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 Strand, London, WC2A 2LL Tuesday 26th February 2002

Lord Justice Mummery : This is the judgment of the court.

The Problem

1. This appeal raises a difficult question on the extent of a woman's entitlement to statutory maternity pay under Part XII of the Social Security Contributions and Benefits Act 1992 (the 1992 Act) and the Statutory Maternity Pay (General) Regulations 1986 (SI No. 1960), as amended, (the 1986 Regulations). The provisions of domestic law fall to be considered in the light of the judgment of the European Court of Justice in Gillespie v. Northern Health and Social Services Board [1996] ECR 1-475 (Gillespie) on the interpretation of Article 119 of the Treaty of Rome. The particular problem concerns the effect, if any, on the calculation of statutory maternity pay of a pay increase granted to a woman before the start of her maternity leave, when the increase has not been back-dated to the relevant reference period selected by the 1992 Act and the 1986 Regulations. The reference period is prescribed in order to fix the level of a woman's "normal weekly earnings" for use in calculating the amount of maternity benefit payable. An amendment to Regulation 21 of the Regulations was made in 1996 by the Statutory Maternity Pay (General) Amendment Regulations (SI No 1335) purporting to give effect to Gillespie in domestic law. It was sought to achieve this objective by inserting the following paragraph with effect from 12 June 1996-

"(7) In any case where a woman receives a back-dated pay increase which includes a sum in respect of a relevant period, normal weekly earnings shall be calculated as if such a sum was paid in that relevant period even though received after that period."

2. The particular issue in Mrs Michelle Alabaster's case is whether the calculation of statutory and contractual payments, to which she is entitled while on maternity leave, must reflect the increase in her salary, which occurred shortly before she started her maternity leave. In the Employment Tribunal and in the Employment Appeal Tribunal Mrs Alabaster succeeded in her contention that the failure to reflect that increase is a breach of Article 141 (formerly Article 119) of the Treaty, as interpreted by the Court of Justice in Gillespie. That ruling is challenged in this court on a cross appeal by the Secretary of State. On her appeal, which is supported by the Equal Opportunities Commission, Mrs Alabaster challenges the rulings of the Employment Tribunal and the Appeal Tribunal denying her an effective remedy for the infringement of her equal pay rights under EC Law. Woolwich, although a party, adopts a neutral stance and is willing for this case to be used as a vehicle for a wider debate between the Equal Opportunities Commission and the Secretary of State. As employer Woolwich bears the administrative costs involved, but is entitled to be re-imbursed for the bulk of the statutory maternity pay.
3. The arguments in this court have identified a new issue, which was not discussed in the decisions of the tribunals below, namely whether it is necessary to make a reference to the Court of Justice of questions of the interpretation of Article 141 and of Gillespie in order to enable judgment to be given on Mrs Alabaster's claims.

Factual Background

4. Mrs Alabaster was employed by Woolwich PLC (formerly the Woolwich Building Society) as an administrator from 7 December 1987 to 23 August 1996. In May 1995 she became pregnant. She complied with the statutory requirements for giving Woolwich appropriate notices of her pregnancy, of the start of maternity leave, of the expected week of confinement (11 February 1996) and of her intention to return to work.
5. During the period of eight weeks from 1 September 1995 to 31 October 1995, that being the relevant reference period prescribed by the combined effect of section 166 (1) and (2) and section 171 (4) and (5) of the 1992 Act and Regulation 21 of the 1986 Regulations for the calculation of her "normal weekly earnings", her total salary was £11,619 per annum. On 12 December 1995, while she was still at work, her total annual salary was increased to £12,801 with effect from 1 December 1995. As the increase was not backdated to a pay day within the relevant reference period, it did not fall to be taken into account in the calculation of her "normal weekly earnings" in accordance with Regulation 21 of the 1986 Regulations. So the pay increase was not reflected in the higher rate earnings-related maternity pay, which began after she started her maternity leave on 8 January 1996. During the first ten weeks (six weeks of statutory maternity pay, plus four weeks of contractual maternity pay) she received 90% of her "normal weekly earnings" in the reference period. If the increase in salary had been taken into account, she would have received an additional £204.53 during the first ten weeks of her leave i.e. to 16 March 1996. Thereafter she received a flat rate sum.
6. Her baby was born on 2 February 1996. Mrs Alabaster later decided not to return to work. Her employment terminated on 23 August 1996, the date on which she would have been entitled to return to work (29 weeks after the beginning of the actual week of confinement).

Proceedings

7. On 21 January 1997 Mrs Alabaster presented a complaint to the Employment Tribunal contending that the failure to reflect the salary increase in her maternity pay constituted discrimination against her on the ground of her sex contrary to the Equal Pay Act 1970 (the 1970 Act) and Article 119 (since replaced by, and hereinafter referred to as, Article 141) of the Treaty. No male comparator was identified by her in her Originating Application. On 9 June 1997 she amended her application by adding a complaint that, contrary to section 13 of the Employment Rights Act 1996 (the 1996 Act), deductions were deemed to have been made from her maternity pay (which is included in the definition of "wages" in section 27 (1) (c) of the 1996 Act) during the first ten weeks of her leave. The time limit for making such a claim is three months from the date of the last alleged deduction: see section 23 (2) and (3) of the 1996 Act.
8. On 10 March 1999 the Employment Tribunal sent to the parties the Extended Reasons for deciding to dismiss her complaint, despite having held that her claim under Article 141 was well founded.
9. On 7 April 2000 the Employment Appeal Tribunal dismissed her appeal, holding that there was no error of law in the decision of the Employment Tribunal on the question of jurisdiction, but granted permission to appeal to this court. The judgment is reported in [2000] ICR 1037. The Secretary of State cross appeals against the ruling that there has been a breach of Article 141, which, it was held, entitled a woman on maternity leave to the benefit of a pay increase, whether back-dated or not, taking effect at any time between the start of the relevant reference period and the end of her maternity leave. The consequence of that ruling was that Regulation 21 (7) failed fully to implement the decision in Gillespie. That is a matter of legitimate concern to the Secretary of State, even though the facts of this case pre-date the amendment and are not directly affected by it.

The Issues

10. There are two main issues:

i) Should the calculation of the higher rate earnings-related maternity pay have taken into account the increase in pay which occurred after the expiration of the reference period prescribed in the 1986 Regulations? The resolution of this issue turns on the direct effect of Article 141 of the Treaty, as interpreted by the Court of Justice in Gillespie.

ii) If the answer to (i) is in the negative, no further issue arises. But, if the answer to (i) is in the affirmative, is Mrs Alabaster entitled to a remedy in the Employment Tribunal proceedings? The resolution of this issue turns on the provisions of domestic law in the 1970 Act and the 1996 Act, subject to any paramount provisions of Community Law, including Article 141 and the Equal Treatment Directive 75/117/EEC, affecting the interpretation and applicability of domestic law in relation to the enforcement of EC equal pay rights.

The Equal Pay Issue: Gillespie.

11. The claimants in Gillespie were women in receipt of earnings-related maternity pay under a contractual scheme. The payments were based on earnings during a specified preceding reference period. The scheme did not provide for the adjustment of maternity pay to reflect a backdated pay increase. The Court of Justice held that maternity pay was "pay" within the meaning of Article 141 (see paragraph 14 of the judgment), but rejected the contention that women on maternity leave, who were in a specially protected position not comparable either with that of a man or with that of a woman actually at work, were entitled to continue to receive full pay during maternity leave (see paragraphs 15 to 20 of the judgment.) The Court of Justice went on, however, to hold that they were entitled to the benefit of the backdated pay rise. The Court held that:

"21. As to the question whether a woman on maternity leave should receive a pay rise awarded before or during that period, the answer must be "Yes".

22. The benefit paid during maternity leave is equivalent to a weekly payment calculated on the basis of the average pay received by the worker at the time when she was actually working and which was paid to her week by week, just like any other worker. The principle of non-discrimination therefore requires that a woman who is still linked to her employer by a contract of employment or by an employment relationship during maternity leave must, like any other worker, benefit from any pay rise, even if backdated, which is awarded between the beginning of the period covered by reference pay and the end of maternity leave. To deny such an increase to a woman on maternity leave would discriminate against her purely in her capacity as a worker since, had she not been pregnant, she would have received the pay rise."

12. Mrs Alabaster asserts, and the tribunals below agreed, that the effect of this ruling was to entitle her to the benefit of the pay increase, even though it was only back-dated to 1 December 1995, and not, it should be noted, to a date within the prior reference period. The basis of her case is that her pregnancy and her consequent absence from work on maternity leave was the only reason for her not receiving the direct benefit of the pay increase during that period; and that failure to reflect the pay increase in her maternity pay constituted "automatic" unlawful discrimination on the ground of sex in the context of equal pay, without the need for her to demonstrate that she had been treated less favourably than a male comparator. This argument invokes the general principles of sex discrimination law laid down by the Court of Justice in Webb v. Air Cargo (UK) Limited [1994] ICR 770 (and applied by the House of Lords in [1995] ICR 1021) and, more specifically, in Gillespie in relation to the calculation of maternity pay in the case of back-dated pay increases. Article 141 imposes an obligation on employers to observe the principle of non-discrimination in relation to pay and to increases in pay and to ensure that the increases are taken into account in the calculation and adjustment of maternity pay. It is argued that the principle of non-discrimination in Gillespie is clear and unambiguous and that it is not restricted to pay rises back-dated into the reference period. It applies to any pay rise taking effect before the woman goes on maternity leave or even during the period when she is on maternity leave and in receipt of earnings-related maternity pay. One consequence of Mrs Alabaster's argument is that the amendment to Regulation 21(7) of the 1986 Regulations (which was made after the commencement after the relevant events and so does not directly apply to this case) fails to achieve its purpose of giving full effect to the ruling in Gillespie. Under Regulation 21(7) adjustment of maternity pay on account of pay increases is, as noted earlier, limited to cases (like Gillespie) in which the pay increase is back-dated to a date falling within the reference period.
13. The Secretary of State challenges the correctness of Mrs Alabaster's interpretation of Gillespie and emphasises the general importance of the point in relation to government proposals to legislate for paternity and adoption leave and pay, and to mirror, where possible, the existing provisions for maternity leave and pay. He argues that Mrs Alabaster's claim is based on an over literal reading of the judgment in Gillespie; that it disregards the context in which the Court of Justice made its ruling on the impact of pay increases on maternity pay; and that it is not based on a proper appreciation of the principle of non-discrimination in matters of pay. It is submitted that Gillespie was a case in which the pay rise was back-dated to the reference period and that, contrary to the ruling by the Employment Tribunal and the Appeal Tribunal, it did not decide that a person in the position of Mrs Alabaster is entitled to have a pay rise, which was not back-dated and operated outside the reference period, reflected in the calculation of statutory maternity pay.
14. Three points were emphasised by the Secretary of State. First, as to the terms of the ruling in Gillespie, it is contended that the use of the phrase "even if backdated" in paragraph 22 of the judgment cited earlier does not mean that the ruling is intended to cover all pay rises up to the end of the period of maternity leave, whether back-dated or not. The emphasis indicated in that phrase was that the claimants were entitled to have this particular pay increase reflected in the maternity pay, even though it was backdated. The Court was not addressing a case of the kind where, as here, the backdating of the increase in pay does not affect the calculation of the reference period pay.
15. Secondly, as to context, the crucial feature of Gillespie, which is absent from this case, was that the pay increase was backdated to cover the reference period.
16. Thirdly, the principle of non-discrimination in pay does not require that a woman on maternity leave should receive the benefit of a pay increase, which operates only outside the reference period. The operation of pay increases outside the reference period would give rise to questions not addressed in the judgment in Gillespie, to the creation of considerable legal uncertainty and to the proliferation of serious practical complications and difficulties : such as whether other factors operating outside that period (e.g. reductions in hours of work, and changes in rates of pay and pay structure) would impact on the calculation of maternity pay; or how, if at all, pay increases and bonuses not covering the reference period would affect the calculation of the earnings-related maternity pay and the flat rate payments made during maternity leave after the expiration of the initial earnings-related period; and the extent to which it might be necessary to re-write the reference period which forms the foundation of the relevant calculations.
17. There is substantial merit in the Secretary of State's submissions on the limited scope of Gillespie. In those circumstances it is impossible to state with confidence that Gillespie applies to this case and that there has been a breach of Article 141 in calculating earnings-related maternity pay on the basis of pay in an earlier reference period without taking into account a subsequent increase in pay which is not back-dated to cover the reference period or any part of it. It is accordingly necessary to refer a question of interpretation to the Court of Justice to enable judgment to be given on Mrs Alabaster's claim. The proposed questions are formulated at the end of this judgment.

Domestic Remedies for Breach of Article 141: the Principle of Effectiveness

18. 0n the basis that, as held by the tribunals below, there has been a breach of Article 141, Mrs Alabaster submits that the failure of the Employment Tribunal to grant her a remedy in respect of the breach is a violation of the principle of effectiveness. Her primary submission is that the tribunals erred in holding that no remedy was available her under the 1970 Act in the absence of a male comparator required by that Act. Her case is that the 1970 Act should be construed, so far as is possible, to work harmoniously both with the Sex Discrimination Act 1975 and Article 141 as parts of a code for dealing with unlawful sex discrimination (see Strathclyde Regional Council v. Wallace [1998] ICR 205 at 212) and that, as in the case of Webb v. Emo Air Cargo (UK) Limited [1995] ICR 1021 under the Sex Discrimination Act 1975, the 1970 Act should be construed to be compatible with Article 141, under which no male comparator is required in the case of a pregnant woman. By a process of construction analogous to that adopted by the House of Lords in Litster v. Forth Dry Dock & Engineering Co. Limited [1990] 1 AC 546 the court should read into section 1 (2) of the 1970 Act words to the effect that a pregnant woman or a woman on maternity leave has the entitlements afforded to her by Article 141 of the Treaty and the Directive 75/117. If, however, the 1970 Act cannot be so construed, then those provisions requiring a male comparator in the case of maternity pay are incompatible with EC Law and should be disapplied so as to give effect to Article 141: it is a superior provision having direct effect. This result is achieved by the disapplication of section 1(2) of the 1970 Act.
19. Mrs Alabaster's secondary submission is that the tribunal erred in not treating her claim for breach of Article 141 as a "free standing" claim, rather than a claim under the 1970 Act, over which it had jurisdiction to adjudicate by reason of section 3 of the European Communities Act 1972 and section 2 of the Employment Tribunals Act 1996. She distinguished Biggs v. Somerset County Council [1996] ICR 364, in which the Court of Appeal held that Employment Tribunals have a limited statutory jurisdiction not extending to free standing claims for breach of EC Law: it is a case of unfair dismissal, not an equal pay case.
20. The Secretary of State submits that there has been no breach of the principle of effectiveness. It is for each member state to designate competent courts and tribunals and to lay down procedural rules for proceedings designed to enforce EC rights. He points out that under domestic law two effective procedures were available to Mrs Alabaster for enforcing a claim for underpayment of maternity pay, adding the general comment that the principle of effectiveness is not breached by the failure of an applicant to invoke the correct procedure in the correct court or tribunal in time. He submits that the principle of effectiveness was satisfied under domestic law without the need to read out of the 1970 Act, or to disapply, the provisions requiring a male comparator. It is submitted that it is not possible to construe the 1970 Act so as to apply to a case where there is no male comparator. Such a comparison based on a difference in sex is the essence of a claim for breach of the provisions of the 1970 Act.
21. First, Mrs Alabaster could have pursued her claim under section 13 of the 1996 Act in time. The tribunal clearly had power to entertain claims for unauthorised deductions from "wages", which are defined in section 27(1) of the 1996 Act to include statutory maternity pay under Part XII of the 1992 Act. A claim can be brought in the Employment Tribunal for paying to a worker less than the total amount of the "wages properly payable… to the worker": section 13 (3). The tribunal rightly held, however, that it had no power to entertain Mrs Alabaster's claim, as it was out of time, more than three months having passed since the last disputed underpayment. That decision and the refusal of the Employment Tribunal to grant an extension of time have not been appealed. The time limit of three months is not less favourable than the time limits governing similar claims under domestic law, and it is not framed in such a way as to make the exercise of her rights under EC Law virtually impossible in practice: Levez v. TH Jennings (Harlow Pools) [1998] ECR 1-7835,7864-5. There was, therefore, no breach of the principle of equivalence. The principle of effectiveness was not breached by refusing to entertain a claim brought out of time, when it was reasonably practicable to have brought it within time.
22. Secondly, it was open to Mrs Alabaster to bring a claim for alleged underpayment of maternity pay before an adjudication officer under section 20 (3) of the Social Security Administration Act 1992, with a right of appeal to the Social Security Appeal Tribunal, then to the Social Security Commissioner and, with permission, to the Court of Appeal on a point of law.
23. In summary the Secretary of State submits that this court should uphold the refusal of the Employment Tribunal to construe or to disapply the 1970 Act, so as to entitle Mrs Alabaster to succeed under that Act without the need for an appropriate male comparator. Having regard to her "special position" of pregnancy, it was impossible to identify a male comparator. The elimination of a male comparator from the 1970 Act was not justifiable in the context of the availability of two other remedies. The principle of effectiveness does not require the emasculation of the 1970 Act or the availability of a range of domestic remedies. The court should also uphold the ruling that the Employment Tribunal, as a statutory tribunal with limited powers, did not have jurisdiction to entertain a freestanding claim for breach of EC Law. That jurisdictional limit was compatible with EC Law.
24. It is premature to attempt to address questions arising on the availability of an effective remedy for breach of EC Law before determining whether such a breach has occurred. For the reasons already stated it is not possible to determine with confidence whether there has been a breach without a ruling of the Court of Justice on questions of interpretation on Article 141 of the Treaty and on the decision in Gillespie. We have therefore decided that it is necessary to refer the following questions to the Court of Justice under Article 234.

The Reference

25. In a situation where:

(a) the earnings–related element of a woman's Statutory Maternity Pay (SMP) is calculated by reference to her normal weekly earnings for an eight week period ending in the 15^th week before the expected week of confinement (the relevant period), and

(b) the employer grants a pay rise, which is not back-dated to the relevant period, at any time after the end of the relevant period used for calculating that woman's earnings-related element of SMP and before the end of her maternity leave:

Question 1

26. Are Article 141 of the EC Treaty and the judgment in Gillespie [1996] ECR 1-475 to be interpreted as meaning that the woman is entitled to have that pay rise taken into consideration in calculating or re-calculating the earnings-related element of her SMP?

Question 2

27. Is the answer to Question 1 affected by whether the effective date of the pay rise commences:

(i) prior to the beginning of the woman's maternity leave;

(ii) prior to the ending of the earnings–related period of her SMP; or

(iii) on some other date and, if so, on what date?

Question 3

28. If the answer to Question 1 is in the affirmative:

(i) How should the calculation or re-calculation of the normal weekly earnings in the relevant period take into account the pay rise?

(ii) Should the relevant period be changed?

(iii) What allowance, if any, should be made for other factors occurring within the period to which the pay rise relates, such as the numbers of hours worked and the reason for the pay increase?

(iv) Does it follow that, if there is a reduction in pay after the end of the relevant period but before the end of the woman's period of maternity leave, her SMP should be calculated or re-calculated to take account of the reduction in pay, and, if so, how should this be done?

Order: questions set out in the judgment at paragraph 25 and following (and reproduced in the schedule annexed to the order) referred to the European Court of Justice for a preliminary ruling pursuant to Article 234 of the European Community Treaty; proceedings stayed until the European Court has given a preliminary ruling on the questions referred until further order; request for a preliminary ruling transferred to the European Court forthwith, without the time for appealing against the order having expired; costs reserved.
(Order does not form part of the approved judgment).