United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant

MR CHRISTOPHER WALKER (Of Counsel) Instructed by: Messrs Zatman & Co Solicitors 1 The Cottages Deva Centre Trinity Way Manchester M3 7BE

For the Respondent

MR PETER EDWARDS (Of Counsel) Instructed by: Messrs Rowley Ashworth Solicitors 1 Snow Hill Plaza St Chad's Queensway Birmingham B4 6JG

SUMMARY

Contract of Employment and Working Time Regulations

Construction of contractual term as to quantum of holiday pay – meaning of 'earnings'. Meaning of remuneration under regulation 16 WTR/S.224 ERA 1996.


 


HIS HONOUR JUDGE PETER CLARK

1. In these proceedings the Claimant, Mr Vjestica, who has been employed by the Respondent, Manpower UK Ltd, an employment business, since April 2003 and continues to be so employed, presented an Application to the Reading Employment Tribunal dated 25 November 2004. He identified his complaint as being:

"Non-payment of holiday pay – WTR and Unauthorized deductions from wages."

He was supplied by the Respondent to work at the BMW Manufacturing Plant in Cowley, Oxford.

2. The nub of his complaint was that in calculating his holiday entitlement, both under the terms of his contract of employment and under the Working Time Regulations 1998, (WTR), the Respondent underpaid him because, in circumstances where he had no normal working hours – he was employed under what is known these days as a 'zero hours contract' – the Respondent excluded any holiday pay received by him from the previous 12 weeks earnings/remuneration in arriving at the rate of holiday pay to which he was entitled.
3. The claim was resisted; the Respondent maintaining that he had been paid his full entitlement under both the contract and the Regulations.
4. That issue came before a Chairman, Mr Richard Griffiths, sitting alone on 7 April 2005. By a Reserved Judgment with Reasons promulgated on 4 May 2005 the Chairman upheld the Claimant's claims in principle, adjourning the question of remedy to enable the parties to reach agreement on the precise sum to be paid. Against that Judgment the Respondent now appeals.

Ainsworth

5. I have drawn the parties' attention to the Court of Appeal decision in Commissioners for Inland Revenue v Ainsworth [2005] IRLR 465 which is to be considered by the House of Lords. Judgment was delivered in the Court of Appeal on 22 April 2005; it reverses the EAT decision in List Design Group Ltd v Douglas [2002] ICR 686 that claims for holiday pay under the WTR may be brought under Part II of the Employment Rights Act 1996 ("ERA") by way of claims for unauthorized deductions from wages. However, in the present case (a) the claim under the contract was properly brought under Part II ERA; (b) the claim under the WTR appears to have been brought under those Regulations, although no consideration was given below to the limitation provisions of regulation 30(2). Those limitation provisions are less favourable to Claimants than the 'series of deductions' provision in ERA section 23(3). In this case, the particular payments complained of were made in weeks commencing 2 January 2004 and 21 June 2004. Having raised the point with Counsel, Mr Walker very properly accepts that no limitation point was raised below and it cannot be raised for the first time on appeal. Thus no question of a stay of this appeal pending the HL decision in Ainsworth arises.

The Contractual Term

6. Prior to February 2004 the relevant contractual term determining the amount of holiday pay to which the Claimant was entitled read:

"Your holiday pay will be based on your average earnings over the 12 weeks prior to your holiday."

Thereafter, the relevant term read, so far as is material:

"If you are paid weekly your holiday pay calculation will be based on your average earnings over the 12 weeks prior to your holiday. Weeks in which you do no work and/or received no pay will not be included in the calculation."

This case has proceeded on the basis that the later wording does not involve any variation of the term as originally drafted.

The Statutory Provisions

7. By regulation 16(WTR):

"(1) 'A worker is entitled to be paid in respect of any period of annual leave to which he is entitled…at the rate of a week's pay in respect of each week of leave.

(2) Sections 221 to 224 of the 1996 Act (ERA) shall apply for the purpose of determining the amount of a week's pay…subject to modification in subsection (3)."

Section 224 ERA defines a week's pay in employments with no normal working hours as:

"(2) the amount of a week's pay is the amount of the employee's average weekly remuneration in the period of twelve weeks ending-

(a) where the calculation date is the last day of a week, with that week, and

(b) otherwise, for the last complete week before the calculation date."

Part 2 ERA claim for unauthorised deductions

"By section 13(1) an employer shall not make a deduction from wages of a worker employed by him…"

Section 23 provides for a complaint under section13. By section 27(1) 'wages' includes payment of holiday pay referable to his employment whether payable under his contract or otherwise.

The Contractual Formula

8. Dealing first with the pre February 2004 contractual terms the question for the Chairman was whether, in calculating the Claimant's earnings over the 12 weeks prior to taking the relevant holiday, holiday pay received during that period ought to be counted as 'earnings'.
9. The Chairman held that it should. He drew no distinction between the contractual terms pre- and post February 2004, nor as I have indicated, was he invited to do so.
10. In challenging that finding Mr Walker submits that the Chairman was wrong to find that holiday pay represents earnings and so falls to be included in the 12 weeks earnings prior to the relevant holiday period. He argues that the employee will receive a double benefit. That the Respondent has always excluded holiday pay in calculating earnings over the prior 12 week period. That the Chairman failed to define earnings, instead moving straightaway to an instinctive conclusion that earnings must include holiday pay. Further, he argues, based on the EAT decision in Secretary of State for Employment v Haynes [1980] IRLR 270, that remuneration under section 224 ERA does not include holiday pay, therefore it cannot, on a proper construction of the contract, applying the principles laid down by Lord Hoffman in Investors Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896, 912H-913E, be included in the term 'earnings'.
11. Mr Edwards responds that it was not formally argued below that by custom and practice the Respondent was entitled to exclude holiday pay received by the Claimant during the relevant 12 week period. That appears to me to be correct. Further, that it was unnecessary for the Chairman to define 'earnings' comprehensively; it was enough for him to consider whether holiday pay fell within that expression. As to that, Mr Edwards supports the Chairman's analysis that earnings must include monies earned in the sense of being paid for work actually done; holiday pay represents payment for holidays earned as a result of work done under the contract of employment. Finally, he submits that Haynes was concerned with statutory notice pay provisions and a construction of the word 'remuneration' in the statutory provisions does not assist in construing the contractual term 'earnings'.

Conclusion on the Contractual Term

12. I reject the arguments advanced by Mr Walker. It seems to me that the Chairman was perfectly entitled to construe earnings as including holiday pay. It is significant, in my judgment, on the facts of this case that in calculating average earnings the Respondent included among other payments, maternity and paternity pay; company and Statutory Sick Pay and adoptive leave pay. Applying Lord Hoffman's test in ICS, it seems to me that the meaning of the contractual expression 'earnings' would convey to a reasonable person with the necessary background knowledge at the time that the contract was entered into that all those payments made to the employee under the terms of the contract were included in the expression 'earnings'. That would include holiday pay. The fact that in practice the Respondent did not include that form of pay does not alter the meaning of the word in the contractual term, particularly where no logical distinction is advanced between holiday pay and, for example sick, pay. The double benefit argument does not arise once it is accepted, as I do, that holiday pay is part of the employee's earnings.
13. Haynes was concerned with the statutory expression 'remuneration' in the context of a normal hours contract now covered by sections 221 to 223 ERA and I am not persuaded that it is, as the editors of Harvey on Industrial Relations and Employment Law suggest authority for the general proposition that holiday pay does not fall within the meaning of remuneration, particularly as that expression is understood as a result of section 224 ERA. The word remuneration is not defined in the Act. If these employers wish to reflect precisely the statutory definition under regulation 16 WTR it was open to them to use the expression 'remuneration' instead of 'earnings' in their handbook which forms part of the contract of employment. Further, as Mr Edwards submits, it was open to them to expressly exclude holiday pay from the 12 week calculation period. Had they done so, they might then have fallen foul of the requirements of regulations 16. However, it is unnecessary in this case to consider that hypothetical question.
14. The short answer in my judgment is that the Chairman was entitled to reach the construction which he did of the relevant contractual terms. It follows that the Part 2 ERA claim was made out on the basis of the contractual provision. It is therefore unnecessary for me to consider further the alternative claim brought under WTR, it not being suggested on behalf of the Claimant that the contractual term, as I have construed it and as the Chairman construed it, was less favourable to the Claimant than any entitlement which he may have had under the Regulations.
15. In these circumstances this appeal fails and is dismissed.