United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	MRS ELIZABETH JOYCE (Solicitor) The Confederation of British Wool Textiles Ltd Merrydale House Roysdale Way Bradford BD4 6SB
For the Respondents	MR JONATHAN ASHWORTH (of Counsel) Instructed by: Messrs Jack Thornley & Partners Solicitors 64-66 John William Street Huddersfield West Yorkshire HD1 1EH


 


JUDGE PETER CLARK:

1. The issue in this appeal, brought by the Respondent employer, Colne Valley Spinning Co Ltd against a decision of the Leeds Employment Tribunal promulgated with extended reasons on 8 August 2002, is what is a week's pay for the purpose of calculating redundancy payments to which the Applicant employees, Mr Yates and Mr Kerrod, were entitled following their dismissal by the Respondent on 7 March 2001?

Background

2. In March 2001 a mill at which these two Applicants were employed by the Respondent closed down. They, with other employees, were dismissed by reason of redundancy.
3. Mr Yates had been employed as a driver since 1978; Mr Kerrod as a fitter / mechanic since 1993.
4. Following an earlier hearing before the same Tribunal held on 15 November 2001 involving 15 Applicants, 13 of these claims were resolved, leaving only those of Mr Yates and Mr Kerrod to be determined at a subsequent hearing held on 18 July 2002.
5. The single issue before the Tribunal on that occasion concerned the calculation of a week's pay for the purposes of their section 162 Employments Rights Act 1996 ("ERA") redundancy payment.

The relevant statutory provisions (ERA)

6. By section 162 the calculation of a redundancy payment is based on a multiplier dependent on the employee's age and length of service and a multiplicand based on a 'week's pay'.
7. The amount of a week's pay is calculated in accordance with Part XIV, Chapter II of the Act. By section 227 the maximum amount of a week's pay is limited. At the relevant time in the present case it was £240.
8. In Chapter II contracts of employment are divided into 2 categories, those with normal working hours and those with no normal working hours.
9. By section 224 where there are no normal working hours a week's pay is calculated by reference to the average weekly remuneration in the period of 12 weeks ending with the end of the last complete week before the calculation date or the calculation date itself, that being in the present case 7 March 2001.
10. In cases where the contract provides for normal working hours the method of calculating the week's pay is the amount payable by the employer under the contract at the calculation date if the employee works throughout his normal working hours in a week (section 221 (2)).
11. Section 234 defines normal working hours as follows:

(1) Where an employee is entitled to overtime pay when employed for more than a fixed number of hours in a week or other period, there are for the purposes of this Act normal working hours in his case.

(2) Subject to subsection (3), the normal working hours in such a case are the fixed number of hours.

(3) Where in such a case –

(a) the contract of employment fixes the number, or minimum number, of hours of employment in a week or other period (whether or not it also provides for the reduction of that number in certain circumstances), and

(b) that number or minimum number of hours exceeds the number of hours without overtime,

the normal working hours are that number or minimum number of hours (and not the number of hours without overtime).

Judicial Interpretation

12. In Armstrong Whitworth Rolls Ltd v Mustard [1971] 1 All ER 598, the majority members of the Divisional court (Ashworth J dissenting) in construing the predecessor to section 234 ERA took this view, encapsulated in the judgment of Lord Parker CJ at 600D-E:

'Put quite simply, this (the statutory provision) is providing that voluntary overtime does not come into normal working hours, but that if a minimum number of hours of work for which the employee is bound to work is fixed, then it is that minimum number which becomes the normal hours of work notwithstanding that for part of it he is paid overtime, in other words compulsory overtime as opposed to voluntary overtime. '

13. Armstrong Whitworth was considered by the Court of Appeal in Tarmac Roadstone Holdings Ltd v Peacock [1973] 2 All ER 485. There, the employee was guaranteed 40 hours work each week under his contract; hours worked over and above that 40 hour week were paid at overtime rates. The employee regularly worked 57 hours per week and sometimes more. The Court of Appeal held that in calculating a week's pay only the basic 40 hours counted as normal working hours since the employer was not obliged under the contract to provide more than 40 hours of work.
14. Lord Denning MR (page 489 E) took the view that in Armstrong Whitworth a variation to Mr Mustard's contract meant that his original 40 hour week had altered to a 60 hour week, binding on both parties; the employer was bound to provide 60 hours work and the employee to work those hours.
15. Pausing there, we have been provided with a copy of the All England report in that case by Mrs Joyce, who appears on behalf of the employer today. It is apparently taken from the Butterworths Direct website. We do not find that version satisfactory. The original pagination and lettering from the Report is missing. We hope those omissions will be corrected in the future, otherwise copies of the original reports (as here in the case of Armstrong Whitworth) must be supplied. We have encountered similar problems with versions of the Industrial Relations Law Reports taken from the web.
16. Tarmac was followed and applied by the Court of Appeal first in Gascol Conversions Ltd v Mercer [1974] IRLR 155 and again in Lotus Cars Ltd v Sutcliffe and Stratton [1982] IRLR 381. The principle of the mutual obligation to provide and work overtime was endorsed in both those cases.

The Employment Tribunal decision

17. Although the Tribunal's final determination on the issue of a week's pay is to be found in their decision promulgated on 8 August 2002 it is first necessary to consider some guidance which the Tribunal gave to the parties in a decision promulgated with extended reasons on 10 December 2001 following the first adjourned hearing held on 15 November.
18. The relevant passage is to be found at paragraphs 27-31, where the Tribunal say this:

27 Turning then to the issue of the redundancy payment, this aspect is governed by Section 220 (3) of the Employment Rights Act 1996. These were employees, as we understand it, who had normal working hours. Accordingly pursuant to Section 22 (2) of the 1996 Act the amount of a week's pay is the amount which is payable by the employer under the contract of employment in force if the employee works throughout his normal working hours in a week. That is an approach which we would have thought is straightforward enough.

28 What, however, is being advanced by the parties is the issue of whether or not wages for overtime worked in any manner shape or form should be taken into account. The straightforward principles that apply, it seems to us, are that it depends whether or not overtime worked has been worked so consistently so that overtime work is both assumed by the employee as being something which he is obliged to do and assumed by the employer as something that must be done and must be offered so as to become part of the employee's normal working hours. That is the position which was effectively referred to in the case to which we have been referred of Armstrong Whitworth Rolls v Mustard.

29 We have heard evidence from Mr Kerrod and his situation might illustrate the point. We have not actually seen his contract of employment so we do not know what appears within it although it is suggested that the contract that would have been issued to him required him to work a 39 hour week, Monday to Thursday 7.15 to 4.15 and Friday 7.15 to 2.00 with a 45 minute break. It is suggested that his contract included a requirement to work such overtime as the needs of the business may require and that is was [sic] condition of his employment that he complied with such reasonable requests to work.

30 Mr Kerrod, however, has told us that from the time he began working as a Mechanic Fitter for the Respondents it was well know that he had to work hours beyond those fixed hours. As a minimum he worked an extra hour to 5.15pm Monday to Thursday. On a Friday he worked until 5.00pm and he worked at least 4 hours every Saturday. He did not have to be told to work these overtime hours. He was never asked if he would work those overtime hours and he apprehended that he would be the subject of criticism had he not done so.

31 It seems that to this Tribunal that that is a clear example of a situation where an employee's normal working hours may not be those as set out in a written contract although I say again that we have not seen Mr Kerrod's written contract. Where, however, there are employees who will from time to time work overtime but on the basis only that they are requested so to do and they have a choice whether or not that do, a different situation arises. For such employees, those additional overtime hours do not come within their normal working hours.

19. Without wishing to be unduly critical it would give us more confidence in the Tribunal's approach had they, in paragraph 27 above, cited the correct statutory provisions. The reference to section 220 (3) ERA is, we think, in truth a reference to section 221 (3) and the reference to section 22 (2) should read section 221(2).
20. However at paragraph 32 of their first decision reasons the Tribunal correctly point out that each case must be adjudged on its individual facts. Hence the applications were adjourned with a view to settlement.
21. At the resumed hearing held on 18 July 2002 only the cases of Messrs Yates and Kerrod remained to be determined. In their reasons promulgated on 8 August 2002 the Tribunal did not return to the law in any detail but heard evidence from both Applicants and we are told Mr Philip Crowther, the Production Director, called on behalf of the employer. There is no mention made as such of Mr Crowther in the Tribunal's reasons.
22. It was the company's case that each Applicant was provided with 'contractual documentation' showing that each had a 39 hour basic working week. The Tribunal rejected that case on the evidence, as they were entitled to do, and said they were left to discern the relevant contractual terms from such oral and documentary evidence as was before them. As to that they made the following findings.
23. Mr Kerrod was told at an interview before his employment began by the manager Mr Steward and a Mr Billy Floss that the mill's basic working week was 39 hours but he would be expected to work over and above that. He was told that, as a mechanic / fitter, he would be expected to work one extra hour on Monday to Thursday and on Friday, when the mill closed at 2pm he would be expected to work until 5pm. Further, on Saturday morning he would be expected to go into work for four hours. In addition he would from time to time have to work additional overtime in the event of a machine breakdown, continuing to work until the problem was resolved.
24. In these circumstances the Tribunal concluded that from the outset Mr Kerrod's contractual hours amounted to a 50 hour week. That, they thought was also consistent with his being asked to sign an agreement to work in excess of the maximum hours (48) provided for in the Working Time Regulations after they came into force on 1 October 1998.
25. In the case of Mr Yates he was a driver, delivering the company's product to its customers. Starting times varied – for a long distance trip he might start at 4 am; for local deliveries it might be 7am. Generally his working day ended at 5.15pm. A schedule of hours worked by Mr Yates showed weekly hours in excess of 39 hours throughout the last three years of his employment. We have seen those records. After 39 hours at basic rate he received overtime rates for the balance of hours worked each work. Those hours varied but he always worked some overtime.
26. On these facts the Tribunal found:

(a) that Mr Kerrod had normal working hours of 50 hours per week and his week's pay fell to be calculated on that basis;

(b) that Mr Yates had no normal working hours and his week's pay fell to be calculated on the basis of the last 12 weeks average (section 224 (2)). He did not have any blank weeks during that period (section 224 (3)).

27. Accordingly additional payments of £1,190.66 and £50.02 were awarded to Mr Yates and Mr Kerrod respectively over and above the redundancy payments already paid by the employer.

The Appeal

28. Mrs Joyce submits that in the case of Mr Kerrod the Tribunal has fallen into error in two respects. First, there is no indication that it has applied section 234 ERA and the guidance in Tarmac, Gascol v Mercer, and Lotus Cars, which cases were cited below, and made a finding as to whether the employer was obliged to provide 11 hours of overtime per week, in addition to the basic 39 hours. Secondly, it has failed to resolve the evidential issue between Mr Kerrod and Mr Crowther as to whether the employer's obligation was limited to providing the basis 39 hours worked each week.
29. We see the force of those submissions; we have asked ourselves whether the Tribunal's substantive decision reasons are 'Meek compliant' to use Sedley LJ's expression in Tran v Greenwich Vietnam Community [2002] IRLR 735, paragraph 17.
30. We are just persuaded by Mr Ashworth that there is sufficient reasoning to demonstrate how and why the Tribunal reached the conclusion that Mr Kerrod's week's pay fell to be calculated on the basis of a 50 hour week. Our reading is as follows.
31. At paragraph 28 of their first decision reasons the Tribunal expressly refer to the need for overtime work to be both something which the employee is obliged to do and the employer to offer. That is a correct statement of the law as laid down in Armstrong Whitworth and explained by Lord Denning in Tarmac. We infer that they had that guidance in mind when applying section 234 ERA to the facts as found in Kerrod's case following the later hearing.
32. In their second decision they drew a distinction between the overtime which Mr Kerrod was from the outset of his employment expected to do (a total of 11 hours per week) and the additional overtime caused by machine breakdown. The former, they found, was overtime which the employer was obliged under the contract to provide; the latter was not.
33. It should also be recalled that the Tribunal found that there was no relevant contractual documentation, contrary to the case of Armstrong above. In these circumstances they were left to discern the contractual terms from the surrounding circumstances doing the best they could.
34. It was not necessary for them to refer expressly to Mr Crowther's evidence that the company was not obliged to provide more than 39 hours work per week to Mr Kerrod; it is clear that they rejected that proposition in favour of Mr Kerrod's evidence, which they accepted, as to what he was actually told by management before he took up his employment.
35. In these circumstances we shall dismiss the appeal in Mr Kerrod's case.
36. The case of Mr Yates is rather different. We are unable to ascertain why the Tribunal concluded that he had no normal working hours, other than because he started his working day at different times. That is not the question. The question is whether the terms of Mr Yates' contract fell within the definition contained in section 234 (1). Was he entitled to overtime pay when employed for more than a fixed number of hours in a week? If so, then the provisions of section 234 (2) and (3) come into play.
37. On this part of the case, in circumstances where the wage record showed that in general Mr Yates worked a basic 39 hours before moving to overtime pay we have concluded that the Tribunal's decision cannot stand. We shall therefore allow the appeal in Mr Yates' case and remit that matter to a fresh Tribunal for rehearing on the issue of a week's pay in accordance with the law as we have endeavoured to outline it in this judgment.