England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
MANCHESTER DISTRICT REGISTRY
Appeal No: A90MA415

		Royal Courts of Justice Strand, London, WC2A 2LL
		07/11/2018

Lord Justice Sales:

1. This is an appeal from the decision of HHJ Pearce (sitting as a Deputy Judge of the High Court) in relation to certain benefits claimed by the respondent, Mr Merry, in relation to his employment within Her Majesty's Court Service ("HMCS") which terminated on 31 December 2008.
2. The principal issue before the judge and before us is whether remuneration which Mr Merry received for working over weekends by arrangement with his employer for a period of many years, in addition to what he was paid in respect of his employment during the normal working week, qualified as "pensionable earnings" for the purposes of the relevant provisions of the Principal Civil Service Pension Scheme ("the PCSPS") and the Civil Service Compensation Scheme ("the Compensation Scheme"). The judge held that on the true construction of the key provision in the PCSPS (which also governs the position under the Compensation Scheme) such additional remuneration did so qualify. The appellant submits that the judge erred in interpreting the PCSPS in this way.
3. The effect of the judge's ruling was to increase the compensation payment due to Mr Merry under the Compensation Scheme upon the termination of his employment within the civil service (the civil service equivalent of a redundancy payment) and pension payments which would in due course be due to him under the PCSPS. The judge made an award of compensation in favour of Mr Merry in respect of the Compensation Scheme payment which should have been paid to him at the increased rate and granted declaratory relief in relation to the pension payments which would become due in the future.

Legal framework

4. Section 1 of the Superannuation Act 1972 confers a power on the Minister for the Civil Service to make, maintain and administer schemes for pensions. Although not made by statutory instrument, such a scheme has to be laid before Parliament before it comes into effect: section 2(11). The PCSPS is a scheme made in exercise of the power in section 1.
5. It is common ground that Mr Merry's employment contract with HMCS included an entitlement for him to be a member of the PCSPS, subject to its terms and conditions from time to time in force.
6. The part of the PCSPS under which Mr Merry is entitled to benefits is the 2002 Section of the PCSPS, which (as the name suggests) was issued in 2002. The definition of "pensionable earnings" which falls to be interpreted appears in paragraph A2 of that Section. So far as relevant, paragraph A2 provides:

"(1) In these rules 'pensionable earnings', in relation to a person who is a member, means –

(a) permanent pensionable earnings …

from the employment in which the person is a member.

This is subject to paragraphs (4) and (6).

(2) For this purpose 'permanent pensionable earnings' means –

(a) basic pay,

(b) if or to the extent that the Minister has determined that they are to be treated as permanent pensionable earnings for the purposes of these rules, allowances granted on a permanent basis to persons in particular posts or kinds of employment, and

(c) anything included by virtue of paragraph (4).

…

(4) Anything which would not be regarded as pensionable earnings under paragraph (2)(a) or (b) or (3)(a) [which defines 'fluctuating pensionable earnings'] is to be so regarded if –

(a) it is expressly provided to the member on the basis that it is pensionable and was so provided before 1^st October 2002, and

(b) the Minister has agreed that it should be so regarded,

…"

7. As I have said, it is the definition of "pensionable earnings" in the PCSPS which is relevant for the calculation of the compensation payment due to Mr Merry under the Compensation Scheme.

Factual background and the judgment below

8. The relevant employment of Mr Merry commenced with the North and West Greater Manchester Magistrates' Courts Committee ("the Committee") in 1997. That employment relationship came to be governed by a written contract of employment dated 1 April 1998. Under that contract Mr Merry was employed as an IT Manager within the Secretariat of the Committee. The contract set out his annual salary (clause 5.1); stated that "Overtime is not payable" (clause 5.4); and stipulated that his normal working week was one of 36.25 hours, worked Monday to Friday (clause 6).
9. In late 1999, a national IT project known as the Libra Project was rolled out to replace the IT infrastructure and systems then in use in the magistrates' courts. Mr Merry was asked by Mr Iain Stoddart, Director of Finance for the Committee and his line manager at the time, to take on the responsibility of being the Technical Lead for the project in the Committee's area in addition to fulfilling his existing contractual responsibilities as IT Manager. The additional role was a substantial one which would require Mr Merry to work at weekends on a regular basis. Mr Merry and the Committee agreed that Mr Merry would take on this additional role and that he would be remunerated for the additional work that needed to be done during weekends at the relevant overtime rate: [14]. Mr Merry's contract of employment was varied accordingly. The variation was agreed as a better solution for implementing the Libra Project by contrast with the Committee employing an external contractor to undertake the role of Technical Lead, which was the alternative.
10. On the findings of the judge, Mr Merry's contract of employment, as varied, meant that he was obliged to work 36.35 hours (as expressly stated in his contract of employment of 1 April 1998) plus a reasonable number of hours at weekends to allow him to fulfil his combined responsibilities as IT Manager and Technical Lead; and (as is plainly implicit in the reasoning of the judge, in particular at [54], [57] and [64] and appears from reading the judgment as a whole) his employer, the Committee, was obliged to employ him for those hours (i.e. for 36.35 hours plus a reasonable period at weekends). Ms Ling for the appellants accepts that the judge was entitled to find that the terms of Mr Merry's contract of employment were varied in this way and does not seek to attack such a finding as perverse or otherwise unlawful.
11. It is common ground that, as a result of two reorganisations of the magistrates' courts service, Mr Merry's contract of employment came to be novated as a contract between Mr Merry and HMCS on the same terms as had been agreed with the Committee (i.e. on the contractual terms as orally varied in late 1999 as set out above).
12. Pursuant to this varied (and then novated) contract of employment, from late 1999 Mr Merry regularly worked at weekends as well as Monday to Friday, to discharge all his responsibilities in respect of both the IT Manager and the Technical Lead roles in which he was employed. As the judge found, Mr Merry worked "very regularly" at weekends and "such work was an essential part of the roles that he was under taking" ([19]). Mr Merry chose how to distribute his responsibilities in both roles across those hours of work. He was paid at the overtime rate in relation to the hours worked at weekends. The number of hours worked at weekends fluctuated to some degree, depending on how much needed to be done to meet his employer's requirements. He accounted for the hours so worked and was paid accordingly. There was never any doubt that his employer required him to work a reasonable number of hours at weekends and was obliged to provide such work and to pay for it at the overtime rate. It seems that there was never any dispute over the years about what constituted a reasonable amount of hours of weekend working; the parties sorted that out amicably between themselves.
13. Mr Merry's employment was terminated on grounds of redundancy at the end of 2008 and this dispute arose regarding the compensation payment due to him under the Compensation Scheme and the amount of pension payments which would be due to him under the PCSPS.
14. In the argument before the judge below, the critical question was whether Mr Merry could establish that the sums paid to him in respect of the hours worked at weekends constituted part of his "basic pay" within the meaning of that term in paragraph A2(2)(a) of the PCSPS, set out above. The judge accepted the submission of Ms Ling for the appellants to this extent, that to constitute "basic pay" for these purposes it was necessary that the pay in question should be in respect of contractual hours of work, in the sense of work which the employer was obliged to provide and which the employee was obliged to perform: see [54], [57] and [64]. The judge regarded this as the natural meaning of "basic pay" in the context of the PCSPS, describing it as pay in respect of an employee's "core obligation of working hours" ([57]), as contrasted with overtime working, in relation to which there was an absence of such binding reciprocal obligations.
15. Having accepted Ms Ling's submission regarding the meaning of "basic pay" to this extent, however, the judge ruled against the appellants and in favour of Mr Merry, holding that the remuneration that Mr Merry received in relation to his work at weekends did indeed constitute part of his "basic pay" within the meaning of paragraph A2(2)(a) of the PCSPS. This was on the basis of the judge's findings referred to above regarding the nature of the reciprocal obligations on the part of both Mr Merry and his employer with respect to weekend working, namely that his employer (originally the Committee and latterly HMCS) was obliged to provide him with a reasonable number of hours of work at weekends and he was obliged to work such reasonable hours at weekends.

Discussion

16. The basis of the appeal was clarified in the course of the hearing. Ms Ling accepts that the judge was entitled to find that Mr Merry's contract of employment (as varied) was to the effect that his contractual hours of work, in the judge's sense of that notion, was 36.25 hours over Monday to Friday each week plus a reasonable number of hours at weekends. I would add that there is nothing to prevent an employer and an employee agreeing such terms as to working hours. Although obviously less precise than a stipulated number, the notion of a reasonable number of hours to be worked at weekends is not so uncertain as to be devoid of contractual effect, and Ms Ling did not contend that it was. For years the parties gave practical effect to the term in a way which was acceptable to both of them; and had any dispute arisen it would have been possible for a court to resolve matters and find what constituted a reasonable amount having regard both to the interest of Mr Merry and to the requirements of his employer at the relevant time.
17. However, Ms Ling submits that the judge fell into error because, she says, on the proper construction of paragraph A2(2)(a) of the PCSPS the judge should have held that "basic pay" is confined to precisely specified hours in any contract of employment and hence should have found that only Mr Merry's remuneration in respect of the 36.25 hours referred to in clause 6 of his written contract of 1 April 1998 could qualify as "basic pay" for the purposes of the PCSPS. In that regard, she also emphasises that for his weekend working, Mr Merry was paid at the relevant overtime rate, which she says indicates that his pay for weekend work cannot be regarded as "basic pay".
18. I cannot accept these submissions.
19. In my judgment, the judge was right to hold that the simple concept of "basic pay" as used in paragraph A2(2)(a) of the PCSPS is, straightforwardly, the pay due in respect of the obligatory contractual working hours of the employee. By obligatory working hours I mean hours in respect of which there is an obligation on the employee to work for those hours and an obligation on the employer to provide work to be fulfilled by the employee in those hours or to pay the employee in respect of those hours even if no work is provided. This concept of "basic pay", in the sense of pay in respect of obligatory working hours, is used in this context in the PCSPS to distinguish it from overtime work in relation to which either the employer has no obligation to provide such work or the employee has no obligation to carry it out.
20. No doubt the contractual terms agreed with Mr Merry in 1999 were atypical. However, the hours worked by Mr Merry at weekends were, on the findings of the judge, part of his obligatory contractual working hours. The fact that for those hours Mr Merry was paid at an overtime rate is neither here nor there: it did not mean that he was not contractually obliged to work those hours, nor that the employer was not contractually obliged to provide work and pay him for those hours. The agreement that Mr Merry should be paid an overtime rate merely set the amount that he should be paid for each hour worked at the weekend; it does not determine whether such work should be characterised as part of his obligatory contractual working hours or overtime. The judge was, therefore, right to hold that the remuneration paid to Mr Merry in respect of those hours spent working at weekends constituted part of his "basic pay", and hence constituted "pensionable earnings" for the purposes of calculating the compensation payment due to him under the Compensation Scheme and the amount of pension due under the PCSPS.
21. I can see no good grounds for limiting the concept of "basic pay" as used in paragraph A2(2)(a) of the PCSPS to situations in which an employee happens to have stipulated in his employment contract a set number of hours to be worked. Employment contracts to which the PCSPS applies come in many different forms and cover a very wide range as regards the extent of obligations with respect to working hours. A contract may provide for more or less flexibility with respect to hours worked, whether as a matter of discretion for the employer or for the employee or both. There is no indication in paragraph A2(2)(a) that it is intended to be confined in its effect to cases of the kind referred to by Ms Ling. Moreover, any such restriction would operate in an arbitrary and potentially unjust way by excluding workers from benefits under the PCSPS and the Compensation Scheme on the basis of essentially adventitious differences in the way in which their contractual obligations with respect to working hours are expressed. It is not reasonable to suppose that this could have been intended. Rather, I consider that the concept of "basic pay" in this context is intended to apply in a much simpler and fairer way, by drawing a distinction between the remuneration for obligatory working hours of an employee and remuneration in respect of any non-obligatory working hours, which constitute overtime.
22. Ms Ling submits, correctly, that a pension scheme made under section 1, as a self-standing legal instrument promulgated by the Minister, should be interpreted in the same way as other forms of delegated legislation, such as a statutory instrument, would be. But I do not think that this helps her. The natural interpretation of paragraph A2(2)(a) of the PCSPS is as set out above.
23. Ms Ling referred to certain materials which she said we should accept as aids to interpretation of the PCSPS. For the most part, I do not find these of assistance. She referred to Article 119 EC (on equal pay, now Article 157 TFEU), because it was in place in 2002 when the PCSPS was promulgated and it refers to "the ordinary basic or minimum wage or salary". But the language, context and object of Article 119 are wholly different from those of the PCSPS and there is nothing to indicate that the PCSPS was formulated by reference to Article 119. Even if, contrary to my view, Article 119 were capable of being an aid to interpretation of the PCSPS, it seems to me that it would tell against Ms Ling's proposed interpretation of paragraph A2(2)(a), since there is no reason why the broad concept of "ordinary basic or minimum wage or salary" in Article 119 should be read down in the unprincipled way proposed by Ms Ling.
24. Next, Ms Ling referred us to a discussion of the concept of "conditioned hours" in paragraph 370 of the 1980 Civil Service Code. The first sentence of this states, "For the majority of full-time non-industrial civil servants pay is related to a specified number of hours of attendance per week, known as 'conditioned hours'." I have difficulty in seeing how this provides any guidance regarding the meaning of "basic pay" in the PCSPS. The PCSPS does not use the concept of "conditioned hours" and there is nothing to indicate that there was any intention that this provision in a 1980 Code should be reflected in the 2002 Section of the PCSPS. Moreover, when I asked Ms Ling what was the position in relation to the minority of non-industrial civil servants whose pay was not related to a specified number of hours of attendance per week (Mr Merry being in this group, on the findings made by the judge), she said that they had no "conditioned hours" of work at all. Again, I do not see how a concept which is not applicable in relation to someone in Mr Merry's position can provide any assistance as to how paragraph A2(2)(a) of the PCSPS should be applied in relation to him. Throughout these proceedings, the appellants have accepted that Mr Merry did receive some basic pay; they have never contended that he received none at all.
25. Then Ms Ling took us to a Manual in respect of the 1972 version of the PCSPS which, although the version she showed us was dated 2006, she said had been in the same form in 2002 when the 2002 Section of the PCSPS had been promulgated. Her suggestion was that this document should be taken to inform the meaning of paragraph A2(2)(a) of the PCSPS. Even on the assumption that the Manual existed in this form in 2002, I do not accept this. The Manual does not refer to "basic pay", but to a different concept of "basic salary" which has its own definition which is not used in the 2002 section of the PCSPS. Again, even if, contrary to my view, the Manual were admissible as an aid to interpretation of paragraph A2(2)(a), I think it tends to support the interpretation of that provision arrived at by the judge and which I favour. Paragraph 5.1.4 of the Manual says that "Basic salary excludes piece rates; bonus payments; and payments for overtime". It therefore tends to indicate that payments in respect of hours worked which are not overtime, but are part of the obligatory contractual working hours of the employee, as in the case of Mr Merry, are part of an employee's "basic salary". Furthermore, although again I do not consider that they are properly to be regarded as an aid to interpretation of the 2002 section of the PCSPS, paragraphs 5.1.11 to 5.1.15 of the Manual, on which Ms Ling sought to rely, also seem to me to tend to support the interpretation of paragraph A2(2)(a) which the judge and I prefer. For example, paragraph 5.1.15 of the Manual states that "If staff are conditioned to work on a Saturday, Sunday or Bank or Public Holiday then the whole of their pay (up to conditioned hours) is pensionable." In this context "conditioned" appears to mean "obliged"; so if this were to be applied on the facts of Mr Merry's case, it would mean that the whole of his pay, including his pay in respect of the days on weekends when he was obliged to work and did work, should be treated as pensionable earnings.
26. In the context of seeking to rely on the Manual, Ms Ling placed emphasis on paragraph A2(4) of the PCSPS, set out above. She said that this provision, read with the Manual, cast light on the meaning of "basic pay" in paragraph A2(2)(a) and supported her interpretation of that provision. I have already dealt with the Manual and the fact that it does not provide support for the appellants' position; but in any event, I do not consider that paragraph A2(4) assists them. It only applies in a case which does not fall within paragraph A2(2)(a) (or certain other provisions), so the prior question is what constitutes "basic pay" within that provision. I do not consider that paragraph A2(4) casts any light on that.
27. Finally, Ms Ling sought to rely on certain domestic authorities in support of her proposed interpretation of paragraph A2(2)(a) of the PCSPS. The contexts in which these authorities were decided are very different from that provision. However, I think they are of some limited assistance in illustrating how a concept like "basic pay" would naturally be understood in an employment context. They emphasise the distinction between normal working hours (in respect of which one might perhaps expect the remuneration to constitute "basic pay") and overtime: see in particular Tarmac Roadstone Holdings Ltd v Peacock [1973] 1 WLR 594, 598H-599C per Lord Denning MR. As there analysed by Lord Denning, normal working hours are in effect the same as what I have called obligatory contractual working hours, which suggests that it is natural to regard the sums paid in respect of such hours as "basic pay", as the judge and I do. (It is true that Lord Denning, at p. 598H, refers to normal working hours as being "where there is a fixed number of compulsory working hours", but that simply reflects the precise terms of the statutory provision which he was seeking to interpret; at p. 599A-B, he explains that if the employer is bound to provide overtime and the employee is bound to serve it, that also constitutes normal working hours for the purposes of the provision in question; see also Lotus Cars Ltd v Sutcliffe [1982] IRLR 381, CA, at [5]). In Driver v Air India Ltd [2011] IRLR 992, CA, at [129], Mummery LJ said, "The general idea of overtime is obvious: extra time spent working more than the contracted normal working hours." In the present case, when Mr Merry worked at weekends he was working in accordance with his obligatory contractual working hours, and was not undertaking overtime work. So, again, Mummery LJ's statement tends to indicate that Mr Merry's pay for his work at weekends was part of his "basic pay".

Conclusion

28. For the reasons given above, I would dismiss this appeal.

The Senior President of Tribunals:

29. I agree.