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Cite as: [2004] 2 CMLR 59, [2004] EWCA Civ 359, [2004] ICR 1083, [2004] IRLR 457

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		Neutral Citation Number: [2004] EWCA Civ 359
		Case No:A1/2003/0817

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

25th March 2004

B e f o r e :

LORD JUSTICE AULD
LORD JUSTICE MAY
and
LORD JUSTICE JACOB
____________________

Between:

	D. BAMSEY & ORS	Appellant
	- and -
	ALBON ENGINEERING & MANUFACTURING PLC	Respondent

____________________

(Transcript of the Handed Down Judgment of
Smith Bernal Wordwave Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)

____________________

Mr. John Hendy QC and Mr. Oliver Segal (instructed by Thompsons) for the Appellants
Mr. Thomas Linden (instructed by The Treasury solicitor) as Advocate to the Court
____________________

HTML VERSION OF JUDGMENT

Lord Justice Auld :

This appeal concerns:

1) the meaning of the term "normal working hours" in sections 221-224 of the Employment Rights Act 1996 ("the Act") as used for the calculation of "a week's pay" of an employee for the purposes of the Act;

2) the meaning of "normal working hours" for the purpose of calculating an employee's entitlement to payment under regulation 16 of the Working Time Regulations 1998 ("the Regulations") for the four weeks annual leave to which he is entitled under regulation 13 of the Regulations;

3) the effect of that meaning on "a week's pay" of an employee whose contract of employment requires, but does not entitle him, to work overtime in addition to his basic contractual hours, more particularly whether it is capable of resulting in him receiving significantly less by way of pay for annual leave than when he was working; and

4) the extent to which, if at all, the meaning of the term "normal working hours" insofar as it bears on the calculation of "a week's pay" for the purpose of determining his annual leave pay under regulation 16, should be purposively construed to give it a meaning that it might not otherwise have so as to conform to the main purpose of Article 7 of Council Directive 92/104, the Working Time Directive ("the Directive"), which the Regulations implement.

The appeal is by Mr. D Bamsey and others, more particularly the test case appellant, Mr. T Sturge, against a decision of the Employment Appeal Tribunal ("the EAT") on 27^th March 2002, upholding the decision of an Employment Tribunal, that they were only entitled to receive pay for each week of annual leave on the basis that the "normal working hours" going to the calculation of "a week's pay" were the basic hours set by his contract of employment and did not include overtime working.

The facts

The material facts of Mr. Sturge's case were as follows. He was employed by the respondent and worked under a contract that entitled him to a "basic" working week of 39 hours, with substantial compulsory, but non-guaranteed, "overtime". Apart from occasional variations, the respondent had in fact required him to work, and he worked, a regular weekly shift pattern of four twelve hour days and one ten hour day, a 58 hour working week. Over the twelve weeks before the holiday period in question, Mr. Sturge had averaged 60 hours work, earning nearly £330 a week. However, the respondent paid him for a period of annual leave on the basis only of his basic 39-hour week, producing just short of £200 per week, namely less than two thirds of his average weekly wage in the previous 12 weeks. Mr Sturge maintains that he should have been paid over the period of annual leave at the same rate as he averaged, with overtime, while at work.

The law

The 1996 Act

The 1996 Act is a consolidating Act dealing with many aspects of employment. Sections 220 to 224, which are in Chapter II, headed "A Week's Pay", of Part XIV of the Act, all of which is devoted to Interpretation, provide how "a week's pay" is to be calculated "for the purposes of [the]…Act" according to whether there are, and by reference to, "normal working hours" under a contract of employment. There are several contexts in the Act to which the concept of "a week's pay" is relevant. In so providing, the Act reproduces, or closely reproduces provisions introduced for the first time nearly 40 years ago in the Contracts of Employment Act 1963, Sch. 2 and subsequently re-enacted in the Employment Protections (Consolidation) Act 1978, Sch 14, Pt 1. Central to the concept of a week's pay for the purposes of the Act, is the distinction between cases in which there are "normal working hours", namely those in which the contract of employment expressly or by implication requires the employee to work a given number of hours each week, and those where there are not.

The distinction is specifically drawn in a number of provisions in the Act, e.g. in sections 30, 56, 62 and 63B, but most notably in sections 88 and 89 which concern calculation respectively of "normal working hours" or "a week's pay" on termination of employment on notice. Sections 220-224, in their interpretative role, clearly draw the distinction. Sections 221, 222 and 223 provide a means of calculation of a week's pay in cases of employment with "normal working hours", and section 224 provides a means where there are not. But those provisions, while prescribing how "a week's pay" shall be calculated by reference, inter alia, to "normal working hours", do not of themselves define the latter. The only place to find such definition is in section 234; just as the only place to find the definition of the word "week" is in section 235.

Before attempting any further account of the scheme of these provisions, I had better set them out, so far as material:

"220 Introductory

"The amount of a week's pay of an employee shall be calculated for the purposes of this Act in accordance with this Chapter." [my emphasis]

221 General

(1) This section and sections 222 and 223 apply where there are normal working hours for the employee when employed under the contract of employment in force on the calculation date.

(2) Subject to section 222, if the employee's remuneration for employment in normal working hours (whether by the hour or week or other period) does not vary with the amount of work done in the period, the amount of a week's pay is the amount which is payable by the employer under the contract of employment in force on the calculation date if the employee works throughout his normal working hours in a week.

(3) Subject to section 222, if the employee's remuneration for employment in normal working hours (whether by the hour or week or other period) does vary with the amount of work done in the period, the amount of a week's pay is the amount of remuneration for the number of normal working hours in a week calculated at the average hourly rate of remuneration payable by the employer to the employee in respect of the period of twelve weeks ending –

(a) where the calculation date is the last day of a week, with that week; and

b) otherwise with the last complete week before the calculation date.

…."

"222 Remuneration varying according to time of work

(1) This section applies if the employee is required under the contract of employment in force on the calculation date to work during normal working hours on days of the week, or at times of the day, which differ from week to week or over a longer period so that the remuneration payable for, or apportionable to, any week varies according to the incidence of those days or times.

(2) The amount of a week's pay is the amount of remuneration for the average number of weekly normal working hours at the average rate of remuneration.

(3) For the purposes of subsection (2) –

(a) the average number of weekly hours is calculated by dividing by twelve the total number of the employee's normal working hours during the relevant period of twelve weeks; and

(b) the average hourly rate of remuneration is the average hourly rate of remuneration payable by the employer to the employee in respect of the relevant period of twelve weeks.

…

223 Supplementary

"For the purposes of sections 221 and 222, in arriving at the average hourly rate of remuneration, only –

(a) the hours when the employee was working, and

(b) the remuneration payable for, or apportionable to, those shall be brought in.

(2) If for any of the twelve weeks mentioned in sections 221 and 222 no remuneration within subsection (1)(b) was payable by the employer to the employee, account shall be taken of remuneration in earlier weeks so as to bring up to twelve the number of weeks of which account is taken.

(3) Where

(a) in arriving at the average hourly rate of remuneration, account has to be taken of remuneration payable for, or apportionable to, work done in hours other than normal working hours, and

(b) the amount of that remuneration was greater than it would have been if the work had been done in normal working hours (or, in a case within section 234(3), in normal working falling within the number if hours without overtime), account shall be taken of that remuneration as if the work had been done in such hours and the amount of that remuneration had been reduced accordingly.

224 Employments with no normal working hours

(1) This section applies where there are no normal working hours for the employee when employed under the contract of employment in force on the calculation date

(2) The amount of a week's pay is the amount of the employee's average weekly remuneration in the period of twelve weeks ending –

(a) where the calculation date is the last day of a week, with that week, and

(b) otherwise, with the last complete week before the calculation date.

(3) In arriving at the average weekly remuneration no account shall be taken of a week in which no remuneration was payable by the employer to the employee and remuneration in earlier weeks shall be brought in so as to bring up to twelve the number of weeks of which account is taken. …"

As I have said, none of those provisions, though concerned in various ways with "normal working hours", contains any definition of the term. So far as it goes, that definition is to be found in section 234, which is in Chapter III of Part XIV of the Act, under the heading "Other Interpretation Provisions". It too has its origins in the Contracts of Employment Act 1963, Sch. 2, para 1. I say "so far as it goes", because, the focus of section 234 is on contracts that provide for overtime as well as "fixed" basic working hours. Only the latter qualifies as "normal working hours" unless the overtime is also fixed under the contract in that the employer is bound to provide it and the employee is bound to do it. That definition, where, under a contract of employment, overtime is payable, clearly applies to all the contexts in the Act where the term "normal working hours" is used as a means of calculating "a week's pay". However, the question, to which I shall return when I consider regulation 16 of the Regulations, is whether it also applies to its provision for paid annual leave, for which the Act makes no provision. Section 234 provides, so far as material:

"(1) Where an employee is entitled to overtime pay when employed for more than a fixed number of hours in a week or other period, there are for the purposes of this Act normal working hours in his case.

(2) Subject to subsection (3), the normal working hours in such a case are the fixed number of hours.

(3) Where in such a case –

(a) the contract of employment fixes the number, or minimum number of hours of employment in a week or other period …, and

(b) that number or minimum number of hours exceeds the number of hours without overtime,

the normal working hours are that number or minimum number of hours (and not the number of hours without overtime)."

As I have implied and as Mr John Hendy QC, for the appellants, submitted, section 234 may not provide an overall definition of "normal working hours". However, it is misleading to characterise it as he did, as merely a direction as to how they should be calculated where some overtime is involved. His reliance for that characterisation on some observations of Phillips J, giving the judgment of the EAT in Fox v. C Wright (Farmers) Ltd. [1978] ICR, at 102, on comparable, but materially different, provisions in Schedule 2 to the Contracts of Employment Act 1972, is, I believe, misconceived. There have been a number of authorities in different contexts covered by the reach of the 1996 Act or its statutory predecessors in which it has been held that overtime hours are not part of normal working hours unless they are obligatory on both sides, that is, contractually guaranteed by the employer and compulsory for the employee. See, e.g. Tarmac Roadstone Holdings Ltd. v. Peacock [1973] ICR 273, CA, per Lord Denning at 598-599 – calculation of redundancy pay by reference to normal working hours; Lotus Cars v. Sutcliffe and Stratton [1982] IRLR 381, CA. – redundancy pay again; Spence v. City of Sunderland District Council (1999) EAT, 5^th July 1999, EAT/1255/98 – statement of initial employment particulars under section 1(4)(c) of the 1996 Act.

As I have indicated and as Mr Thomas Linden, appearing as Advocate to the Court, observed, although section 234 is expressed as if overtime were its focus, its effect is to equate "normal working hours" with those done and which are "fixed" by the contract of employment, whether or not including over-time. To that extent, and certainly on the issues for decision in this appeal, it is comprehensive enough, though it may not be exhaustive of the factual issues that may arise for decision under regulation 16; see, e.g. Marshalls Clay Products v. Caulfield [2003] IRLR 552, EAT, where the issue was whether holiday pay was included in a "rolled-up" basic rate.

These are complicated provisions, and I am grateful to Mr Linden for the following helpful categorisation of them so far as they relate to the facts and issues as to overtime in this case:

1) Where pay for normal working hours does not vary according to the amount of work done in any period or as to when the normal working hours are worked (sections 221(2) and 222), the determination of "a week's pay" does not depend on an employee's "normal working hours"; it is the weekly amount payable under the contract at the relevant calculation date.

2) Where there are no "normal working hours" (section 224), "a week's pay" is the amount of an employee's average weekly pay in the applicable 12 weeks preceding the calculation date.

3) Where pay varies according to the amount of work done during "normal working hours" in any period (section 221(3)), "a week's pay" is calculated at an average hourly rate of pay in the applicable 12 weeks before the calculation date.

4) Where, in category 3), the contract does not provide for overtime, but an employee undertakes it voluntarily at his employer's request – which is not this case – if section 234 applies to regulation 16, the overtime hours are not part of the "normal working hours".

5) Where, in category 3), an employee is under a contractual duty to do overtime but is not entitled to it - which is this case - if section 234 applies to regulation 16, the overtime hours are not part of the "the normal working hours".

6) Where, in category 3) an employer has a contractual duty to provide overtime and an employee has a matching contractual duty to do it – which is not this case - if section 234 applies to regulation 16, the "normal working hours" would include the overtime worked.

In all the categories in which there are "normal working hours" governing the rate of pay, section 222 provides a mechanism for calculating "a week's pay" by averaging the hourly rate of pay and the "normal working hours" of an employee over a 12 week period before the relevant calculation date. And section 223(3)(b) provides that, for the purpose of calculating the average hourly rate of pay, weeks during which an employee was not entitled to pay should not be counted and that where work is done outside normal working hours, including cases falling within section 234(3), of which account is taken in calculating the average hourly rate, pay in respect of such hours is calculated at the basic, rather than the overtime rate. Mr. Linden pointed out that, depending on the circumstances, the operation of such a provision may result in "a week's pay" for annual leave purposes being lower or higher than that which he would have received had he worked the week in question.

Before leaving the Act and moving to the Regulations, I should emphasise that, while section 234 of the Act specifically defines "normal working hours" by reference to a worker's entitlement to overtime in a working week, the Act as a whole says nothing about its application to the regulation 16 exercise of calculating "a week's pay" for each week of paid annual leave.

The Regulations

The Act does not provide in any of the contexts that I have mentioned for the control of working time in the manner required by the Directive. Hence the need to implement the latter, which the United Kingdom did by the Regulations in 1998. They were made under the powers given in section 2(2) of the European Communities Act 1972 to implement the Directive, and in regulation 13, to give effect to Article 7, entitling an employee to four weeks' paid annual leave a year. Regulation 16(1) entitles him to be paid for that leave "at the rate of "a week's pay" in respect each week of leave", the amount to be determined in accordance with sections 221 to 224 of the Act. Neither regulation 2, which makes comprehensive provision for interpretation of the Regulations, nor regulation 16 defines either "a week" or "a week's pay" by reference to "normal working hours" or otherwise. Those are surprising omissions, unless the draftsman, in his express incorporation in regulation 16(2) of sections 221 to 224 of the Act intended that those and other provisions in the Act applicable to them, including sections 234 and 235, the latter of which includes a definition of "week", should apply.

The critical question on the appeal is whether, on a proper construction of regulation 16, it does incorporate, along with sections 221 to 224, the definition of "normal working hours" in section 234 (and, for that matter, the definition of "week" in section 235). If it does, it is common ground that these appeals fail. If it does not, then the question is whether the Court should and can construe the term "normal working hours" in overtime cases unaided by section 234 so as to provide an answer on the facts of this case.

Regulation 16 provides:

"(1) A worker is entitled to be paid in respect of any period of annual leave to which he is entitled under regulation 13, at the rate of a week's pay in respect of each week of leave.

(2) Sections 221 to 224 of the 1996 Act shall apply for the purpose of determining the amount of a week's pay for the purposes of this regulation, subject to the modifications set out in paragraph (3).

(3) The provisions referred to in paragraph (2) shall apply – (a) as if references to the employee were references to the worker; (b) as if references to the employee's contract of employment were references to the worker's contract; (c) as if the calculation date were the first day of the period of leave and question; and (d) as if the references to sections 227 and 228 did not apply."

The Directive

The relevance of the Directive to the issues in the appeal is whether its purpose informs the Court's interpretation of the Regulation in its application of sections 221 to 224 of the Act so as to permit a broader interpretation of the term "normal working hours" as used in those provisions than that provided by section 234 for the purposes of the Act. Put another way, should regulation 16, properly construed in the light of the Directive giving rise to it, exclude from its incorporation of sections 221 to 224, section 234 or, if not, are the two in conflict? If that were so, amendment of the Regulation to accord with the Directive would be necessary.

The Directive was adopted pursuant to Article 118A of the Treaty, which provides for minimum requirements to encourage improvements, especially in the working environment with a view to ensuring better protection for the safety and health of workers. As Article 1 of it describes, it lays down minimum safety and health requirements for the organisation of working time, including minimum periods of daily and weekly rest and annual leave, and breaks and maximum weekly working time. Article 2.1 defines "working time" for the purposes of the Directive, as:

"any period during which the worker is working at the employer's disposal and carrying out his activity or duties in accordance with national laws and/or practice."

Article 7 of the Directive, in respect of which Article 17 does not permit derogation, provides:

"Member States shall take the measures necessary to ensure that every worker is entitled to paid annual leave of at least four weeks in accordance with the conditions for entitlement to, and granting of, such leave laid down by national legislation and/or practice."

The Recitals to the Directive indicate the purpose of that and other of its provisions, namely to encourage a climate of protection for the working environment and health of workers:

"Whereas Article 118a of the Treaty provides that the Council shall adopt, by means of Directives, minimum requirements for encouraging improvement, especially in the working environment to ensure a better level of protection of the safety and health of workers … whereas the Community Charter of the Fundamental Social Rights Of Workers … declared that … every worker in the European Community shall have a right to a weekly rest period and to annual paid leave … every worker must enjoy satisfactory health and safety conditions in his working environment …. Whereas the improvement of workers' safety hygiene and health at work is an objective which should not be subordinated to purely economic considerations … whereas in order to ensure the safety and health of Community workers, the latter must be granted minimum daily, weekly and annual periods of rest and adequate breaks." [my emphasis]

It is to be noted that, whilst the Directive refers to workers' entitlement to annual paid leave, it says nothing as to how that payment should be calculated, leaving that matter for Member States to deal with "by national legislation and/or practice".

It is plain that the main objective of the Directive underlying the function of the Regulations is, by laying down minimum requirements, to secure better protection of the safety and health of workers, and of Article 7, as one contribution to that end, of securing for them adequate holidays. It is plain too that nothing should be done by way of national legislation or otherwise to negate or frustrate the achievement of that purpose; see e.g. see United Kingdom v. Council of the European Union [1997] IRLR 30, ECJ, paras 12,15; R (BECTU) v. Department of Trade & Industry [2001] ICR 1152, ECJ, at paras 43-47; and 52-55; List Design Group Ltd. v. Douglas [2002] ICR 686, EAT (Bell J, presiding), at para 45; and MPB Structures Ltd. v. Munro [2002] IRLR 601, [2003] IRLR 350, Scottish Court of Session (Lord Cullen), paras 13 and 14.

There was an issue between Mr Hendy and Mr Linden as to whether the Act, in certain of its provisions governed by sections 220-224 as to the meaning of "a week's pay", have their origin or correspond with obligations in Community Directives, for example, those in section 1(4)(c) (implementing in part Article 2.2(I) of Council Directive 91/533/EEC) to provide an employee with particulars of, inter alia, any terms and conditions relating to normal working hours; and in section 69 (implementing Articles 4-6 and 11.1 of Council Directive 92/85/EEC), which provides a right to remuneration equivalent to a week's pay for each week of maternity leave. The relevance of the issue, Mr Linden suggested, is that, if sections 234 and 235 apply to provisions in the Act that have their origin or correspond with obligations in Community Directives, there is no reason why they should not also apply in the context of regulation 16 of this Directive. Both counsel have advanced conflicting arguments on the above examples and other possible comparisons, the arguments turning on detailed textual comparison of the Community Directive in question with the corresponding provision in the 1996 Act, including the extent to which, if at all, the essential purpose of such Directive is reflected in the Act's provision or whether its provision is concerned with pay at all or whether, if it is, the Act properly implemented it.

Detailed consideration of these comparisons is not, in my view, necessary to resolve what is essentially a supplementary argument of Mr Linden in support of his main submissions on the role of sections 220 to 224 and 234 in the general scheme of the Act and, in this instance, in relation to Article 7 of the Directive and regulation 16 of the Regulations. If his main submissions, to which I shall come, are valid, these comparisons between other Community Directives and other provisions of the Act, if also valid, would no doubt support, but would not be necessary for the success of those submissions. And if his reliance on these comparisons is for one reason or another misplaced, it is equally not fatal to his main submissions. Accordingly, I do not consider it necessary or helpful to embark on a long and detailed detour to consider and give a view on the rival arguments on each of the proffered comparisons.

The EAT's decision

The EAT held that:

1) the main purpose of the Directive as a whole was to improve the safety and health of workers, and of Article 7 to that end, to encourage them to take their full holiday entitlement by paying them when on leave at a rate comparable to that which they normally received when at work;

2) regulation 16, as a provision implementing a Directive without direct effect, should be construed, so far as possible, consistently with the Directive, in accordance with Marleasing SA v. La Comercial Internacional de Alimentatacion [1990] ECR 1-4135 ECJ and Webb v. EMO Air Cargo [1993] ICR 175;

3) regulation 16, in expressly incorporating sections 221-224 of the 1996 Act, automatically incorporated the interpretative provisions of section 234, relying on a dictum of Lord Lowry in Wyre Forest DC v. Secretary of State for the Environment [1990] 2 AC 357, at 365D; and

4) despite the purpose of the Directive, if regulation 16 did not incorporate section 234, its reference to "normal working hours" could not mean just hours normally worked as distinct from those worked and contractually fixed so as to require averaging under section 224, since that would be so uncertain in effect as to be unworkable.

The submissions

It is common ground that section 234 of the Act applies to the meaning of the term "normal working hours" in sections 221 to 224 wherever in and "for the purposes of [the] … Act" (see section 220) "a week's pay" falls to be calculated. As I have said, it is also common ground that, if regulation 16, through its incorporation of section 221 to 224 of the 1998 Act, also incorporates section 234 of the Act so as to apply its definition of "normal working hours" to the purposes of the Regulation, the appeals must fail.

Mr. Hendy submitted that the EAT correctly identified the provision for paid annual leave in Article 7 of the Directive as being to ensure that employees, when on holiday, are paid at the same or similar level to that which they normally receive when at work, thus promoting an important social, health and safety policy that employees should take proper annual holidays. But, he maintained, it wrongly decided that regulation 16 incorporated into the definition of "normal working hours" the restrictive provisions of the section 234(1) of the 1996 Act, thereby undermining the purpose of the Directive. The steps in his argument were as follows:

1) Articles 2 and 7 of the Directive require member states to ensure that workers are paid, when on annual leave, by reference to what they are normally paid for working time, that is the actual time for which they work, so as to ensure a broad equivalence between their working time pay and their holiday pay;

2) Regulation 16 should be purposively construed to achieve that result, namely where the contract of employment is silent or unclear as to whether there are "normal working hours" or as to what they are, the courts should not approach the matter by way of a rigidly contractual analysis, but should have regard to what, on the facts, the employee regularly does when at work. Article 2 of the Directive defines "working time", as "any period during which the worker is working, at the employer's disposal and carrying out his activity or duties", and a similarly pragmatic approach should be adopted to payments for periods of annual leave.

3) There is nothing in sections 221 to 224 of the Act, read without section 234, to preclude that construction. In developing that argument, Mr Hendy submitted that, outside section 234, regulation 16 could, consistently with the purpose of Article 7 and without distorting our domestic legislation, be construed as to apply to normal actual working hours, relying by way of example on Litster v. Forth Dry Dock [1989] ICR 341, HL, per Lord Oliver at 354D; Garland v. British Rail Engineering Ltd. [1983] 2 AC 751, per Lord Diplock at 771A; and Webb v. EMO Air Cargo, per Lord Keith at 186D.

4) Section 234 has nothing to do with sections 221 and 222, which are in a different Chapter of Part XIV of the Act, and, therefore, in its definition of "normal working hours", does not govern that term in sections 221 and 222.

5) Even if section 234 does govern sections 221 to 224 for the purposes of the Act, it should be ignored when construing regulation 16 because: (a) it is a deeming provision, as expressly provided in section 234(1) "for the purposes of" the Act, which do not include the purposes of the Regulations. The statutory predecessors of sections 221-224 of the 1996 Act were enacted long before the making of the Directive and in the wholly different context of entitlement to notice periods, redundancy payments etc. so the ruling of the House of Lords in Wyre Forest District Council case, that words used and defined in a statutory enactment, in the absence of any indication to the contrary, should bear the same meaning throughout the same statute and any related subsidiary legislation, does not apply. (b) Regulation 16 does not expressly incorporate it; and (c) to imply it would be contrary to the purposes of the Directive because: it would artificially restrict the meaning of "normal working hours", which, under sections 221-224, when read without section 234, are not tied to the terms of the contract of employment; it could result, as here, in a substantial diminution in an employee's holiday pay from that which he normally earned when working; and would thus deter employees from taking their annual leave.

6) Regulation 16 is, in any event, workable without section 234 of the 1996 Act since tribunals frequently have to apply sections 221 or 224 to cases where there are no express contractual terms specifying minimum working hours.

7) If overtime done, but not qualifying as contractually "fixed" hours within section 234, does not amount to "normal working hours" for the purpose of calculating "a week's [holiday] pay" under regulation 16, there would be scope for employers to defeat the purpose of the Directive by reducing the contractual basic working hours to a minimum, so as to peg paid annual leave to that low level.

8) Accordingly, for the purpose of regulation 16, Mr. Sturge's normal working hours at the material time included his overtime, namely an average of 58 or 60 hours a week, not his contractual basic weekly hours, namely 39.

9) Alternatively, he had no normal working hours, so that the averaging formula of section 224 applies, producing an average of sixty hours.

Mr. Linden submitted that:

1) The meaning of the term "normal working hours" for the purpose of calculating "a week's pay" for the purpose of regulation 16 is the same as that for the purposes of the Act in sections 220 to 224, when read with section 234.

2) Such meaning is not contrary to the main purpose of the Directive, since Article 7 expressly leaves the "conditions for entitlement to, and granting of," paid annual leave to "national legislation and/or practice". Although the Directive specified a minimum period of annual leave and required payment during such leave, it left what was to be paid to each Member State. It is silent on such concepts as "a week's pay" or "normal working hours". It does not specify any minimum pay requirement or prevent Member States from providing that an agreed basic salary should be "a week's pay" for this purpose. He relied on this Court's ruling in Gibson v. East Riding of Yorkshire Council [2000] ICR 890, as an indicator that the Article was insufficiently precise to satisfy the Becker condition of sufficient precision to be directly enforceable without domestic implementing legislation. In short, he submitted that there is no inconsistency between the main objective of Article 7 and the terms of section 234 so as to require the courts to construe the 1998 Act as if section 234 does not apply to sections 220 to 224.

3) If it were contrary to the Directive, it could not be construed so as to conform with the appellants' construction of it, which is in any event unclear and would produce great uncertainty in its application.

Conclusions

The meaning of "normal working hours" for the purposes of the Act

Part XIV of the Act is concerned, as its heading indicates, with "Interpretation". It is plain from section 220, which introduces Chapter II of that Part, that its provisions, including section 234, govern the way in which the term "a week's pay" is calculated throughout the Act. The section reads "The amount of a week's pay … shall be calculated for the purposes of this Act in accordance this Chapter". It follows from the analysis of sections 221 to 224 and 234 in paragraphs 5 and 7 to 11 above that, where overtime is worked, only that which the contract of employment requires the employer to provide and the employee to do counts as "normal working hours" for the purpose of calculating "a week's pay". And as Mr Hendy conceded, even without section 234, when considering what, if any, "normal working hours" an employee has, regard must be had to the terms of his contract of employment as well as the hours of work he normally does. However, section 221(1), in its provision that the remainder of that section and sections 222 and 223 "apply where there are normal working for the employee when employed under the contract of employment .." expresses the link somewhat loosely. In particular, it does not make clear, as section 234 does, that, where overtime is involved, there must be mutuality of obligation between the employer and the employee for it to be included in the latter's "normal working hours". It follows that, without section 234, in a case where overtime is involved, it would be uncertain on a case by case basis whether overtime would qualify or not, an uncertainty highlighted by Mr Hendy's submission that, in the absence of section 234, the question would be one of fact for the tribunal.

I should add that I agree with the conclusion of the EAT that the reasoning of Lord Fraser of Tullybelton (with whom the other Law Lords agreed) in Waite v. GCHQ [1983] 2 AC 714, at 723C 724 on the meaning of "normal retiring age" in what is now section 109(1) of the Act is no support for Mr Hendy's suggested solution for these quite different provisions if, for the purpose of regulation 16, section 234 is inapplicable. Closer, but not much, to the issue of the effect of sections 221 to 224, without section 234, is Carver v. Saudi Arabian Airlines [1999] ICR 991, CA, concerning the construction of section 196(2) of the Act (now repealed), relating to unfair dismissal. There, Mantell LJ, with whom Beldam and Ward LJJ agreed, held that where an employee "ordinarily worked" fell to be determined by reference to his contract of employment, not where, as a matter of fact, he wholly or mainly worked.

It is plain, where overtime is involved, that the words "for the purposes of [the] … Act", in section 220 have the effect that section 234 determines what is and what is not part of "normal working hours". First, section 223(3) expressly refers to section 234 in terms assuming its applicability to sections 221 and 222. Second, as I have noted, Chapter II of Part XIV contains no interpretation provision defining "normal working hours" as used in that Chapter, and Chapter III, which, as its heading indicates, is given over entirely to other interpretation provisions, does not, in section 234 confine its application to any particular part of the Act. It is inconceivable that the draftsman would not have intended this declaratory or deeming provision for probably the most difficult and typical of cases in calculating "a week's pay" not to apply to sections 221 and 222, for which they might not otherwise adequately provide. Third, as I have also noted, the concept of a week's pay is defined in the 1996 Act for a number of purposes. Sections 220-224, as interpretative provisions applicable to the whole Act, are an instance in which the distinction is clearly drawn, but while prescribing how a week's pay shall be calculated by reference, inter alia, to a "normal working hours", do not of themselves define that term. The only place to find such definition is in section 234; just as the only place to find the definition of the word "week" is in section 235 of the Act. And, fourth, I say this, not in reliance on any so-called "automatic" canon of interpretation derived from the Wyre Forest case, but as a matter of what seems to be common-sense reading of the 1996 Act that the interpretation provision in section 234 is there, where necessary, to come to the aid of the application of sections 221 and 222.

Thus, where payment varies with the amount of work done, such express reference and, sections 221(3), 222 and 223 which identify "a week's pay" by averaging "normal working hours" to an average hourly rate of pay, require in cases where overtime is payable, a definition of "normal working hours" that takes account of its contractual basis. And that is only to be found in section 234. The fact that, if, absent section 234, all else failed, the parties or a tribunal could have recourse to the provision in section 224 for calculating average weekly earnings where there are no normal working hours, cannot sensibly mean that it should be ignored in those cases in which where there are fixed hours and overtime and for which it specifically provides.

Whether regulation 16 incorporates section 234.

The next and central issue is whether regulation 16 in its incorporation of sections 221 to 224 for the purpose of determining "a week's pay" for its purposes, also incorporates the definition in section 234 governing those sections for the purposes of the Act.

As I have already noted, neither regulation 2, which makes comprehensive provision for interpretation of the Regulations, nor regulation 16, which creates the entitlement to payment for annual leave "at the rate of a week's pay" for each week of leave, defines either a "week" or "a week's pay" by reference to "normal working hours" or otherwise. As I have also noted, those are surprising omissions unless the draftsman considered that both definitions were incorporated by the express reference in regulation 16(2) to sections 221 to 224 of the Act. In my view, regulation 16 clearly incorporates, for the purpose of determining a week's pay, not only sections 221 to 224, as it expressly provides, but also the interpretation of "normal working hours" in respectively sections 234 and 235, which sections 220 to 224, by necessary implication and, in the case of section 234, by express reference in section 223(3), incorporate for the purpose. The critical connector in the Act is section 220, which provides that the amount of "a week's pay" is to be calculated "for the purposes of this Act in accordance with this Chapter". This clearly subjects sections 221 to 224 and other provisions in other Chapters of the Act, insofar as they require calculation of a week's pay, to the all-Act-purpose interpretation in section 234 of "normal working hours", if and to the extent that the work in question includes overtime.

There is nothing in regulation 16 to the contrary. For example, although the draftsman, in paragraph (3) of the regulation expressly modified sections 221 to 224 for its purposes, including references in them to other provisions of Chapter II, he did not expressly exclude the application of section 234, or modify the provision in section 223(3)(b) making express reference to it.

Construction of regulation 16 in the light of the Directive

In my view, there is nothing in the Directive to suggest that construction of the term "a week's pay" in the Regulations so as to give it the same meaning for their purposes, where overtime involved, as that in section 221 to 224 of the Act would offend its main or any of its purposes so as to require, as Mr Hendy suggested, a purposive construction to the contrary.

The clear purpose of the Directive, as I have said more than once, is to encourage a climate of protection for the working environment and health of workers. So much is clear from its Recitals, some of which I have mentioned. And Article 7, in its provision for Member States to ensure that workers are entitled to at least four weeks annual leave, clearly has their health in mind. But I do not see upon what basis, it can be said that it requires Member States, in its implementation, to ensure that workers receive more pay during their period of annual leave than that which they were contractually entitled to earn, and did earn, while at work.

First, Article 7 expressly qualifies its declaration of workers' entitlement to at least four weeks paid annual leave to the qualification that such paid leave is to be "in accordance with the conditions for entitlement to, and granting of, such leave laid down by national legislation and/or practice". Such conditions necessarily include definition of the basis upon which payment is calculated for such period of leave.

Second, and consistently with that qualification, Article 7 is silent as to the level of payment for annual leave to which a worker is entitled. It does not, for example, provide that payment during such leave should equate with a normal week's pay when the worker was at work, or that it should be calculated by reference to "working time" as defined in Article 2.1. Thus, the European Union has laid down the principle of an entitlement of four weeks' paid annual leave, but has left the conditions of entitlement for implementation by Member states. In leaving Member States that margin of appreciation, it is not for domestic courts to venture a means of calculation that would be contrary to the clear terms of such implementation effected within the margin of discretion allowed by the Directive.

Mummery LJ had occasion to consider Article 7 of the Directive, in Gibson v. East Riding of Yorkshire Council, at 895 – where the issue was whether, before the implementation of the Directive by the Regulations, it was sufficiently precise to have direct effect. As he pointed out in a useful passage on the purpose and nature of the Directive (with which Brooke and Pill LJJ agreed), its purpose, as I have outlined in paragraph 20 above, is to lay down minimum requirements to secure better protection of the safety and health of workers. Referring to Article 2 of the Directive, he observed:

"… [It] contains the following definition of 'working time': 'any period during which the worker is working, at the employer's disposal and carrying out his activity or duties, in accordance with national laws and/or practice.' I regard that definition, imprecisely framed and coupled with an express reference to 'working … in accordance with national laws and/or practice,' as specially important in the context of Section II of the Directive which contains article 7 'Annual Leave'. Section II deals with 'Minimum Rest Periods-Other aspects of the Organisation of Working Time'.

….

I agree … that article 7 does not have direct effect so as to be enforceable by individual workers in national courts against state employers because it leaves unanswered key questions affecting individual entitlement to annual leave. In a sense article 7 is precise: the length of the minimum period of paid annual leave is a precise period of four weeks. But it does not follow from the precision of the length of the period of leave that the obligation in the article is sufficiently precise for a national court to enforce it at the instance of an individual without more.

The first basic question for the national court is: what is the period of 'working time' for which the worker must have worked before he becomes entitled to annual leave under article 7? Annual leave is leave from 'working time'. The concept of 'working time' is not precisely defined. To what period of 'working time' does the specified period of annual leave relate? This question is not answered by article 7 itself or by any other provisions in Directive 92/104. How then is it possible for a national court to decide which workers are entitled to annual leave? "