England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE EMPLOYMENT APPEAL TRIBUNAL

		Royal Courts of Justice The Strand London
		Monday 18 June 2001

Monday 18 June 2001

1. THE LORD CHIEF JUSTICE: This is an appeal against the decision of the Employment Appeal Tribunal following a judgment delivered on 28 June 2000 under the chairmanship of Charles J. The Employment Appeal Tribunal reversed the decision of the Employment Tribunal sitting at Birmingham on 6 January 1999. The Employment Tribunal had held that the employers had made unlawful deductions from their employees' wages.

The Background

2. The background to the decision can be shortly summarised as follows. The employees were salaried staff employed by Dunlop Tyres Ltd ("Dunlop") at the Fort Dunlop premises in Birmingham. They were staff who were engaged in supporting the involvement of Dunlop in the motor sporting world. For this reason they had often to work on national holidays ("statutory holidays"). Dunlop had other sites: Patricroft in Manchester, and Washington in Tyne and Wear.
3. For about thirty years prior to Easter 1998, salaried staff at Fort Dunlop who had worked on statutory holidays had been paid both an overtime premium consisting of their normal hourly wage, plus 100 per cent uplift. In addition, they had been allowed another day off work in lieu of the statutory holiday on which they worked. This led in effect to their receiving for a statutory holiday on which they worked the equivalent of 300 per cent of what would normally be their hourly rate.
4. As a result of the practices with regard to payment for overtime being examined, Dunlop learnt that not all employees who worked on a statutory holiday were being paid in that way. Dunlop came to the conclusion that the practice which had existed for about thirty years in relation to the payment for work of salaried staff on statutory holidays had been wrong. In consequence for the statutory holidays over Easter 1998 they paid to their employees who worked within this category an extra payment limited to 100 per cent of their normal hourly rate, so that they received double time as opposed to treble time. Although the matter as it was framed before the Employment Tribunal was whether an unlawful deduction had been made, the issue between the two sides was whose interpretation of the contract was correct. The employers said that their interpretation was correct and the Employment Tribunal disagreed with them. The Employment Appeal Tribunal, however, agreed with the employees. So far as the employees were concerned, the position was the opposite. They were successful before the Employment Tribunal, but unsuccessful before the Employment Appeal Tribunal. As a consequence of that difference in view between the two statutory bodies who have authority for determining issues of this sort, the matter comes before this court for decision as to which view is right.

The Contract

5. The parties agree that the most important starting point is the relevant terms of the agreement. Dunlop, in addition to entering into an individual contract with each employee, had common terms and conditions of employment which are incorporated into each individual employee's contract. The common terms and conditions of employment have changed from time to time. The principal terms are those which were agreed in 1992, but in the following years there have been revisions. The relevant terms and conditions for our purposes are those that were agreed in 1996. However, for the purposes of the appeal I start by referring to the 1992 terms which Charles J set out in the judgment of the Employment Appeal Tribunal:

"4. Hours of work

A. All employees are employed on a contractual 37.50 hours per week, except those who have a contract specifying different hours.

F. Overtime hours are hours in excess of the contractual working hours usually worked before the start of a normal shift, hours after the end of a normal shift and extra shifts worked. Overtime premium only becomes payable after the basic hours for the day have been worked.

5. Common Pay Structures

A. The common salary structure will apply to all employees currently in the graded pay schemes and within the bargaining groups at Birmingham, Patricroft and Washington.

E. All employees except Rubberworkers at Fort Dunlop and Washington, who are paid weekly, are paid for a calendar month by transfer to their nominated Bank or Building Society. Calculation of earnings will be made for each month. Monthly salary payment will be on the 15th of each month other than where the 15th falls on a Saturday, Sunday or Statutory Holiday, when payments will be made on the last normal working/banking day prior to the 15th.

F. Gross pay will include -- basic salary, shift premium, incentive earnings, overtime payments, conditions allowances and any other Company payments.

G. Monthly pay statements will be available to employees not later than the 14th of the month detailing gross pay, deductions and net pay for that month. An Engineer, except those on the 21 shift system, will receive a weekly statement giving details of hours worked. Rubberworkers at Fort Dunlop and Washington will continue to receive a weekly work and hour statement.

H. Overpayment or underpayment in gross salary will be corrected in retrospect or at the time of the employee leaving or transferring. Arrangements for repayment will be agreed with the employee.

J. Calculations of:

(1)one day's pay is annual salary divided by 260 days,

(2)one week's pay is annual salary divided by 52 weeks,

(3)the hourly rate is annual salary divided by 52 weeks and divided by contractual hours.

6. Overtime Working and Premiums

Overtime Working

A. It is the Company intention to operate within the employee contractual/normal week. In some circumstances, it is recognised that a certain amount of overtime working may be required to maintain Company operating efficiencies and meet the needs of our customers. There will be some jobs, eg Fire and Security where contractual overtime hours will e necessary and these will be specified in the contract of employment for the employee concerned.

B. All overtime for those eligible for payment must be paid for at the appropriate premium.

Overtime Premiums

C. Overtime premium is paid to those eligible employees for hours worked which are in excess of their contractual/normal shift hours (see appendices).

Employee hourly

Rate plus

Normal starting time Monday to end of Friday afternoon shift25%

End of Friday afternoon shift to end of Saturday afternoon shift50%

End of Saturday afternoon shift to normal starting time Monday 100%

Statutory/Bank Holidays 100%

Where an employee starts an overtime shift at 2100 hours

1.On Friday night into Saturday 50% premium to be paid for all overtime hours.

2.On Saturday night into Sunday 100% premium to be paid for all overtime hours.

3.On Sunday night into Monday 100% premium to be paid for all overtime hours.

9. Statutory Holidays

A. These are eight days per annum, usually:

New Years DayGood Friday

Easter MondayMay Day

Spring Bank HolidayLate Summer Bank Holiday

Christmas DayBoxing Day

Work on Statutory Holidays

E. An employee who works on a Statutory Holiday is entitled to an overtime premium at the agreed rate for the day and will be granted time off in lieu for the Statutory Holiday.

Statutory Holiday Payment

F. The pay level will be the same as for a normal annual holiday.

G. An employee will receive payment only if the Statutory Holiday (or substituted day) is a normal rostered working day."

The Contentions of the Parties

6. Clause 6 of the terms of the agreement deals with overtime payments, work on statutory holidays and statutory holiday payments. Here there may be a difference in practice which is relevant to the issues which are before us if we are dealing with overtime situations (accurately so-called) and the statutory holidays. This is because with overtime the position is that normally an employee's payment for overtime determines the total pay that employee will receive if he works on an occasion when he is not otherwise required to work. However, that does not apply to statutory holidays which include New Year's Day, Christmas Day holidays. If an employee is paid on an annual, monthly or weekly basis his pay takes into account the fact that for certain periods during the year, in particular on statutory holidays, he will receive holidays with pay. If he does not work on those occasions, he is still remunerated.
7. Paragraph J of the Common Pay Structure states that one day's pay is an annual salary divided by 260 days. The figure of 260 refers to the number of days the ordinary employee will work during the course of the year if he takes no holidays other than Saturday and Sunday: 52 weeks working five days a week. The same paragraph states that the hourly rate is an annual salary divided by 52 weeks and divided by the contractual hours. There were agreed contractual hours, but the hourly rate so defined makes no allowance for the fact that, quite apart from the statutory holidays for which the employee will receive a notional payment, the employee will be entitled annually to a certain number of weeks' holiday with pay. He will receive that pay without actually working. In calculating the hourly rate, no allowance is made because it is assumed for the purpose of the calculation that the employee will work for 52 weeks. In fact, he will not work every week of the 52 weeks. With regard to statutory holidays, the employee will receive a notional payment on the days referred to. The important words are that the employee shall receive overtime premiums consisting of "employee hourly rate plus" the appropriate percentage. This could have a different meaning for statutory holidays from that which it has where it refers to overtime which is paid to an employee who has performed the hours of work required of him before he qualifies for overtime.
8. It is important to have in mind the precise wording of clause 9E which provides that an employee who works on a statutory holiday is entitled, first, to an overtime premium at the agreed rate for the day; and, secondly, will be granted time off in lieu for the statutory holiday. The position is clear in relation to time off in lieu for the statutory holiday. If an employee works on Christmas Day, for example, he is entitled to receive whatever is the appropriate premium. In addition, he is entitled to have a day off work, and for that day he will receive his normal hourly rate (the same hourly rate he would have received if he had worked).
9. It is because of that provision that the difficulty arises. What is said by the employers is this. If an employee does not work on Christmas Day, he receives a salary for that day, but that is his entitlement under his contract for a statutory holiday. However, if he works, then he is entitled to have a higher rate of pay, but the higher rate of pay should take into account the fact that the employee is already receiving a notional rate of pay for that day. He does not lose anything by that because later on he can take another day's holiday in lieu of the holiday on Christmas Day, for which he will receive his normal pay. Only clause 9E applies, not clause 9F.
10. However, the employee takes the view that that is not the correct interpretation. He says the effect of what was agreed was that for the statutory holiday he was entitled to be paid. The agreement provides that he is entitled to an overtime premium on top of that pay. The agreement is clear in defining what is that overtime payment, namely an employee's hourly rate plus 100 per cent: that is double time. Therefore the employee receives 300 per cent of the normal pay. Furthermore, he says that the agreement is quite specific: he is also liable to a subsequent day in lieu for the statutory holiday. The employee contends he is entitled to the benefit of clause 9E and 9F.
11. It might be said that this is a very generous interpretation of the employee's entitlement. However, Mr Hand QC, who appears on behalf of the appellant employees, points out that for working on a Sunday any employee is clearly entitled to double-time. He submits that if an employee is entitled to double time on a Sunday, then it is not unreasonable to say that if he chooses to work, for example, on Christmas Day, he should receive more than that. He submits that, prior to the discovery of the alleged mistake, the 30-year practice confirms that there is nothing unreasonable about what is involved. He submits that the fact that this continued for that period of time shows, first, that that is what was intended by the parties, and, secondly, that it was reasonable.
12. In addition, Mr Hand refers to one page of an earlier document which was discovered and which was adduced in evidence. It is headed "Staff Working Conditions Schedule: Payment". He refers to the terms of paragraph 3.5(d) which read as follows:

"Work on statutory or customary holidays

(i)Staff entitled to overtime payments who work on a statutory or customary holiday will be granted time off in lieu and, in addition, will be paid an overtime allowance of one and two thirds times the hourly rate for all hours worked on a day of statutory holiday.

(ii)If such time off cannot be allowed, within four weeks, then payment of the hourly rate will be made in addition to the overtime allowance and the normal salary."

13. Mr Hand submits that that document sets out explicitly what he contends is the true position with regard to the 1992 common terms of employment and the subsequent additions of those common terms. The language, he submits, of the paragraph which is contained in the document of 1983 strongly supports the appellants' contentions on this appeal. Caution has to be exercised in regard to the document of August 1983, but for my part I consider that that document sets out explicitly what the employees contend is the correct position. It provides for the payment of triple time. Mr David Bean QC, on behalf of the employers, did not contend that the 1983 document has any different effect, though with justification he argues that the very fact that the terms of the 1992 agreement are different from those of the 1983 document indicates that something different was intended.

The Tribunals' Decisions

14. The Employment Tribunal's decision was short and succinct, and was none the worse for that. Their approach to this document was, although they regarded the payment as generous, that the employees' interpretation was the correct one. They took the view that that interpretation accorded with the meaning given by the Oxford English Dictionary to the word "premium", and that in its context the use of the word "premium" meant that the appropriate 100 per cent uplift and normal pay which were to be in addition to the payment which the employee would receive if he or she did not work.
15. The approach of the Employment Appeal Tribunal was more elaborate. They considered that the practice which had existed for over 30 years provided no assistance in coming to a conclusion in this particular case. The reason that they took that view was because the practice had not been universally applied in regard to their employees at the three sites to which I have referred. In particular, in Washington the position was that, whereas staff were paid in the way which the appellants contend is appropriate, other employees, namely rubberworkers and engineers, were not paid in that manner but were paid in the manner which the employees regard as correct. Furthermore, the same was true of the rubberworkers who were employed at Fort Dunlop. The Employment Appeal Tribunal said that there was therefore no inconsistency in the approach which was adopted in relation to the workers who were subject to the same common terms of employment. Therefore the practice to which reference has been made was of no assistance. In relation to the argument advanced on behalf of the employees that there was a custom and practice of the parties prior to the agreement which affected the construction of the agreement, the Employment Tribunal came to a different conclusion from that for which the employees contended.
16. Having come to the conclusion that the employees were not entitled to rely upon the practice, the Employment Appeal Tribunal concluded that if true weight was given to the use of the phrase "in lieu of", that made it clear that the employees were not entitled to be paid overtime premium in a manner which would result their receiving triple time pay for statutory holidays upon which they worked.

Conclusion

17. I take the view that the relevant standard terms of the agreement are truly ambiguous. I can see powerful arguments for saying that the employees' approach is correct. I can also see the force of the submissions which are advanced on behalf of the employers. I would find it difficult to give preference to either interpretation. In such a situation it is open to the court to look at the practice adopted by the parties and, indeed, in this context to attach considerable importance to the practice.
18. The standard terms of employment are terms which are common to a great many individual contracts of employment. In resolving the appeal of the appellants it is, in my judgment important, not to forget that fact. Each employee is entitled to rely on the terms of his contract of employment. The date on which each individual commenced his employment with Dunlop differed. They stretch over a period back to the early 1960s. They were an identifiable group of employees who entered into contracts of employment (and in the majority of cases successive contracts of employment), each of which was against the background that if they chose to work (which they were not contractually obliged to do) on statutory holidays, they received what the agreement records as "an employee hourly rate plus the appropriate percentage" and, in addition, they were to be granted time off in lieu for statutory holidays. Had they asked what that meant, they would have been told that it meant that they would receive triple time for the hours that they worked, as had happened in the past. They could make their decision as to whether to work or not, confident that this was the well-established practice in relation to employees of their category at the place at which they worked. They are entitled to contend the fact that a different practice is adopted for different employees does not prevent them from relying on what happened to the staff.
19. Where the language of a contract of employment is ambiguous, that practice is self-evidently powerful evidence of the parties' intentions to which the court can turn in order to resolve the ambiguity. A contract can be brought to an end and new terms agreed, but until that is done the practice indicates the proper interpretation of the terms of the contract.
20. The employers made it clear, once they discovered that there might be a mistake, what they considered to be the position. But, nonetheless, the fact of the matter is that they could not change the terms of an existing contact unless there was an agreed variation.
21. The justification for looking at what happened can be put against the background circumstances in which the contract was entered into. The approach is now well recognised as a result of a series of decisions. The decisions are in a different context from that which we are considering here, but nonetheless they reflect the proper approach to be adopted. First, in Reardon Smith Line Ltd and Yngvar Hansen-Tangen and Sanko Steamship Co (HL) [1976] 1 WLR 989, I refer in particular to the well-known passages in Lord Wilberforce's speech beginning at pages 995-996. Second, in James Miller and Partners Ltd and Whitworth Street Estates (Manchester) Ltd (HL) [1970] AC 583, I refer to the speech of Lord Reid at page 603 where he says:

"I must say that I had thought that it is now well settled that it is not legitimate to use as an aid in the construction of the contract anything which the parties said or did after it was made. Otherwise one might have the result that a contract meant one thing the day it was signed, but by reason of subsequent events meant something different a month or a year later."

22. I fully accept the correctness and the obvious good sense of those words. Although the Employment Appeal Tribunal applied the same approach to that indicated by Lord Reid in that case to the circumstances that exist here, it is important, in my judgment, to note that in looking at the practice before the contract was entered into and noting that it did not change after the contract was made, that does not offend what Lord Reid said. This is not to suggest that the contract meant one thing on one day and another thing on a different day. The approach I have adopted recognises that it is not wrong to look at that practice beforehand because something different happens subsequent to the contract. If the situation was the obverse of what happened here, namely that the position altered after 1992 when the new common terms employment were agreed, clearly the fact that the practice changed would mean that it provided no evidence to assist the employees. It would merely indicate the fact that a new agreement had been entered into and therefore the previous practice was not likely to be relevant. However, where there is a clearly established practice which continues before and after a contract is made, the evidence of what happened before becomes relevant in determining whether any change in the position has been made. If there is (as I believe there was here) real ambiguity as to the meaning of the contract, the absence of any change of practice would be a clear indication that the parties by their conduct which as part of the background circumstances against which the contract should be interpreted, intended no change in the contractual terms.
23. Accordingly, for the reasons I have given, I would resolve the ambiguity which exists, in my judgment, in the terms which we have been considering by concluding that the interpretation placed upon the contract by the appellant employees is correct and that which was placed upon the terms by the Employment Appeal Tribunal is incorrect. Accordingly I would allow the appeal from the decision of the Employment Appeal Tribunal and restore the decision of the Employment Tribunal.
24. LORD JUSTICE TUCKEY: I agree. Both parties to this appeal agree that its outcome depends upon how the common terms to which Lord Woolf has referred should be construed. I think this boils down to asking what the words "employee hourly rate" mean in relation to statutory bank holidays in clause 6C. There is no difficulty in seeing what they mean in relation to conventional overtime because in such a case the employee actually works extra hours, in which case he will be paid his hourly rate plus the premium. But on statutory bank holidays the employee is entitled to be paid without working. If he works, the contract says he is entitled to be paid a premium of 100 per cent. But 100 per cent extra to what?
25. The Employment Appeal Tribunal's solution involves saying that clause 9E of the terms has the effect of transferring the right to be paid for not working on a statutory bank holiday to the day off in lieu. So work done on the statutory holiday is to be treated in the same way as conventional overtime. In other words, the employee is only entitled to double time. I accept that these provisions can be construed in this way, even though they do not say so in terms.
26. Equally, it seems to me that they can be construed literally as the Employment Tribunal did by saying that the extra payment was the employee's hourly rate, plus 100 per cent, ignoring the fact that payment for the statutory bank holiday in question was already included in the annual salary paid to the employee. In other words, the employee is entitled to triple time.
27. On this analysis the terms are ambiguous. I would resolve this ambiguity in favour of the employees for the reasons given by Lord Woolf.
28. LADY JUSTICE ARDEN: I agree with both judgments and that the appeal should be allowed. The court should not of course seek out ambiguities in contracts whose meaning is clear. However, I am satisfied that in this case there is an ambiguity in the appellants' contracts of employment as to whether they are entitled to receive a statutory holiday payment under clause 9F as well as the overtime premium of hourly rate plus 100 per cent and paid time off in lieu.The evidence shows that there was a practice, which existed for many years prior to 1992 and which has continued since 1992, to make payments of salary on the basis contended for by the appellants. The fact that that practice has continued since 1992 confirms the existence of the practice at the date when the common terms were negotiated and at the time of entry into the contracts of employment of the appellants. This practice is clearly a relevant matter and part of the factual matrix against which the contracts of the appellants should be construed.
29. It has not been suggested that any of the appellants worked on days which were not normal rostered days for them. If they had done so, they would not have received any normal statutory holiday payment and different considerations might have arisen. Nor has any distinction been drawn between the appellants by reason of the fact that the appellants became employees of the respondent both before and after 1992.
30. It was argued before the Employment Tribunal that the respondent could seek to change the terms on which overtime was paid. That argument was rejected by the Employment Tribunal, and it has not been the object of submissions in this court.
ORDER: Appeal allowed with costs; permission to appeal refused.