United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellants	MR D BEAN QC (of Counsel) Instructed By: Messrs Anthony Collins Solicitors St Philip's Gate 5 Waterloo Street Birmingham B2 5PG
For the Respondents	MR A SHORT (of Counsel) Instructed By: Messrs Thompsons Solicitors The McLaren Buildings 35 Dale End Birmingham B4 7LF


 


MR JUSTICE CHARLES: The parties to this appeal are Dunlop Tyres Ltd (the Appellant before us and the Respondent before the Employment Tribunal) and a Mr C.L. Blows and 28 others (the Applicants before the Employment Tribunal and the Respondents before us). We shall refer to the Appellant as "Dunlop" and to the Respondents before us as the "Applicant employees".

1. The appeal is by Dunlop against a decision of an Employment Tribunal sitting at Birmingham, the Extended Reasons for which were sent to the parties on 18 January 1999. The decision was that the Applicant employees did suffer an unlawful deduction from their wages.
2. The decision was based upon the construction of an agreement known as "Dunlop's Agreement on Common Terms and Conditions of Employment" (the Agreement) which was settled by negotiation between Dunlop and the relevant Trade Unions and its terms were incorporated into the contracts of employment of the Applicant employees. The Agreement was revised from time to time. The terms with which we are concerned were introduced in 1992. The last revision was in 1996. Since 1992 the terms with which we are concerned have not been altered.

The Relevant Terms of the Agreement

3. The Agreement is divided into various parts. We set out below the headings to the relevant part and the relevant terms.

"4 – Hours of Work

A. All employees are employed on a contractual 37.50 hours per week, except those who have a contract specifying different hours.

F. Overtime hours are hours in excess of the contractual working hours usually worked before the start of a normal shift, hours after the end of a normal shift and extra shifts worked. Overtime premium only becomes payable after the basic hours for the day have been worked.

5 – Common Pay Structure

A. The common salary structure will apply to all employees currently in the graded pay schemes and within the bargaining groups at Birmingham, Patricroft and Washington.

E. All employees except Rubberworkers at Fort Dunlop and Washington, who are paid weekly, are paid for a calendar month by transfer to their nominated Bank or Building Society. Calculation of earnings will be made for each month. Monthly salary payment will be made on the 15^th of each month other than where the 15^th falls on a Saturday, Sunday or Statutory Holiday, when payments will be made on the last normal working / banking day prior to the 15^th.

F. Gross pay will include – basic salary, shift premium, incentive earnings, overtime payments, conditions allowances and any other Company payments.

G. Monthly pay statements will be available to employees not later than the 14^th of the month detailing gross pay, deductions and net pay for that month. An Engineer, except those on the 21 shift system, will receive a weekly statement giving details of hours worked. Rubberworkers at Fort Dunlop and Washington will continue to receive a weekly work and hour statement.

H. Overpayment or under payment in gross salary will be corrected in retrospect or at the time of the employee leaving or transferring. Arrangements for repayment will be agreed with the employee.

J. Calculation of:

(1) one day's pay is annual salary divided by 260 days,

(2) one week's pay is annual salary divided by 52 weeks,

(3) the hourly rate is annual salary divided by 52 weeks and divided by contractual hours.

6 – Overtime Working and Premiums

Overtime Working

A. It is the Company intention to operate within the employee contractual / normal week. In some circumstances, it is recognised that a certain amount of overtime working may be required to maintain Company operating efficiencies and meet the needs of our customers. There will be some jobs, e.g. Fire and Security where contractual overtime hours will be necessary and these will be specified in the contract of employment for the employee concerned.

B. All overtime for those eligible for payment must be paid for at the appropriate premium.

Overtime Premiums

C. Overtime premium is paid to those eligible employees for hours worked which are in excess of their contractual / normal shift hours (see appendices).

Employee hourly

Rate, plus,

Normal starting time Monday to

end of Friday afternoon shift 25%

End of Friday afternoon shift to

end of Saturday afternoon shift 50%

End of Saturday afternoon shift to

normal starting time Monday 100%

Statutory / Bank Holidays 100%

Where an employee starts an overtime shift at 2100 hours:

1 On Friday night into Saturday 50% premium to be

paid for all overtime hours.

2 On Saturday night into Sunday 100% premium to be

paid for all overtime hours.

3 On Sunday night into Monday 100% premium to be

paid for all overtime hours.

9 – Statutory Holiday

A. These are eight days per annum, usually:

New Years Day Good Friday

Easter Monday May Day

Spring Bank Holiday Late Summer Bank Holiday

Christmas Day Boxing Day

Work on Statutory Holidays

E. An employee who works on a Statutory Holiday is entitled to an overtime premium at the agreed rate for the day and will be granted time off in lieu for the Statutory Holiday.

Statutory Holiday Payment

F. The pay level will be the same as for a normal annual holiday.

G. An employee will receive payment only if the Statutory Holiday (or substituted day) is a normal rostered working day."

Background Factual Matrix

4. In paragraph 1 of the Extended Reasons the Employment Tribunal state that there is no dispute about the facts.
5. At one time during the submissions before us it appeared that there might have been a dispute as to the relevant factual background but, as we understood it, this was not the case because although the Applicant employees disputed the conclusion asserted in the statement of a Mr Northard which was before the Employment Tribunal and had been put in on behalf of Dunlop, they did not dispute the account of the factual background contained therein. The most relevant paragraphs of that Statement are paragraphs 2, 15 and 18, which are in the following terms:

"2. The Company operates from three manufacturing sites. Its head office is at Fort Dunlop. It is from Fort Dunlop that car, motorsport and truck tyres are manufactured and distributed. The Company also operates from Patricroft, Manchester and Washington, Tyne & Wear. The Company employs some 2,687 employees nationally, of which some 1,583 are employed in the manufacturing and distribution operation at Fort Dunlop. Employees are divided, for trade union recognition purposes, into three groups. Factory based staff, office based staff and some ancillary employees ('staff') are represented by MSF or the APEX Partnership. Operatives (Rubberworkers), ie those directly involved in the manufacture and tyre handling operations are represented by GMB. Semi-skilled engineers and craft engineers are represented by the AEEU. Union recognition agreements exist in respect of all these unions."

We pause to comment that in this paragraph Mr Northard defines the employees by reference to three descriptions, namely "staff", "rubberworkers" and "engineers". By reference to that description the Applicant employees were "staff".

"15. The Company is not in a position to deny that for the time over which records have been retained, monthly paid staff (eligible for representation by MSF or the APEX Partnership) at both Fort Dunlop and Washington who have been eligible for overtime pay had been paid in excess of the amounts to which they were contractually entitled as provided in the relevant collective agreements from time to time. This error appears to have arisen from the way in which monthly staff record their time worked on Statutory / Bank Holidays together with overtime worked on other days. The way in which these claims were made by employees, authorised by their supervisors and then processed by the payroll department always failed to take account of the fact that:

(1) Monthly paid staff were paid the same basic salary every month which was calculated by their normal salary divided by 12. During months in which a Statutory / Bank Holiday fell, a proportion of their salary (calculated by reference to their normal hours of work paid at their normal hourly rate) would therefore be paid to them in respect of relevant Statutory / Bank Holiday(s).

(2) If the employee worked say, 7.50 hours on a Statutory / Bank Holiday, the employee would claim for all of these hours at the overtime rate relevant at the time (currently employee hourly rate plus 100%).

(3) The employee would then be granted 7.50 hours paid time off in lieu for having worked the Statutory / Bank Holiday.

(4) No account was ever taken of (1) above which meant that monthly paid staff who worked Statutory / Bank Holidays were always paid 100% more than had been intended and to which they were contractually entitled."

We pause to comment that it is important to recognise that as was common ground before us this paragraph is referring to "staff" as defined in paragraph 2 of the Mr. Northard's statement and therefore to all of the Applicant employees. We also note that this paragraph contains some statements which are part of Dunlop's assertion rather than a statement of background facts. It however accepts that the claims made by employees which resulted in what Dunlop contend is an overpayment were authorised by their supervisors and processed by the Payroll Department.

"18. In June 1997, Larry Parker (Payroll Development Manager) who was co-ordinating the remaining aspects of the implementation of the Cyborg payroll package that was being introduced at Dunlop Tyres nationally, advised me that he had come across a significant payroll discrepancy between the way in which bank holiday overtime working premium was calculated in respect of Rubberworkers and Engineers at Washington and Fort Dunlop. Broadly speaking these workers at Washington were being paid at their normal hourly rate plus a flat rate overtime premium (plus a day off in lieu) in contrast with the Engineers at Fort Dunlop who were being paid at their normal hourly rate plus double time in addition to being granted the day off in lieu. Larry Parker asked me whether he had discovered an underpayment at Washington. My immediate reaction was to advise him that this could not be and that he should compare payment figures for those at Fort Dunlop. He did this and this analysis brought to light the error at Fort Dunlop by which monthly paid staff were paid an excessive amount for working on Statutory / Bank Holidays. I spoke to Richard Cove (Director of Personnel) who was as surprised as I was to learn that Fort Dunlop had effectively been paying triple time plus granting a day off in lieu for work done on Statutory / Bank Holidays."

As to this paragraph we comment that it shows that Engineers were being paid differently at Washington and Fort Dunlop. Again, we note that this paragraph contains some partisan comments.

6. As appears above paragraph (E) of part of the agreement headed "5 – Common Pay Structure" provides that all employees except Rubberworkers at Fort Dunlop and Washington, who are paid weekly, are paid for a calendar month by transfer to their nominated Bank or Building Society and that calculation of their earnings will be made for each month. It follows from this that "staff" and "engineers" are paid for a calendar month and are both entitled to overtime payments generally and overtime payments for a Statutory / Bank Holiday pursuant to the same terms of the Agreement.
7. The statement of Mr Northard therefore shows (and as we have said, we understood that this was common ground) that:

(a) all staff (and thus the Applicant employees) at Fort Dunlop and Washington (and as we understand it at Patricroft) have been paid overtime in respect of Statutory / Bank Holidays in the manner which the Applicant employees contend accords with the true construction of the Agreement,

(b) Engineers at Fort Dunlop have been paid overtime in respect of Statutory / Bank Holidays in the same manner as "staff" and therefore thus in accordance with the construction of the Agreement which the Applicant employees maintain is correct, but

(c) Engineers at Washington were paid overtime in respect of Statutory / Bank Holidays in a different manner which accords with Dunlop's contention as to the true construction of the Agreement.

8. The upshot of all this is that there has been a difference in practice as to the manner in which employees who are paid per calendar month have been paid in respect of work carried out by them on Statutory / Bank Holidays. All staff and engineers at Fort Dunlop have been paid in the manner that the Applicant employees maintain accords with the true construction of the Agreement and engineers at Washington have been paid in the manner which Dunlop asserts accords with the true construction of the Agreement.
9. In citing Mr Northard's statement we have, as mentioned above, included some "partisan comments". In our judgment these comments do not assist us (and did not assist the Employment Tribunal) in construing the Agreement. However for completeness we mention that we have seen a petition which was before the Employment Tribunal dated 18 March 1998 and headed "Staff Trades Union Negotiating Committee" which disputes Dunlop's interpretation of the Agreement and refers to a practice over 30 years of paying full Sunday overtime premium on top of basic pay for Bank Holiday working. We have also seen a letter dated 11 November 1994 from MSF entitled "Staff Engineers – Statutory Holiday – 2.1.95" which contains a paragraph as to the entitlement of any staff employee asked or instructed to attend work on Monday 2^nd January 1995, which the writer contended was a Statutory Holiday which it can be argued accords with Dunlop's interpretation of the Agreement. In our judgment the statements and comments in these two documents do not assist us (and did not assist the Employment Tribunal) in construing the Agreement.

The Reasoning of the Employment Tribunal

10. This is contained in paragraph 4 of the Extended Reasons, the relevant part of which is in the following terms:

"4. The applicants contend that employees in effect are entitled to double time for working on a bank holiday on top of their normal monthly salary. It was stated in evidence that until recently it was always the way they were paid both at Birmingham and Washington except in the case of Rubber Workers and Engineers at Washington and this method of payment had continued for something in excess of 30 years, it being recognised by both sides that this was the appropriate way to pay. The respondents said that in their view employees were entitled to those payments, except they were not entitled to the normal salary in their monthly pay cheque on top. The payment is indeed as the tribunal concluded is a generous payment, but our primary job is to decide what the agreement really means and whether the applicants or respondents interpretation is correct. If the applicants are correct the company's latest interpretation would result in unlawful deduction from wages. We conclude the applicants' interpretation is correct and we have taken into account the meaning assigned to premiums in the Oxford English Dictionary. The definition then suggests that the premium in these circumstances means extra payment and the extra payment is defined as normal shift pay and that is 100%. Nowhere does it say or imply that monthly salary can be reduced. The respondents say that it was a mistake to pay double time plus salary, and although this mistake had been current for well over 30 years, it was not intended and they are now seeking to reduce the overtime payments to double time, excluding the payment calculated in calculating the monthly salary. The respondents referred to the fact that the time off in lieu is time off working on a bank holiday, and this means that in effect they are getting these extra payments for working the bank holiday and not working the bank holiday at the same time. The tribunal however unanimously accept the applicants interpretation of the agreement and conclude also that at Easter of last year, a new interpretation by the respondents resulted in unlawful deductions from wages. …"

As we understand it the evidence referred to in the second sentence of paragraph 4 is Mr Northard's statement and the recognition referred to at the end of that sentence refers to Mr Northard's description in paragraph 15 of his statement of the way in which the claims were made by employees, authorised by their supervisors and then processed by the Payroll Department.

11. As appears above we have expanded on the background set out in paragraph 4 of the Extended Reasons.

The Issue and our Overall Conclusion

12. The issue is one of construction of the Agreement incorporated into the contracts of employment of the Applicant employees and in particular of the terms thereof set out above. At the end of the hearing we indicated that in our judgment the Employment Tribunal had misconstrued the Agreement and that therefore we would allow the appeal. We said that we would give our reasons in writing. This judgment contains those reasons.
13. We are grateful to counsel for both sides for their written and oral argument.

Factual matrix / Conduct of the Parties / Custom and Practice / Construction against grantor

14. Counsel for the Applicant employees referred us to Reardon Smith Line Ltd v Yngvar Hansen – Tangen [1976] 1 WLR 989 in particular at 995G to 997D in support of a submission that the custom and practice of the parties prior to the Agreement in 1992 and the entry into of the relevant contracts of employment was part of the factual matrix which can be, and should be, taken into account as such in construing the Agreement. Further or alternatively he submitted that the custom and practice of the parties was admissible to show that the words used had a customary meaning and usage if their natural meaning was not as asserted by the Applicant employees. We are content to accept those submission. However in our judgment they do not provide significant support for the argument of the Applicant employees (or the argument of Dunlop) because as we have set out above (see in particular paragraphs 7 and 8 hereof) the custom and practice relating to the payment of overtime in respect of Statutory / Bank Holidays was inconsistent.
15. In this context we accept that all staff have, as a matter of custom and practice (both before and after the Agreement was entered into in 1992 and the relevant contracts of employment were entered into) been paid in accordance with the construction advanced by the Applicant employees and that therefore on the face of it this can be said to support their argument. However in our judgment this argument loses its force when the different custom and practice in respect of the engineers at Washington is taken into account even if (as we shall assume) they comprise less people than the staff and the engineers at Fort Dunlop. This is because (a) the relevant terms of the Agreement were negotiated and agreed centrally, and apply equally to staff and engineers at both Fort Dunlop and Washington, and (b) we can see no material distinction as a matter of construction of the Agreement and thus the relevant contracts of employment (i) between staff on the one hand and engineers on the other, or (ii) between engineers at Washington on the one hand and engineers Fort Dunlop on the other.
16. Counsel for the Applicant employees also sought to rely on custom and practice after the Agreement was entered into in 1992 and the relevant contracts of employment were entered into. In this respect he referred us to Carmichael and another v National Power [1999] 1 WLR 2043 at 2047 B/C and 2049 B/C. In response counsel for Dunlop submitted that it was wrong in law to interpret a contract by reference to the subsequent actions of the parties and referred us to James Millar and Partners v Whitworth Street Estates [1970] AC 583 at 603. We do not have to resolve this dispute of law because, in our judgment correctly, during oral argument counsel for the Applicant employees accepted that as the custom and practice he relied on were the same before and after the Agreement was entered into in 1992 and the relevant contracts of employment were entered into this argument did not materially add to his other arguments based on custom and practice and would not succeed if they failed.
17. Counsel for the Applicant employees also argued that insofar as there was any ambiguity it should be construed against Dunlop as the grantor. In our judgment even if this approach was applicable there is no relevant or sufficient ambiguity to give rise to its application.

Construction of the Agreement

18. It was correctly common ground that as a matter of law it would be wrong to isolate an individual term of the Agreement and the correct approach was to read, construe and apply the relevant terms thereof together and in the context of the Agreement as a whole.
19. This approach involves reading, construing and applying the provisions set out in paragraph 3 of this judgment together and in the context of the Agreement and a whole. As appears from paragraph 3 hereof and the headings to the provisions set out therein those provisions concern the hours of work, the pay structure and the calculation of a day's pay, overtime working and premiums and statutory holidays. In our judgment the following provisions are of particular relevance, namely:

(a) clauses 4 (F) and 6 (A) which provide (as in our judgment one would expect) that overtime hours are hours worked in excess of the normal working hours,

(b) clauses 6 (B) and (C) which provide that overtime (and thus overtime hours) is to be paid at the appropriate premium, and that overtime premium is to be paid for hours worked in excess of the employees' contractual hours,

(c) clauses 5 (E), (F) and (G) which provide that earnings will be calculated for each month, that gross salary includes both basic salary and overtime payments and the method of calculation of a day's pay, and

(d) clauses 9 (E) and (F) which deal with statutory holidays.

20. In our judgment the Employment Tribunal erred by not taking the above approach and in taking an approach which (i) isolated the word premium, (ii) did not construe clause 9 (E) in its context or erred in its construction, (iii) seems to have looked for a term providing for a reduction of salary and (iv) seems to have relied on conduct and practice.
21. The argument of the Applicant employees is that in any month in which an employee works on a bank or statutory holiday he or she is entitled to receive:

(a) his or her basic monthly salary,

(b) a day off in lieu, and

(c) a premium calculated at the normal hourly rate plus 100% in accordance with clause 6(C)

Important elements of this argument and approach are that:

(i) the Applicant employees argue that part of their monthly salary would be paid in respect of the bank or statutory holiday on which they work. This accords with paragraph 15(1) of Mr Northard's statement and in our judgment with the combined effect of the use of the word "usually" in the definition of statutory holidays in clause 9 (A) and clauses 9 (F) and (G) on the basis that if, for example, Christmas Day falls on a Sunday (and thus not on a normal rostered working day) there is a substituted bank or statutory holiday and that substituted day is treated as the statutory or bank holiday, and

(ii) importantly that the day off in lieu for the bank or statutory holiday is not to be taken into account as a day off in, or have any effect on, the calculation and quantification of the earnings of the employee for, or in respect of, the relevant statutory or bank holiday, or the relevant month.

The effect of point (ii) is that the day off in lieu is treated as a paid day off (as the statutory or bank holiday (or substituted day) would have been if the employee had taken it as a holiday).

22. In our judgment point (ii) is essential to the argument of the Applicant employees and is flawed for the following reasons:

(a) Clause 9 (E) contains the entitlement of an employee who works on a statutory or bank holiday to (i) an overtime premium, and (ii) time off in lieu for the statutory or bank holiday. In our judgment these entitlements should be read together and a natural reading of them in their context is that the time off is for and in lieu of, and thus instead of, the statutory or bank holiday. In our judgment it follows (i) that a day off in lieu for, or instead of, the statutory or bank holiday on which the employee works is to be given, and (ii) that that day is to be treated as if it was the statutory or bank holiday in the employee's entitlement to holiday, and in the calculation and quantification of the employee's earnings if he, or she, had not worked on that day. In our judgment the argument of the Applicant employees wrongly treats the day off as one in addition to rather than in lieu for, or instead of, the statutory or bank holiday on which the employee works.

(b) The effect of point (a) is that the employee is only entitled to be paid an overtime premium for the hours he or she works on a statutory or bank holiday because (i) it would not be a normal working day, and (ii) the entitlement to be paid for that day as a statutory or bank holiday on which he or she does not work does not apply and instead relates to the day off in lieu.

(c) A natural reading of clauses 9 (E) and (F) is that clause 9 (E) covers the position when the employee works on a statutory or bank holiday and clause 9 (F) covers the position when he or she does not.

(d) In their context, and having regard to what is generally understood by the word "overtime" the definition of overtime hours and the entitlement to overtime premium (see clauses 4 (F), and 6 (A), (B) and (C)) have the consequence that in the Agreement overtime and overtime payments relate to periods outside normal working hours.

(e) Further, in their context, and having regard to what is normally understood by the word "overtime" the definition of overtime hours and the entitlement to overtime premium (see clauses 4 (F), and 6 (A), (B) and (C)) have the consequence that in the Agreement "overtime premium" means the total of the hourly rate and the specified percentage thereof. It follows that the word "premium" in that expression or on its own in clause 9 (C) is that specified percentage addition or uplift, and the expression "overtime premium" means the higher hourly rate so calculated and which is to be paid for work during overtime hours.

(f) The expression "overtime premium", and the use of the word "premium", therefore do not support an argument that in the case of an employee who works on a statutory or bank holiday his entitlement to payment of an overtime premium is in addition to a payment of statutory holiday pay for that day. Indeed the expression "overtime premium" is used in respect of the other overtime covered by clause 6 (C) as to which there is no suggestion that "overtime premium" is a payment in addition to some other payment.

(g) In our judgment the crucial difference between the arguments advanced by the parties is the manner in which the entitlement to a day off in lieu and the entitlement to be paid for a statutory or bank holiday are to be taken into account. We accept that our reasoning and conclusion has the effect that an employee who works on a statutory or bank holiday receives the same additional pay as an employee who works for the same number of hours between the end of the Saturday afternoon shift and normal starting time on a Monday but in our judgment this does not indicate that we are wrong and the conclusion of the Employment Tribunal is right. Indeed we comment that the Applicant employees did not argue that this was so.

23. It follows that in our judgment on the true construction of the Agreement an Applicant employee who works on a statutory or bank holiday (a) is entitled to be paid for the hours worked on that day at the rate of his or her hourly rate plus 100%, (b) is not entitled to any other payment for those hours worked, but (c) is also entitled to a day off in lieu for, or instead of, that bank or statutory holiday which for the purposes of calculating and quantifying his or her monthly earnings is to be treated as if it was that statutory or bank holiday.

Result

24. For the reasons we have given (a) we allow the appeal, (b) set aside the decision of the Employment Tribunal that the Applicant employees suffered an unlawful deduction from their wages, and (c) we dismiss the claims of the Applicant employees.

Permission to Appeal

25. At the end of the hearing this was sought on behalf of the Applicant employees. We grant such leave because although we do not consider that the arguments are finely balanced we are differing from the Employment Tribunal on a point of construction and we accept that it can be argued with some prospect of success that they are right and we are wrong.