United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	MR MOHINOEPAL SETHI (of Counsel) Messrs Johns & Saggar Solicitors 193-195 Kentish Town Road London NW5 2JU
For the Respondent	NO APPEARANCE BY OR ON BEHALF OF THE RESPONDENT


 


MR JUSTICE MAURICE KAY:

1. The Appellant was employed by the East Midlands Offender Employment Consortium under the Business in Prison Project from 6th April 1998 until 4th June 1999. His job was that of business development manager. Following the termination of this employment, a dispute arose as sums which he maintained were owing to him in respect of the first month of his employment and holiday pay. The two aspects of the dispute relate to the same point and the appeal before us has concentrated on holiday pay. In the Statement of Terms and Conditions of Employment which was signed by both parties on 16th April 1998, the following provisions are set out under the heading "Annual Leave":

"In addition to public holidays, full-time employees are entitled to 20 days holiday on full pay for each completed calendar year, and to a pro rata number for each partial year.

Part-time employees are entitled to the same number of days annual leave as above but for these purposes a 'day' is one fifth the number of hours worked in a normal working week."

2. The Appellant was a full-time employee whose remuneration was expressly referred to as an annual salary. It was paid monthly, in arrears. It was common ground that, at the termination of his employment, he still had an entitlement to 10 days holiday. The dispute was as to the method of calculating the holiday pay referable to that entitlement. The dispute about April 1998 reflected the fact that the Appellant had not commenced employment until 6th April and had therefore not worked for the full month.
3. When the case came before the Employment Tribunal both the Appellant and Mr Lowe appeared in person. The Chairman, sitting alone, considered that the point in issue was subject to recent authority. He dismissed the Appellant's complaints. In giving extended reasons for his decision he described the dispute between the parties and its resolution as follows:

"1 The applicant brought a claim alleging that he had not been properly paid in respect of the initial days of his employment and in respect of holiday entitlement due when his employment ceased. There was no dispute between the parties that he was entitled to 10 days' holiday when his employment ceased. The dispute between the parties was how to calculate a day's pay. The applicant's case was that as he only worked a five-day week, his monthly or annual salary should be divided by his working days and he should then be paid at that rate for any days that were due to him. The respondent's case was that he was paid on an annual basis and therefore was entitled to a day's pay calculated as one 365th of a year's pay.

2 At the outset of the case I referred both parties to the decision in Thames Water Utilities –v- Reynolds [1996] IRLR 196, which covered an almost identical situation and made clear that under the Apportionment Act 1870, the correct way of calculating a day's pay was as one 365th of the year's pay. The applicant accepted that he could not put forward any argument why his case was different from the decision in that case and that a different proportion should be used. Following that, I accept that the respondent's calculation of the wages and holiday pay due was correct and that therefore there had been no underpayment of wages, nor any breach of contract by the respondent. Accordingly, the applicant's application before me fails and is dismissed."

4. In making his submissions before us, Mr Sethi advanced two grounds of appeal. First, he submitted that Thames Water Utilities is either distinguishable or wrongly decided. Secondly, if Thames Water Utilities applies, there is nevertheless a legal error in the calculations to which it has given rise in the present case. We are grateful to Mr Sethi for his careful submissions. Unfortunately, the Respondent to the appeal was neither present nor represented - indeed, its public funding was to cease on the day following the hearing. We decided to allow submissions on both grounds (of which the Respondent had notice in an Amended Notice of Appeal, following the Preliminary Hearing of the appeal), regardless of whether the unrepresented parties had argued the points in this way before the Employment Tribunal.
5. Ground 1: the Apportionment Act and Thames Water Utilities

Section 2 of the Apportionment Act provides:

"… all rents, annuities, dividends, and other periodical payments in the nature of income (whether reserved or made payable under an instrument of writing or otherwise) shall, like interest on money lent, be considered as accruing from day to day, and shall be apportionable in respect of time accordingly."

"Annuities" are defined so as to include salaries and pensions. Section 7 then provides:

"The provisions of this Act shall not extend to any case in which it is or shall be expressly stipulated that no apportionment shall take place."

In Thames Water Utilities the EAT had had the benefit of detailed submissions upon previous authorities. In a reserved judgment, His Honour Judge Peter Clark said (at paragraph 22):

"In our judgment the tribunal was correct in finding that the computation of a day's holiday pay for the purposes of calculating the employee's contractual entitlement on termination under [his terms of employment] was to be made by reference to the Apportionment Act, there being no express stipulation in the contract of the said envisaged by section 7 … Accordingly the real question is what is meant by the expression 'from day to day' in section 2 … In our view it can only be calendar days and not working days. We agree with the approach of Evans-Lombe J in BCCI, which we are satisfied should have been applied to the facts of this case. In our view the tribunal was wrong to distinguish that case. Equally we believe that the case of Oliver was correctly decided and cannot properly be distinguished from the instant case."

The reference to BCCI is to the decision at first instance ([1994] IRLR 282) which subsequently went to the Court of Appeal and the House of Lords, but not on this point. Oliver is an unreported decision of an Industrial Tribunal (25292/94).

Mr Sethi submitted that Thames Water Utilities is distinguishable and that the Apportionment Act does not apply to the present case either on a proper construction of the Appellant's contract or because its provisions must be taken to exclude the Act pursuant to section 7, not least because, otherwise, there would be inappropriate discrimination between the Respondent's full-time and part-time employees. We do not accept these submissions. The terms and conditions in this case expressly distinguish between full-time and part-time employees. There is nothing which can be considered an express stipulation that no apportionment shall take place so as to exclude the Apportionment Act. In our judgment, the circumstances of the present case are indistinguishable from Thames Water Utilities.

Mr Sethi's boldest submission was that Thames Water Utilities was wrongly decided. He suggested that, rather than BCCI and Oliver, a more helpful line of authority is to be found in Sim v Rotherham Metropolitan Borough Council [1986] IRLR 391 and Miles v Wakefield Metropolitan District Council [1987] IRLR 198, cases in which employees sought to challenge deductions from wages by their employers in respect of strike days. In our judgment, this submission does not get off the ground. It was made to the EAT by counsel on behalf of the respondent in Thames Water Utilities but was rejected for reasons with which we agree. It had also fallen on stony ground in BCCI. We are in no doubt that BCCI and Thames Water Utilities are correct on this point and that Sim and Miles are concerned with a totally different point.

We therefore conclude that the Employment Tribunal in the present case was correct in concluding that the Apportionment Act applies.

6. Ground 2: the application of the Apportionment Act to the facts.

From the material before us it seems that the Respondent's method of calculation on holiday pay was as follows:

Annual gross salary = £ 17,425.00

... monthly salary = £ 1,452.08

... 30 (number of calendar days

in month of termination) = £ 48.40

10 day's holiday pay

@ £48.40 per day = £ 484.00

We have excluded fractions of a penny at all stages.

Mr Sethi submitted that this is not the correct method of calculation in accordance with Thames Water Utilities. He made two points. First, he argued that it is erroneous to deploy the method of calculation which varies with the number of days in the particular month of termination. Secondly, he contended that an entitlement to ten days' holiday pay is based on two working weeks and that means and entitlement of fourteen calendar days, taking into account the two weekends. He therefore proffered the following calculations (fractions of a penny excluded):

Annual gross salary = £ 17,425.00

... by 365, gives a day's pay = £ 47.74

14 day's pay = £ 668.36

At the heart of this submission is the argument that Thames Water Utilities postulates calendar days by reference to a 365 day year and the extrapolation from "10 days' holiday" to 14 calendar days is more consistent with the assumptions and policy of Thames Water Utilities.

Those submissions have caused us some difficulty and it is regrettable that we heard no contrary submissions. However, we have come to the conclusion that the submissions are correct. We are mindful of the fact that, as regards the "differential months" point, we are taking a different view from that expressed by Evans-Lombe J in the final paragraph of his judgment in BCCI. We do so with diffidence, whilst observing that he reached his conclusion on this point "with some reluctance" and observed that, whichever way the point was decided, it would "throw up an artificial result". We respectfully agree but, after some hesitation, have concluded that it is more in accordance with industrial practicalities to have an approach which is not subject to monthly variations.

So far as "grossing up" to a seven day week is concerned, we agree that this is more consistent with the spirit of Thames Water Utilities. Moreover, in a case such as the present one, the contract of employment is not suspended between Friday and Monday morning. It is simply that the obligation to work does not arise on Saturday and Sunday. We also take comfort from another source. Whilst we have had to decide this point in the absence of an applicable statutory provision, we observe that our decision reflects the policy of recent legislation. See, in particular, regulation 16 of the Working Time Regulations 1998 and sections 221-224 and 235 of the Employment Rights Act 1996. These provisions do not apply to the present case but the analogy saves us from harbouring feelings of eccentricity.

Conclusion

7. It follows from what we have said that, although the first ground of appeal fails, the appeal must be allowed on the second ground. Its implications apply mutatis mutandis, to the issue of salary for April 1998. The correct figures were therefore £668.36 in relation to holiday pay and £1,164.38 in relation to April 1998, subject to credit in each case for sums already paid.