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Cite as: 2006 SC 550, 2006 GWD 14-263, 2006 SLT 524, [2006] IRLR 468, [2006] CSIH 21, [2006] ScotCS CSIH_21

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EXTRA DIVISION, INNER HOUSE, COURT OF SESSION

Lord Abernethy

Lord Johnston

Lord Drummond Young

[2006] CSIH 21

XA43/05

OPINION OF THE COURT

delivered by LORD JOHNSTON

APPEAL TO THE COURT OF SESSION

under section 37(1) of the Employment Tribunals Act 1996

MRS. ELIDH HOYLAND

Appellant;

against

AN ORDER AND JUDGMENT OF THE EMPLOYMENT APPEAL TRIBUNAL dated 22 February 2005

_______

Act: Napier, Q.C.; Anderson Strathern (Appellant)

Alt: Truscott, Q.C.; Pinsent Mason (Respondents)

5 April 2006

[1] This is an appeal at the instance of an employee against a decision of the Employment Appeal Tribunal dated 22 February 2005 which declined to interfere with a decision of the Employment Tribunal dated 27 May 2004.

[2] Before the Employment Tribunal a number of issues were argued, as indeed were also before the Employment Appeal Tribunal. But before us, despite the number of grounds of appeal that were lodged, only one is in issue relating to the interpretation against the background of an agreed statement of facts of section 6(6) of the Sex Discrimination Act 1975 which is in the following terms:

"Subsection (2) does not apply to benefits consisting of a payment of money when the provisions of those benefits is regulated by the woman's contract of employment."

This in turn refers back to the basis of legislative discrimination against women in section 6(2) of the same Act.

[3] Before us the issue of whether or not discrimination had in fact occurred was not argued as it equally had not been in the Tribunals below and the point before us was accordingly restricted solely to the issue focused by section 6(6).

[4] The relevant ground of appeal argued before us is in the following terms:

"The Employment Appeal Tribunal erred in law in finding that the Appellant's claim of sex discrimination was defeated by section 6(6) of the Sex Discrimination Act 1975. The bonus scheme operated by the Respondents was described by them as 'discretionary' and, with regard to such a scheme, it cannot be said that the 'provision' of the benefits under it is 'regulated' by the Appellant's contract of employment."

[5] As we have indicated there was an agreed statement of facts which is in the following terms:

"1. The Applicant is (and was at all times material to these proceedings)

employed as a part time Customer Services Assistant at the Respondent's Dumbarton store.

2. The Applicant became pregnant and was absent from work on

Maternity Leave from 1 June 2002 until 3 December 2002.

3. The Applicant performed no work of any kind for the Respondent

during her period of maternity leave.

4. Details of the payments made by the Respondent to the Applicant

during her maternity leave are set out at Schedule 1 attached hereto.

5. The Respondent operates a Bonus Scheme, the function and purpose of

which is to provide a means of rewarding all employees (known as colleagues) for their continued contribution to the business (ie work done) during the bonus year (which is equivalent to the calendar year).

6. The Respondent's Bonus Scheme is discretionary.

7. The Applicant's claim is in respect of her 2002 bonus payment.

8. The Rules of the Respondent's Bonus Scheme have changed since the

payment of the 2002 bonus, but not in any respect which is material to these proceedings.

9. The 2002 bonus was payable to all employees (a) who had attained 12

months service as at 31 December 2002, and (b) who remained in the Respondent's employment on the payment date, namely 21 February 2003.

10. There are certain factors which require the bonus to be pro-rated to

reflect, for example, a colleague's absence from the business of 8 consecutive weeks or more, or to reflect their disciplinary record.

11. The Applicant was absent on maternity leave for a period of 183 days

in the 2002 bonus year. Her bonus was pro-rated in accordance with the Scheme Rules to reflect this absence, resulting in a payment to her of £94.48.

12. As the Applicant's store performed to a standard which allowed all

colleagues in the store to receive 120% bonus (known as 'Superbonus') the Applicant was entitled to a higher level of bonus, full details of which are set out at Schedule 2 attached hereto.

13. Other colleagues at the Dumbarton store also received a pro-rated

bonus for a number of reasons, including, in some cases, maternity leave. The relevant details for the bonus paid on 21 February 2003 are set out at Schedule 3 hereto.

14. In relation to the pro-rating of bonus payments, the Respondent treats

or would treat those who have been on maternity leave no differently than it treats those who have been on paternity leave.

15. The Applicant served a questionnaire pursuant to s. 74 of the Sex

Discrimination Act 1975/the Sex Discrimination (Questions and Replies) Order 1975, on 15 March 2003.

16. The Applicant lodged her originating application with the Employment

Tribunal on 23 April 2003. The Respondent replied to the Applicant's Questionnaire on 7 May 2003."

[6] Certain documentation was placed before the Tribunal and referred to before us by both parties in relation to both the questionnaire referred to above, and also various leaflets which applied to the respondent's bonus scheme which is the subject-matter of the appeal. It is sufficient for us simply to point out or reflect the fact that within those leaflets absence for both maternity leave in the case of a woman and paternity leave in the case of a man resulted in a reduction in the level of bonus that would otherwise be paid. That is what happened in the present case and it is against that position that the appellant now brings the matter to this court.

[7] The critical part of the Employment Tribunal's decision is paragraph 27, on page 8, which is in the following terms:

"In any event, the Tribunal did not agree with the applicant that the failure of the respondents to pay her bonus in full was a competent claim under the Sex Discrimination Act 1975. This would require the bonus to be a non-contractual payment. In the present case the decision about whether the applicant should receive her bonus in full was regulated by the Bonus Scheme. If the applicant complied with the rules of the Bonus Scheme she was entitled to be paid the bonus. This was not a matter left to the discretion of the respondents. In addition, the amount of bonus to be paid was not discretionary within the terms of the Scheme. For the purposes of work undertaken during 2002, the Bonus Scheme formed part of her contract of employment. The applicant appeared to acknowledge the contractual status of the bonus by referring to it as a right connected with her employment contract and by comparing her right to a bonus with other contractual rights such as annual leave and accrual of occupational pension rights, as in the case of Boyle & Ors v EOC [1998] IRLR 717 (ECJ)."

[8] In endorsing the decision of the Employment Tribunal the Employment Appeal Tribunal set out its decision in paragraph 23:

"23. In our judgment Mrs. Hoyland's claim falls four square within section 6(6) of the Sex Discrimination Act. The bonus was described in the scheme as 'discretionary' but does not appear to have been withheld from anyone who satisfied the qualifying requirements. The Employment Tribunal found in paragraph 27 of their decision that 'if the applicant complied with the rules of the bonus scheme she was entitled to be paid the bonus. This was not a matter left to the discretion of the respondents. In addition the amount of bonus to be paid was not discretionary within the term of the Scheme'. Neither we nor either Leading Counsel in the case could think of any circumstances, except perhaps if the company were on the brink of insolvency, in which an employee qualifying under the terms of the scheme would not be paid the bonus, and Mr. Hand was content for that fact to be recorded in our judgment. The claim for sex discrimination was therefore rightly rejected by the Tribunal."

[9] Counsel for the appellant presented a relatively simple submission to the effect that the entitlement to bonus was not a contractual provision but was discretionary in respect of any qualifying employee. It was, he said, stated to be such in both the agreed statement of facts and in the various documents to which we were referred. It does appear, as a matter of fact as counsel accepted, that the appellant was not aware of the effect of maternity leave on her bonus entitlement but it was accepted at both sides of the bar that this was nothing to the point. The issue was the construction of the contractual or otherwise provisions which led to the payment of bonus and whether or not, upon the evidence and as a proper construction of section 6(6), it fell within the provisions of that section which has the result of denying any claim for discrimination as far as any employee who suffers the deduction in terms of bonus by reason of being on maternity leave.

[10] Counsel submitted that the issue of bonus entitlement was entirely separate from any contractual provision in the employee's contract and as such did not therefore fall within the exclusion created by section 6(6) of the Act. He referred us to GUS Home Shopping Limited v Green and McLaughlin 2001 IRLR 75 and Farrell Matthews and Weir v Hansen 2005 IRLR 160. Both cases, he submitted, were illustrative of a situation where a bonus could be payable outwith the confines of the contract in a particular contract of employment. Counsel went further in as much that he submitted that discrimination based on pregnancy was in itself discrimination against a woman and in this respect he drew our attention to Webb v Emo Air Cargo UK Limited, a decision of the European Court in 1994 ICR 770. Given, he submitted, that the entitlement to bonus was entirely discretionary in terms of a proper construction of the contract, section 6(6) could not apply in any event.

[11] In reply Mr. Truscott, Q.C., opened by pointing to the very narrow ground of appeal which was now being presented against the background of the limited jurisdiction of this court in this type of case as focused in Melon v Hector Powe 1980 S.C. 188. This court was solely concerned with whether or not the Employment Tribunal had made an error of law as exposed by the grounds of appeal now presented to this court. It could not substitute its own view if no such error of law as defined in Melon could be found. He therefore submitted that the issue of whether or not there was discrimination in this case, quite apart from the question of section 6(6), was not open to be determined before this court and at best therefore for the appellant, he submitted, if this court was of the view that the Tribunal had erred in its construction of the contractual provisions as applied to section 6(6) the matter of discrimination would still have to be investigated at the Employment Tribunal level.

[12] Against that background Mr. Truscott accepted that the issue before us was one of domestic law but he spent a little time, quite properly, focusing on the European position as between interaction of the Equal Pay Directive and the Equal Treatment Directive when it comes to issues of pay. Very succinctly he submitted that the two were wholly separate and questions of pay now broadly defined within the European jurisprudence did not feature in questions of equal treatment. In passing we were referred to Gillespie v Northern Health Social Services Board 1996 E.C.R. 475 and North Western Health Board v McKenna 191/03 2005 E.C.R.

[13] Against that background Mr. Truscott then concentrated upon the contractual provisions or otherwise in this case and the relevance of section 6(6). He submitted that the terms of section 6(6) did not require entitlement to bonus in general terms necessarily to be a term of the contract of employment, provided it was regulated by it. In other words his submission was that an entitlement to bonus may depend upon factual circumstances beyond the actual terms of the contract of employment but, if related to it on a causative basis, that did not preclude section 6(6) applying. He re-emphasised that questions of equality of pay were for the equal pay legislation while questions of equal treatment were for the discrimination legislation and the two should not become intermingled.

[14] In seeking to resolve this matter we consider that the important word in section 6(6) is "regulated". While we recognise that the word "discretionary" is used by the employer in referring to the bonus scheme, that can be construed as relating only to the amount being paid in any one year and we recognise that the Tribunal found, as a matter of fact, that every employee received a bonus. We have no doubt that that entitlement, if it be such in law, arose out of the contract of employment and is regulated by it in the sense that but for the existence of the contract of employment the bonus would not be paid and it is therefore being paid as a consequence of its very existence. It does not seem to us to be necessary for section 6(6) to have any application in a given situation that the entitlement in question should be part of the formal contract of employment. This conclusion reflects the dichotomy between equal pay and equal treatment, and avoids an employer being exposed to double jeopardy.

[15] We are therefore in no doubt that the Employment Tribunal and the Employment Appeal Tribunal reached the correct decision in construing the arrangements for bonus payments in respect of the appellant as falling within the terms of section 6(6) and thus excluding any claim for sex discrimination under the 1975 Act.

[16] We confess to be surprised that the issue of whether there was any discrimination at all was not taken before the lower Tribunals having regard to the fact that it appears that a man claiming paternity leave is in precisely the same position as a woman claiming maternity leave. It may be that some distinction is sought to be drawn because in the female's case pregnancy requires her to leave her employment temporarily, while a father, or potential father, has an option.

[17] Be that as it may, we recognise that we cannot determine this matter and if we had been in favour of the appellant's position we would have remitted the matter back for a further hearing before an Employment Tribunal on the issue of discrimination in principle.

[18] However, in the circumstances, for the reasons we have given the appeal will be dismissed and the order of the Employment Appeal Tribunal, itself supporting the order of the Employment Tribunal, will be endorsed.