United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellants	MISS M TETHER (of Counsel) Messrs Thompsons Solicitors Percy House Percy Street Newcastle-upon-Tyne NE1 4QW
For the Respondents	MR D STILITZ (of Counsel) Instructed by: Mr A Cooper Legal Adviser EEF East Midlands Association Regional Offices Barleythorpe Oakham Rutland LE15 7ED


 


MR JUSTICE LINDSAY (PRESIDENT): We have before us a full hearing of the appeal of Mr J A Waugh and Mr I C Cox in the matter Waugh & Cox v Glendale Industries Limited. There was a hearing on 25th November 1998 before Mr J R Barton, Chairman, sitting alone. The decision was sent to the parties on 15th December 1998. So far as concerns today's business, the relevant decision was this:

"The complaints made by Mr Waugh and Mr Cox that they have suffered unlawful deductions from wages are not made out and are accordingly dismissed."

1. The chief issue today, loosely expressed, is whether Messrs Waugh and Cox are entitled in law to bonus or sums relative to bonus in respect of periods when they were absent through sickness but in respect of which periods, that sickness absence apart, they would have been entitled to bonus.
2. The tribunal held in their paragraph 2:

"The three applicants had complained that they had suffered unauthorised deductions from wages represented by a failure on the part of the respondent to pay to them bonus during periods of absence through sickness as they claimed to have been the case prior to a transfer of the undertaking to the respondent which took place in February of 1998. … The respondent denied any unlawful deductions from wages claiming that there was no liability upon the respondent to make payment for bonus during sickness absence as was made clear by the contractual documents."

3. Sunderland City Council formerly employed Messrs Waugh and Cox (for whom Miss Tether appears). There was a "relevant transfer" for the purposes of TUPE from Sunderland City Council to Glendale on 16th February 1998. Mr Stilitz appears today for Glendale. In consequence, Glendale employed Messrs Waugh and Cox on terms on which Sunderland had, before the transfer, employed them - TUPE Regulation 5(1). It is thus crucial to find upon what terms Sunderland had employed them.
4. Remarkably, the actual terms of the contracts of Messrs Waugh and Cox were not put before the Employment tribunal. We set out, therefore, on a journey and we have to keep in mind the chronology when looking at the various papers which were laid before the Employment Tribunal, which are very far short of the totality of what might be relevant.
5. First, in point of time, there is a local agreement. On 17th January 1990, although it is headed "draft", a joint industrial agreement was made between Sunderland, on the one hand, and two unions on the other, GMBATU and NUPE. That agreement is headed:

"DRAFT JOINT INDUSTRIAL AGREEMENT BETWEEN THE DEPARTMENT OF LEISURE SERVICES AND G.M.B.A.T.U. AND N.U.P.E. REPRESENTING GROUNDS MAINTENANCE EMPLOYEES OF THE BOROUGH OF SUNDERLAND."

It says that it "now forms a Collective Agreement, binding upon all appropriate Parks and Grounds Maintenance employees." Mr Stilitz draws attention to the fact that it was introduced as a result, it says, of compulsory competitive tendering and as part of the need to achieve maximum efficiency from the work force involved, those engaged on grounds maintenance. Employees' pay was to include a fixed predetermined bonus subject to successful completion of particular contracts. Thus there is a Clause 2(ii):

"Task and Finish

The introduction of a 'Task and Finish' work programme, subject to the operational requirements of the service, as determined by Management coupled with a payment of a fixed predetermined bonus, based on work planning. This fixed bonus will initially be at 50% of basic rate, with another 5% paid at the end of each year subject to the successful completion of the contract, at that bonus performance level, and with the required manning."

But that bonus was not to be paid during sickness absence because there is an express provision:

"Bonus will not be paid for sickness absence …"

The 5% bonus would be adjusted to reflect sickness absence but, for all that, there is the provision as to bonus not being payable. The draft concludes:

"We, the undersigned, being the duly accredited representatives of the Grounds Maintenance workforce, employed by the Borough of Sunderland Leisure Services Department, acting jointly and severally for an on behalf of the whole workforce, signify agreement to the terms and conditions of the Joint Industrial Agreement.

Furthermore, we agree to maintain and uphold all of the provisions of the Joint Industrial Agreement and undertake to take no industrial action which will undermine or attempt to breach the Conditions of the Agreement."

That was the position as at 17th January 1990. As part of the deal then done there was payment of a one-off ex gratia lump sum payment but precisely what that was compensation for is hard to judge because we have not seen the arrangements that were in place before then. Plainly that one-off ex gratia lump sum could represent compensation for change or a willingness to change on several of the topics, for example, as Miss Tether pointed out, a cashless pay system was then introduced. It is hard to pay very much attention to the one-off ex gratia lump sum payment because, as I say, we cannot compare the before and after states. That, as I say, was the position as at 17th January 1990 but already and some years before that, there was also available to employees the fruits of a national negotiation, namely an instrument called:

"NATIONAL JOINT COUNCIL FOR LOCAL AUTHORITIES' SERVICES (MANUAL WORKERS) HANDBOOK"

It was revised in 1988 and updated in March 1990. The whole Handbook was not, as it seems, laid before the Employment Tribunal and is not before us, either in its 1988 form or as at any other time. We thus have the tiresome task of construing a document without seeing the whole of it. Indeed, the papers in this case make one despair of how any individual employee could reasonably be expected ever to find out the complete terms on which he was employed.

6. The Handbook was revised and amended from time to time. On 31st January 1991 the local authorities were sent a letter from the National Joint Council headed "Harmonisation of Sick Pay". (Bundle pages 40-41). On page 41, under the heading of "Agreement", its says:

"The NJC has reached agreement on the harmonisation of sick pay and the consequential changes to the wording of the National Agreement which takes effect no later than 1st August 1991. The revised paragraphs for the National Agreement are set out in Appendix A.

[A little later and more importantly for immediate purposes] … The main effect of this agreement is that bonus earnings will become part of normal earnings for the purpose of calculating payments made during periods of sickness absence."

It is to be noted there that there was no attempt there to distinguish absence on account of different classes of sickness, for example, sickness in respect of disease or injury that has occurred by reason of a man or woman's employment and sickness or disease incurred irrespective of or unrelated to the person's employment. Bonus within that description would seem to be payable whatever kind of sickness caused the absence. The Handbook was updated many times until we come to a form headed "Updated July 1994" which seems to be the form in which part of it was put before the Employment Tribunal and some provisions now need to be referred to. Thus under the heading of Section 3 entitled "Working Arrangements" one sees at 1(b):

"Locally Negotiated Variations

(i) Variations from the standard provisions referred to above, can be negotiated locally. These negotiations can encompass the number and spread of hours (which can be spread over periods other than a week) and the level of enhanced rates that may apply to weekend work which is part of the normal working pattern, excluding overtime. These negotiations shall accord with local procedures. …"

At 2 headed "Incentive Bonus Schemes":

"The National Council's agreement on work study based schemes is set out in the Code of Guiding Principles (See Appendix A to this section)."

That Appendix A was in evidence and is headed:

"CODE OF GUIDING PRINCIPLES AND PRACTICE FOR WORK STUDY BASED INCENTIVE SCHEMES FOR LOCAL AUTHORITIES' SERVICES (MANUAL WORKERS)"

Under the heading "Introduction" the following is found:

"(1) The National Council has emphasised to local authorities the benefits to be gained both by employers and employees from the application of soundly based incentive bonus schemes and has urged authorities to introduce such schemes. Wherever possible and practicable, incentive schemes in local authorities should be based on accepted work study principles: this Code is for the use of authorities during the design, implementation and operation of such schemes."

Section 7 is headed:

"SCHEME FOR SICKNESS AND MATERNITY LEAVE"

This is an area of great materiality to the outcome of this case:

"(A) SICKNESS SCHEME

1. APPLICATION

(a) This is a scheme to supplement State Insurance Benefit and Statutory Sick Pay by the payment of allowances during absence from work through sickness, disease or disablement arising either in the normal course or through accident not associated with employment with a local authority (hereinafter called "normal sickness"), or out of and in course of such employment, but not attributable to an employee's own misconduct (hereinafter referred to as "industrial disease or accident"). Absence shall be regarded as due to industrial disease or accident when it accords with the provisions of paragraph 25.

(b) The Scheme is intended to secure that, during such absence and for the periods referred to in paragraph 5, the employee shall receive by way of the allowance and Statutory Sick Pay or State Insurance Benefit not more than the sum of his or her normal earnings as defined in paragraph 7. Any other state benefit or pension which an employee would receive when at work is not affected by this Scheme."

It is to be noted there that there is a clear distinction between "normal sickness" and "industrial disease or accident", but the allowance referred to appears to be payable during either. Secondly, the employee is to receive "not more than the sum of his or her normal earnings" but nothing there says that he is inevitably to receive only less. The distinct forms of sickness absence are reflected also in paragraph 3 on the same page where it provides:

"3. SICKNESS AND ACCIDENT ALLOWANCES TO BE TREATED AS SEPARATE ENTITLEMENTS

The allowances in respect of (a) normal sickness and (b) absence due to industrial disease or accident are entirely separate, and periods of absence in respect of one shall not be set against the other for the purpose of paragraph 6 of the Scheme."

In paragraph 7 under the heading "Normal Earnings" one finds, first of all, this:

"(a) For the purposes of this Section normal earnings are the earning that would be paid during a period of normal working but excluding:

(i) casual overtime payments;

(ii) casual standby payments;

(iii) payment of a higher grade rate than an employees' normal rate of wages where on the day immediately prior to absence due to sickness the employee has been receiving that payment for less than four weeks; and

Note at that stage there is no apparent exclusion of bonus. Indeed, on the face of things, bonus falls within those opening words "earnings that would be paid during a period of normal working". Then in subparagraph (b) of section 7 one finds this:

(b) In respect of absence on account of sickness or industrial disease or accident as defined in paragraph 25 a bonus earner shall be entitled as part of normal earnings to a sum equal to his/her average bonus earnings. This is to be determined by reference to the average bonus earned per hour over the preceding three months or any other period agreed locally. For an employee in receipt of a self-financing lead-in payment, as provided for in National Section 3, paragraph 3, there shall be paid, as part of normal wages, a sum equal to his/her lead-in payment."

That subparagraph 7(b) is a paragraph, which deals not with just computation or definition but also entitlement. It is to be noted that an employee's receipts do not directly reflect the bonus he or she would otherwise have got but instead there is to be a defined computed average, which may, of course, be higher or lower than what he or she might otherwise have received. The Scheme, going back to paragraph 1(b), requires also a computation of the Statutory Sick Pay or State Insurance Benefit received by an employee so that the employee, when receiving those, does not end up receiving more than his or her normal earnings. Thus the position would seem to be that 'bonus' strictly so-called is not receivable under the provisions of 7(b) but instead a computed figure representing something equivalent to an average bonus further reducible so as not to exceed normal earnings after Statutory Sick Pay or State Insurance Benefit is taken into account. Finally, looking at these provisions, paragraph 25 deals with the separate case of "Industrial Disease or Accident". It begins by saying:

"Where an employee is absent from work as a result of an industrial disease or accident (as defined in paragraph 1(a) the employee shall be entitled to the provisions of the sickness pay scheme relating to industrial disease or accident, provided that the employee, has complied with the following conditions: …"

Then conditions are set out which we do not need to read.

7. What did the Chairman say about these provisions? He said in his paragraph 4(d):

"The relevant terms and conditions appear in the National Joint Council for Local Authorities' Service (Manual Workers) Handbook revised in 1988 and last updated in July 1994, a copy of which appears at R1 pages 19 to 40, and in a local agreement between the Leisure Services Department of the then Borough of Sunderland the unions representing grounds maintenance employees which is dated 17 January 1990 and which appears at R1 pages 41 to 46. That document is referred to as a draft but is signed by the representatives from the unions and by the Director of Leisure Services and has been accepted by those appearing before me today as the agreement."

He continues at subparagraph (e):

"I have also been referred to a letter dated 31 January 1991 from Mr Donald McGregor, National Industrial Officer and Trade Union Secretary for the National Council for Local Authorities' Service (Manual Workers) which appears at A1 document 2 and under the heading "Harmonisation of Sick Pay" proposes changes to the national agreement as set out in Appendix A to the letter. Mr Scarr [who represented the applicants and is a GMB official] argues that since these amendments were made Sunderland City Council accepted the responsibility to pay bonus during sickness absence. I have considered the amendments carefully and indeed Mr Cooper for the respondent has taken me through them one by one comparing them with the updated copy of the revised NJC handbook which appears at pages 19 to 40 of R1. I am satisfied that all those amendments had been incorporated into the national agreement."

What the Chairman does not perhaps fully take into account is the effect of time. If the 1994 Edition of the Handbook represents, as he holds to be the case, the relevant terms and conditions, then if the Handbook provides differently than does the 17th January 1990 local agreement or 31st January 1991 letter, then the Handbook, as the later of the agreed terms, would automatically replace the earlier terms unless some special provision was found in either the local or the national terms or in that letter to procure some different effect. But the Chairman refers to no such provisions, nor have we seen one. Mr Stilitz has referred us to a document, not before the Employment Tribunal, which is section 11(3) of the Handbook, but that would seem to refer only to the function of the National Joint Council. It does not provide for a necessary precedence between local and Handbook terms or assist in any other material way to the construction of the matters before us. Accordingly, as it seems to us, to any extent to which they make differing and inconsistent provisions, we must prefer the later version, the 1994 Handbook, to whatever comes earlier.

8. The Chairman then turns to the provisions in 1994 Handbook that might be thought to point against bonus. He says this at paragraph 4(f):

"At page 25 of R1 under the heading "Time on Bonus, Lost Time and Unmeasured Work" at paragraph (8)(ix) it states "Bonus is not payable for absence through sickness or injury". At page 30 under the heading "Pay and productivity Self-Financing Lead-in Payment Part 1, The Agreement" at paragraph 1.4 states "The payment continues during annual and public and extra statutory holidays, but not during sickness leave". A similar reference appears at page 32 paragraph 1.4 under the heading "Part 11, The Procedure"."

Those references are all correct, but they do not, in our view, counter the entitlement in the computation provisions of paragraph 7 of the Sickness Scheme. It is correct that 'normal bonus' properly so-called is not payable during absence through sickness, but that does not negate the entitlement to a figure computed by reference to an average bonus under paragraph 7 and computed so as, if necessary, to be reduced on account of Statutory Sickness Pay so as never to exceed the normal earnings. The paragraph 8(ix) cited is dealing with what one might call 'ordinary bonus'. Paragraph 7 instead deals with a notional average reducible to take account of Statutory Sickness Pay and never to exceed normal earnings. They are two different things. Saying that the former is not payable during sickness does not, of itself, disentitle an employee to receipt of the latter.

9. Then at paragraph 4(g) the Chairman says, in reference to paragraph 7, this:

"… Paragraph 25 relates to industrial disease or accident (page 40 of R1) as defined by paragraph 1(a) (page of R1) and clearly differentiates the reference to payment of average bonus to industrial disease or accident from normal sickness where such payment does not apply."

We respectfully disagree. Paragraph 25 deals only with industrial disease or accident and has no differentiation between that and normal sickness absence. That differentiation is to be found in paragraph 1(a). But paragraph 1(a) does not require there to be no payment during normal sickness absence; it says "either".

10. The Chairman continues in his paragraph 4(h):

"The local agreement at page 41 of R1 under paragraph 2(ii) also makes clear that bonus is not payable for sickness absence and would only be payable for the first absence for industrial injury. There is nothing before me to suggest that these applicants falls into that category. On page 53 under heading "Holiday & Sickness" it also states clearly at paragraph 17 "Bonus will not be paid for (i) sickness"."

But if the local agreement does so provide, as indeed it does, it is inconsistent with the later provisions of the Handbook, which, as representing a later agreement, inescapably become the ruling provision to the extent that it is inconsistent with the former provisions.

11. The Chairman said in his paragraph 5:

"From the above findings of fact it appears to me that the contractual position is clear. Bonus is not payable during sickness except in limited circumstances of industrial disease or injury. I am not satisfied that those circumstances apply in this case. Annual bonus is not payable where bonus performance level is not achieved. I am satisfied on the limited evidence before me that it was not achieved."

If the Chairman meant by that that 'ordinary bonus', properly- so-called, was not payable during absence on account normal sickness, well then, he would undoubtedly have been right; but if he meant by that that in the computation of an employee's entitlement under the national sickness scheme paragraph 1(b) the allowance, the 'notional average bonus' reduced as necessary on account of statutory sickness pay under paragraph 7(b), was to be excluded" he was, in our respectful view, wrong. The point is one of law only, as to the construction of documents, and so no question arises of us bowing to the tribunal's sovereignty on the finding of facts. In our judgment, the sums properly payable to Messrs Waugh and Cox should include sums computed by reference to the notional bonus reduced, if necessary, on account of Statutory Sickness Pay, at all events if bonus otherwise was payable.

12. Suppose, though, that we are wrong to distinguish between the 'bonus allowance' under 7(b) and 'bonus' strictly so-called. In that case, Mr Stilitz accepts that paragraph 7(b) is poorly drafted. Ultimately, leaving aside the distinction we have drawn between 'bonus' properly so-called and the allowance as computed within section 7(b), the choice on construction comes down to whether the word 'normal' was left out before the word 'sickness' or whether the words 'sickness or' are entirely redundant. We read the Scheme in section 7(b) and the reference to 'sickness' as truly intending to refer to 'normal sickness'. Firstly the word 'normal' would seem to have been omitted in another case also, namely in paragraph 6(a), so that if the word was dropped in 7(b) it is not the only occasion on which it was dropped. Secondly, it would seem to us that if there is real ambiguity - and who can say there is not - we would be entitled to look at the terms of the letter of 31st January 1991 which indicated the purpose that lay behind the new provisions. A reading which included the word 'normal' before sickness, would seem to accord with the broad purpose which was identified in the letter of 31st January 1991, which required no distinction between absence for different kinds of sickness. Thirdly, there seems to us to be an initial inherent improbability that anyone carefully turning to the provisions by way of definition in paragraph 25 would nonetheless have gone ahead with the words 'sickness or', which would be entirely redundant if Mr Stilitz's construction was correct.
13. The matter is far from clear, but we have indicated the preference which attracts us as a matter of construction. The Chairman finds no facts or figures as to ordinary or average bonus or statutory sickness pay or any other particular figures. It seems to us that if the notional bonus we have referred to as payable under paragraph 7(b) had been included as amongst the entitlement to Messrs Waugh and Cox, as we would hold to be right, then there may have been unlawful deductions from their pay. We certainly cannot be sure that there have not been. Accordingly, we shall set aside subparagraph (3) of the decision of the tribunal and remit the case.
14. It seems to us that this is a matter (especially so far as concerns the findings of the underlying facts as to how local and national agreements come to be made and how they dovetail or fail to dovetail) in respect of which the practical experience of sickness and incentive bonus schemes, national and local, of the lay members will be valuable. We therefore remit it but not merely to a tribunal of one but to a fresh tribunal of three, they to approach the construction of the various documents afresh.
15. We add that we are conscious of having had only a partial sight of some only of the possibly relevant documents. We have not seen the whole of the Handbook; it was not available to us or to the Employment Tribunal. We have not seen the actual terms and conditions of Messrs Waugh and Cox's employment. We do not say that the construction which we have today preferred is necessarily the right one when the totality of all documents is laid in front of an Employment Tribunal in some order. Even today the parties have had to produce fresh documents to add to those that had earlier been seen. So we do not remit this matter with an instruction to the tribunal that they are necessarily to adopt the construction which we have today preferred because it could be that when the totality of paper is available a different construction could be preferred. So we make that point clear, so that the Employment Tribunal of three that will consider the matter are at liberty to come to a different construction than the one to which we have arrived on the rather imperfect material that we have had.
16. We gain comfort too from a letter of 26th October 1998 written by Sunderland to the GMB, it says:

"Under the terms and conditions of the Local Joint Industrial Agreement of 17th January, 1990 bonus was not paid for sickness absence.

After the National Conditions relating to the sickness scheme were amended in August, 1991 bonus earners were paid average bonus earnings as part of normal earnings entitlements in line with the National Joint Council For Local Authorities' Services (Manual Workers) Handbook, Section 7, Paragraph 7(b).

A copy of this handbook was forwarded on 30th July, 1998 to all external contractors who were interested in tendering for Ground Maintenance Contract J as part of the TUPE information."

Sunderland is now, it would seem, an disinterested party, but that is what they have said and that gives us some comfort because it does suggest that actual practice has accorded with the construction which we have preferred.

17. This decision of ours renders it academic to discuss whether the Chairman was right to have heard the matter on his own. We have already remitted the matter to a fresh tribunal of three. It looked from the Notice of Appeal that there could be an argument about the propriety of a Chairman having heard it on his own, but that now seems to be a point which will not, in practice, arise.
18. The Chairman also took a view, as it would seem instructing himself - because neither side below actually drew it to his attention – as to the import of ss. 13 and 27 of the Employment Rights Act 1996 and the case Kent Management Services v Butterfield [1992] IRLR 394. He concluded:

"9 … Therefore although this is not a straightforward matter I am satisfied at the end of the day that these payments were not within the reasonable contemplation of both parties and are therefore not matters which properly fall within the definition of wages which have been unlawfully withheld."

He came to that view on the basis that the bonus in respect of any period of absence for "normal sickness" was expressly excluded. What he said on that was at his paragraph 9:

"I have therefore gone on to consider that finding in relation to the facts now before me. I am however satisfied that this was not simply a discretionary payment which was something which was within the reasonable contemplation of both parties that in ordinary circumstances the bonus would be payable because in this case there is an express contractual provision to the contrary. It is quite clear to me that the provision sets out in precise terms when the bonus will be payable and when it will not be payable. …"

Well that, as we have indicated, is not, in our view, the preferred construction of the provisions. The fresh tribunal of three will, of course, need to find facts such as whether any and if so what ordinary bonus was payable on the facts and as to what the paragraph 7(b) entitlement would be after a deduction, if appropriate, for Statutory Sick Pay and so on. It is not for us to dictate to that fresh tribunal what facts to find. They will have to conclude on the facts and on those facts decide what the full wages consisted of for the purposes of s.27 of the 1996 Act. Suffice it to say that had the Chairman seen that there was truly no express exclusion of the notional bonus or allowance of the kind that he had relied upon, it could well have been that he would have concluded that argument based on Kent Management Services otherwise than he did. We have not heard argument on this point and say no more in relation to it. We can be addressed on it if the parties find it necessary, but we would have thought it best left to be determined by the new tribunal in the light of whatever facts they actually find.

19. We do, though, emphasise that when the matter is heard afresh by this new tribunal of three, it will be appropriate for a full picture of the paper background to the contracts of Messrs Waugh and Cox to be laid before the tribunal It seems to us that the Chairman, Mr Barton, did not have as full a picture of the documents as he really was entitled to receive.
20. We set aside paragraph (3) of the decision , as we have indicated; we remit the whole matter for consideration by a fresh tribunal of three; we will hear the parties should either of them think it necessary on the Kent Management Services point, although it seems to us unnecessary given our findings, and we emphasise, as we mentioned earlier, that the tribunal, which we hope will have a fuller documentary picture before it than we have had, will be at liberty, should they so elect, to decide the matter of construction other than consistently with the preference which we have indicated.

[Counsel for the parties declined to raise the point relating to Kent Management Services. – Court rises.]