff J continued:
’64. … Although Bamsey demonstrates what the interpretation of the 1998 Regulations should be if untrammelled by European Union law, it does not purport to identify a cardinal feature, guiding purpose or “grain” of the legislation which would preclude a different interpretation, such that it could confidently be said that Parliament had so set its face against that other view that it could not be adopted. …
66. There is nothing intrinsic to the 1998 Regulations which requires holiday pay to exclude payment for overtime which a worker has actually worked prior to holiday being taken, where the worker is contractually obliged to do the work. The essential feature of the Regulations is that holidays should be paid. That is not in issue. What is in question is, rather, the principle by which the amount of that payment is to be calculated. The obligation to construe legislation “as far as possible” to conform is a powerful one. I cannot accept that the form, nature and purpose of the Regulations makes it impossible to construe it as the claimants contend.
67. Though it is the effect of the interpretation, rather than the precise words which matters, a conforming interpretation is best expressed by amending regulation 16(3)(d) of the Working Time Regulations 1998 to insert the following italicised words, as the tribunal in Freightliner v. Neal [a third appeal before the EAT that was settled shortly before the hearing] thought appropriate, and as the Secretary of State for Business Innovation and Skills regards as permissible, namely: “(d) as if the references to sections 227 and 228 did not apply and, in the case of the entitlement under regulation 13, sections 223(3) and 234 do not apply.”‘
(vi) Discussion and conclusion
Whilst Mr Cavanagh dealt with it at the end of his submissions, I shall deal first with his submission that this court in Bamsey made a decision binding upon us that the WTR are not capable of interpretation in a manner conforming with article 7 of the Directive. If Mr Cavanagh is right, the appeal must succeed.
The EAT in Bear Scotland did not regard itself as bound by Bamsey in such respect, nor did either tribunal below in this case. Bamsey was, as I have said, decided before the first CJEU case explaining that concealed within the language of article 7 is a requirement binding on member states to ensure that holiday pay is calculated by reference to a worker’s ‘normal remuneration’. Given that circumstance, it is unsurprising that the court in Bamsey proceeded on the basis that the Directive, by the language of article 7, delegated to the member state all matters relating to the provision and calculation of holiday pay and that there was nothing in the Directive requiring the WTR to be interpreted otherwise than through a domestic lens. Auld LJ explained this in paras 34 to 42 of his judgment, under the heading ‘Construction of regulation 16 in the light of the Working Time Directive’. It is, however, said that in para 40 he identified two ratios for the court’s decision, of which one was that if, contrary to his view, article 7 did impose an EU-wide ‘normal remuneration’ requirement, the WTR could anyway not be read conformably with it.
In making that submission, Mr Cavanagh engaged in a close analysis of the four sentences of para 40, suggesting en route that the true sense of the ‘especially’ in the first sentence was ‘in any event’, a suggestion I would not be prepared to adopt. I can detect nothing in Auld LJ’s first sentence that can be read as deciding that, if the Directive means something different from the court’s understanding, an interpretation of the WTR conforming with it was not possible. The second sentence repeats Auld LJ’s conclusion that article 7 has no ‘normal remuneration’ requirement. With respect to Auld LJ, I am not entirely clear as to the full intended sense of his third sentence, namely ‘And, in any event, sections 221 to 224, with or without section 234, will not necessarily achieve that.’ I would, however, decline to conclude that included within it is a decision that an interpretation of the WTR conforming with a ‘normal remuneration’ requirement is not possible. The fourth sentence adds nothing material.
In my judgment, there is no basis on which it can be divined from the decision in Bamsey that the court was deciding that it is not possible to interpret the WTR conformably with any (if any there was, which the court did not accept) ‘normal remuneration’ requirement of article 7. Had it been the court’s intention so to decide, it would have said so positively and clearly. It did not do so, for the reason that it was not so deciding. It decided no more than that article 7 was irrelevant to the interpretative exercise before it, which was exclusively one of domestic statutory interpretation. I would reject Mr Cavanagh’s submission that Bamsey binds us to allow the appeal. In fairness to Mr Cavanagh, he advanced the submission with express moderation.
Turning to Evans, I have said that I am satisfied that it shows that, if the WTR and the provisions of the ERA they incorporate are interpreted exclusively through a domestic lens, Mr Lock is not entitled to holiday pay calculated by reference to his ‘normal remuneration’, that is by reference also to the commission he usually earns. Evans also pre-dated the first of the CJEU decisions revealing the true sense of article 7; and the question now before us is whether it is possible to interpret the WTR in a way that conforms with the article 7 requirement as so revealed. There is no dispute that Evans does not bind us to answer that question in the negative. One element of the contra legem principle referred to by the EU decisions requires us to leave Evans out of account when approaching the task of finding, if possible, a conforming interpretation: see the judgment in Dansk, para 33.
Another element of the contra legem principle reflects the acceptance by the CJEU that, when engaging in a conforming interpretation exercise, a national court may find it impossible to adopt a conforming interpretation when ‘the clear unequivocal wording of a provision of national law appears to be irreconcilable with the wording of a directive’ (see the Opinion of Advocate General Bot in Dansk, para 68). Mr Cavanagh relied on that in support of his submission that this court is faced by just such a problem. This is a case, he says, in which the WTR adopted a statutory scheme in the shape of the incorporated provisions of the ERA; and the plain meaning of the provision relevant to this case, namely section 221(2), presents an insurmountable barrier to an interpretation of the WTR conforming with article 7.
As it seems to me, if this element of the contra legem principle as explained by the EU cases is applied at anything approaching face value, it would be likely to frustrate the possibility of a conforming interpretation in many cases. For example, I find it difficult to see how the House of Lords could have decided Pickstone as it did had it applied the contra legem principle as so explained. Lord Oliver explained how it was not possible, according to ordinary domestic canons of construction, to interpret the words in question in a conforming way, but he also explained why it was nevertheless appropriate so to interpret them as appropriately modified (see [1989] 1 AC 66, at 126). Pickstone was later rationalised by Lord Rodger in Ghaidan [2004] 2 AC 557, at para 121, as one in which the House had interpreted the critical words in line with the grain of the legislation. In the same case, at paras 29 to 33, Lord Nicholls explained how a conforming interpretation for the purposes of section 3 of the Human Rights Act 1998 may require a departure from the unambiguous meaning the statute might otherwise bear, whilst also explaining how the wide scope for a conforming interpretation is circumscribed by the limits of the grain or underlying thrust of the legislation.
What emerges from Ghaidan and the summary in Vodafone 2, the latter having since been endorsed by the Supreme Court in Swift and Nolan, is that the United Kingdom has dealt with the contra legem principle in a manner that is manifestly more in line with the EU objective of conforming interpretation at member state level than might be the case by anything approaching a rigid application of the principle summarised by Advocate General Bot in Dansk. When faced with the question of whether a conforming interpretation can be adopted, the courts of the United Kingdom do not confine themselves to a consideration of the literal meaning of the language that may appear to stand in their way; they approach the task by reference to the broader considerations of whether a conforming interpretation will be in line with the grain or underlying thrust of the legislation. That is an approach that ought, I would think, to attract nothing but commendation by the CJEU.
I do not, therefore, derive assistance from Mr Cavanagh’s contra legem submissions. In my view the critical question comes down to whether the conforming interpretation of the WTR for which Mr Lock contends is or is not within the grain or underlying thrust of that legislation. If it is, I consider it ought to follow that the interpretation favoured by the tribunals below is one this court should uphold. If it is not, a conforming interpretation is not possible.
I have not found this question easy and my view on the answer has wavered. I should perhaps first clarify what it is I consider the court is concerned to interpret. It is not the provisions of sections 221 to 224 of the ERA read in isolation and apart from the WTR. Rather, it is the WTR and those provisions of the ERA that they incorporate as, in effect, in a schedule.
Mr Cavanagh’s persuasive argument that a conforming interpretation is not possible merits serious consideration. The WTR pre-dated the CJEU decisions that have explained article 7’s requirement for holiday pay to match the worker’s ‘normal remuneration’. They were enacted under a Directive whose language apparently delegated to the member state the right to determine all aspects of holiday pay, including its calculation. They did so by incorporating a suite of statutory provisions relating to the calculation of ‘a week’s pay’ dating from 1963, being provisions which in at least two identified respects (cases like Mr Lock’s and the non-guaranteed overtime cases) do not provide for holiday pay to match ‘normal remuneration’. How, in those circumstances, can it be said that the grain or underlying thrust of the WTR and the incorporated provisions of the ERA is other than one directed simply at measuring a worker’s holiday entitlement by whatever those provisions provide. If they discriminate in any respect between the pay entitlements of workers who are engaged on different terms, that may be unfair; but if that is what they provide, that is the end of the matter. How can implementing provisions conceived in the circumstances just described be construed in conformity with requirements of the Directive that were only first explained by the CJEU some eight years later?
There is, however, also another way of answering the critical question, one that I have concluded that I prefer. There is no dispute that the WTR were enacted solely and deliberately for the purpose of implementing the requirements of the Directive; and I agree with Mr Ford and Mr Tolley that the Pfeiffer presumption requires the court to presume that the United Kingdom government intended by the WTR to fulfil entirely the obligations arising under the Directive. That presumption also encompasses an intention to fulfil even those requirements of the Directive which were not apparent at the time of the enactment of the Directive, but which only became clear by later elucidation by the CJEU. Since the enactment of the WTR, the CJEU has explained the true requirements of article 7, an explanation of which the United Kingdom government could not reasonably have been aware when it enacted the WTR.
In fact, however, at least in the case of most types of worker, the WTR do provide for the ‘normal remuneration’ measure (including by reference to the commission they earn) for the purpose of calculating holiday pay. So far as counsel are aware, there are just two, apparently anomalous, exceptions to that, namely in relation to (i) workers such as Mr Lock employed on terms to which section 221(2) applies, and for whom their commission payments are not taken into account in the calculation; and (ii) workers with non-guaranteed overtime. At least as to the former class, it is by no means clear how apparent the existence of this exception was when the WTR were enacted: it was not until four years later that the point was explained by Evans.
Even given the Pfeiffer presumption, I readily accept, however, that it does not automatically and necessarily follow that a conforming interpretation of implementing domestic legislation will be possible in every case. It is, I consider, still necessary to apply an objective assessment as to whether a legislative choice has been made that is directly at odds with the requirements of the Directive. Mr Ford was, I consider, correct to accept that had the WTR expressly and unambiguously provided that a worker engaged on Mr Lock’s terms was not to have commission taken into account when calculating his holiday pay, then Mr Lock would have no case.
In my view, however, that cannot be said in relation to the WTR. Rather, I would regard their provisions as more consistent with the legislature simply not having foreseen the particular problem that was in due course to arise with the subsequent decisions of the CJEU as to the true sense of article 7. I regard the case as in line with the type of circumstances that Arden LJ was considering in the IDT Card Services case, at para 113.
This takes me to the conclusion that the WTR are properly to be regarded as in the nature of implementing provisions that, in nearly all respects, properly implement the Directive as subsequently explained; but that in two anomalous types of case (Mr Lock’s case being one) provide for a lower measure of holiday pay than article 7 in fact requires. I am not prepared to conclude that these two anomalous cases reflect a positive legislative choice deliberately directed at discriminating against the two types of worker in the calculation of their holiday pay. No one has suggested any reason for such discrimination. As a matter of objective inference, I regard it as more likely that the differential treatment inherent in the scheme of the WTR was simply not foreseen at the time they were enacted.
I have therefore concluded that this is a case in which the grain or thrust of the WTR can fairly be identified as directed at providing holiday pay for workers measured by reference to criteria required by article 7 as since explained by the CJEU; and that, in line with that grain or thrust, the court can, and should, interpret the WTR as providing that Mr Lock is also entitled to have his holiday pay calculated by reference to his normal remuneration. To do so is to do no more than to interpret the WTR as also requiring his commission earnings to be taken into account when calculating his holiday pay. So to interpret the WTR does of course require the implication into it of words necessary to make that meaning clear. But so to imply such words is not a judicial exercise amounting to the repeal or amendment of the legislation. It is rather an example of the court performing its duty to provide a conforming interpretation to legislation introduced for the purpose of implementing a Directive.
I would, therefore, conclude that the ET was correct to interpret the WTR as it did and that the EAT was correct to uphold the decision. I add that I was also not persuaded by Mr Cavanagh that so to interpret the WTR will involve any infringement of the EU principles against retroactivity or of certainty. The result is that I would dismiss British Gas’s appeal.
I add this. I have quoted the words that the ET held should be read into the WTR and the reference period that it directed should apply for determining Mr Lock’s full holiday pay entitlement (see para 26 above). In the course of the argument, there was some discussion about how a conforming interpretation of the WTR might apply to different types of case. The court was, for example, exercised by the case of the salaried banker who receives a single, large results-based annual bonus in, say, March. Is he entitled on his summer holiday to leave pay including an element referable to his bonus? And how does or ought the WTR deal with the type of worker who is employed on terms like Mr Lock’s, but who only becomes entitled to commission at the point in the year when a particular level of turnover, profit or other threshold is reached, which may mean that he receives no commission for some months of each year? Other types of case will raise other questions.
My response to questions such as these – and to others covering other situations – is that nothing in this judgment is intended to answer them. It is no part of this court’s function to do more than to deal with the instant appeal. In the case of the banker example, there may indeed be a question as to what his ‘normal remuneration’ is, and whether its calculation ought to reflect the fact of his annual bonus and, if so, how. There may also be questions as to what, in any particular case, is the appropriate reference period for the calculation of the pay. I say nothing about any of that.
This judgment is, therefore, confined to Mr Lock’s case. There was also some discussion as to whether, even recognising that, the form of wording that the ET’s judgment implied into the WTR was strictly appropriate. I agree with Mr Cavanagh that the wording was expressed too widely insofar as it refers to all types of commission, and not just to contractual ‘results-based commission’ that is the subject of Mr Lock’s case. I would, therefore, favour an appropriate amendment to the ET’s judgment that will more clearly confine it to the circumstances of his case.
Disposition
Subject to those last observations, I would dismiss the appeal.
Lady Justice Gloster:
I agree.
The Master of the Rolls:
I also agree.
DWT0895
FULL RECOMMENDATION
WTC/08/111
DETERMINATIONNO.DWT0895
(r-044809-wt-06/POB)
SECTION 28(1), ORGANISATION OF WORKING TIME ACT, 1997
MCM SECURITY LIMITED v POWER
1. Appeal against a Rights Commissioner’s Decision r-044809-wt-06/POB
BACKGROUND:
2. The Worker appealed the Rights Commissioner’s Decision to the Labour Court in accordance with Section 28(1) of the Organisation of Working Time Act, 1997 on the 31st July, 2008. The Court heard the appeal on the 3rd December, 2008, the earliest date suitable to the parties.The following is the Determination of the Court:-
DETERMINATION:
This is an appeal by SIPTU, representing Mr Tom Power, against a decision of a Rights Commissioner under the Organisation of Working Time Act 1997 (the Act) in a dispute concerning the calculation of pay for annual leave and public holidays by MCM Security Limited. While both parties relied on provision of the Employment Regulation Order for the Security Industry the matter must be decided by the Court on the provisions of the Act under which it is referred and the statutory regulation made thereunder.
Facts
The Claimant works nine hours per day over five days. Hence his regular working hours are 45 per week. It is agreed that the Claimant is paid six hours overtime per week. The Claimant contends that his normal working hours are nine per day, Monday to Thursday and that he works three standard hours on Friday with six hours overtime on that day. The Respondent contends that the Claimant is paid for eight hours per day at standard time and one hour at the overtime rate of time plus one quarter.
The Claimant contends that he should receive nine hours pay in respect of a public holiday and 45 hours pay in respect of each week of annual leave.
The Regulations
The calculation of pay for annual leave and public holidays is governed by the Organisation of Working Time (Determination of Pay) Regulations 1997, S.I. 475 of 1997 (the Regulations). Regulation 3(2) prescribes the formula for the calculation of the rate payable in respect of annual leave in the case of an employee whose pay is calculated by reference to a fixed hourly rate. It provides as follows: –
(2) If the employee concerned’s pay is calculated wholly by reference to a time rate or a fixed rate or salary or any other rate that does not vary in relation to the work done by him or her, the normal weekly rate of his or her pay, for the purposes of the relevant sections, shall be the sum (including any regular bonus or allowance the amount of which does not vary in relation to the work done by the employee but excluding any pay for overtime) that is paid in respect of the normal weekly working hours last worked by the employee before the annual leave (or the portion thereof concerned) commences or, as the case may be, the cesser of employment occurs.
The rate payable in respect of a public holiday is calculated by the application of a formula which is prescribed by Regulation 5. Regulation 5(1)(a) applies where a public holiday falls on a day on which the employee concerned normally works. This is the applicable Regulation in the case of the Claimant. It provides:-
5. (1) If the employee concerned works or is normally required to work during any part of the day which is a public holiday, then—
( a ) in case the employee’s pay is calculated wholly by reference to any of the matters referred to in Regulation 3(2) of these Regulations, the relevant rate in respect of that public holiday shall be the sum that is equal to the sum (including any regular bonus or allowance the amount of which does not vary in relation to the work done by the employee but excluding any pay for overtime) paid to the employee in respect of the normal Daily hours last worked by him or her before that public holiday,
Conclusion
It is clear from the wording of both Regulation 3(2) and Regulation 5(1) that payment in respect of overtime is not reckonable in the calculation of pay for either annual leave and public holidays. The Union accepts that the Claimant’s normal pay is made up of 39 hours pay at the standard rate prescribed by the ERO for the sector and six hours overtime pay at the premium rate. It is clear that this overtime element is not reckonable in applying the formula prescribed by Regulation 3(2). It follows that the Claimant’s claim for the inclusion of this overtime in the calculation of the rate at which he is paid for annual leave cannot succeed in the present proceedings.
In relation to the claim for the payment of nine hours pay in respect of public holidays, the case turns on whether the Claimant’s contract of employment, properly construed, provides that his standard working day is one of eight hours with one hour overtime or nine hours, Monday to Thursday with three hours of standard time and six hours overtime on Friday. There was disagreement between the parties as to whether the Claimants ever received a written contract of employment. In any event no written contract was opened to the Court.
It is accepted that the Claimant’s conditions of employment are governed by the Employment Regulation Order for the Security Industry. It is clear that this instrument provides that standard weekly working hours in the sector are 39. This is in line with established practice for day workers in industry generally. Where day workers work a 39 hour week this is normally broken down as five eight hour days with any hours worked in excess of eight being regarded as overtime. It is noted that the ERO provides that overtime premium is only payable where 39 hours are worked in a week. This is not an uncommon provision in industry generally but is not generally construed as meaning that only hours after 39 have been worked constitute overtime. It simply means that the premium which overtime attracts is conditional upon the full 39 hours having been worked.
The Court is satisfied that the correct construction of the Claimant’s working pattern is that he has a working day comprising eight hours of standard time and one hour of overtime Monday to Friday and two hours overtime on Friday. Thus on the application of Regulation 5(1)(a) of the Regulations the pay in respect of this overtime is not reckonable in calculating the Claimant’s pay for a public holiday.
Employment Regulation Order.
The Court notes that Section 11 – Conditions of Employment of the Employment Regulation Order for the Security Industry, at paragraph (i) as follows: –
“Regular rostered overtime is to be included for the purpose of holiday pay. Regular overtime will be averaged over the previous 13 weeks worked prior to the taking of annual leave subject to a maximum of 48 hours per week”.
The Rights Commissioner in his decision took account of this provision and held that the Claimant is entitled to the inclusion of overtime in his pay for annual leave but not in public holidays.
The effect of an ERO is to incorporate into the individual contract of employment of workers to whom it relates the basic terms which the Order prescribes. This is the clear import of s.44 of the Industrial Relations Act 1946. Thus, it would appear, the Claimant has a contractual entitlement to the inclusion of regular rostered overtime in his holiday pay. On the facts of this case there could be little doubt that the overtime at issue is both regular and rostered.
However the case is before the Court pursuant to the Act of 1997 and must be decided by applying the provision of that Act. In that regard it is well settled that a Rights Commissioner and this Court can only uphold a contractual condition of employment in a case referred under the appropriate statutory provision. The Organisation of Working Time Act 1997 is not the appropriate statutory provision for the interpretation or enforcement of an individual contractual term or an ERO.
Conclusion
For the reasons referred to above the Court is satisfied that the Respondent did not contravene the Organisation of Working Time Act 1997 in relation to the Claimant. The decision of the Rights Commissioner is set aside and substituted with this Determination.
Signed on behalf of the Labour Court
Kevin Duffy
18th December, 2008______________________
JFChairman