United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellants	MS DAPHNE ROMNEY (of Counsel) MS RACHEL CRASNOW (of Counsel) Instructed by: Messrs Garratts Legal Solicitors 29 Waterloo Road Wolverhampton WV1 4DJ
For the Respondent	MR GARY HAY (Solicitor) Messrs Weightman Solicitors High Holborn House 52-54 High Holborn London WC1V 6RL


 


SUMMARY

Contract of Employment: Sick Pay and Holiday Pay

The Employment Tribunal did not err in law when it construed the Claimants' contracts based upon 1,930 annual hours in exchange for an annual salary as not including a right to an additional 22/24 days' pay in respect of holidays.


 


HIS HONOUR JUDGE McMULLEN QC

1. The issue in this case is whether railway workers engaged under an "annual hours contract" had been correctly paid for their holidays in 2003. We will refer to the parties as the Claimants and the Respondent.

Introduction

2. It is an appeal against the reserved judgment of an Employment Tribunal sitting at Stratford, East London over two days plus a day in chambers, Chairman: Ms J M Laidler, registered with Reasons on 3 August 2005. The Claimants were represented by Mr Brian Langstaff QC as he then was, and Ms Rachel Crasnow of Counsel. Today, she is led by Ms Daphne Romney of Counsel. The Respondent has throughout been represented by Mr Gary Hay, solicitor.
3. The claims for all five of the Claimants, which are the same, were for breach of the Working Time Regulations and that unauthorised deductions had been made from their pay. The Respondent contended that it had paid holidays according to the contractual entitlement of the Claimants. Since the Tribunal hearing, one of the other Claimants (Mr Ardley) no longer pursues his appeal, which is conducted on behalf of the four remaining Claimants, Mr Ardley's case being dismissed on withdrawal. Secondly, on appeal it is expressly conceded that the Working Time Regulations have no direct application. The Tribunal dismissed the claims.
4. This was the third occasion on which employees of this railway had complained about the way in which their holiday pay was calculated. In those two previous excursions to the Tribunal, claims for unauthorised deductions were dismissed and, in the second, costs were awarded against the Claimants. The Claimants in the instant case successfully resisted the Respondent's application for costs on the ground that different arguments had been presented in this case.
5. The Claimants appeal against the judgment and the Respondent does not appeal against the refusal of its costs.

The Issue

6. The Tribunal decided, so far as is relevant on appeal, that the issue was

"1.2 that the employees are paid for a 37 hour week but in fact work some 40 hours per week (amounting to 1,930 hours per annum);

1.3 that deductions have taken place in the relevant period.

2 All Claimants claim a declaration that they are entitled to paid holidays and as to the extent of holiday pay each Claimant is owed and holiday pay for the annual leave taken since 1 August 2003 and for which they have not been paid"

as to which the Respondent contended

"that the annual leave entitlement is built into the contract over and above the 1,930 core hours. The Claimants are…paid for their holiday within the negotiated salary."

7. There are references in the Tribunal's judgment to the WTR. Although Ms Romney does not rely upon the WTR, she contends that it is, nevertheless, relevant background to these claims.
8. We were asked to consider whether permission should be given to the Claimants to amend their grounds of appeal by the addition of a new long paragraph. This is to allege perversity. The Claimants or the colleagues have been complaining about the pay system since 1999 when it was introduced. They were previously represented by solicitors and changed solicitors for the purposes of launching Employment Tribunal proceedings and the solicitors settled the claims. The Tribunal heard live evidence from the Respondent, and unchallenged written evidence from the Claimants. A theme running through the submissions of both sides is that the interpretation of the holiday entitlement should be according to the background known to the parties applying Lord Hoffmann's judgment in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 895. For the purposes of the appeal, we have been given the substantial Skeleton Argument of the Claimants at the Employment Tribunal and their suggested findings of fact, and Ms Romney's 18-page Skeleton Argument on appeal. No grounds have been advanced as to why this new point was not taken earlier. It is suggested that the Respondent has known about it since the exchange of Skeleton Arguments on the appeal. The application was resisted. It involves a consideration of the facts and we have no doubt that a different approach to the preparation of this appeal would have been adopted, had this argument been in play. In truth, the suggested amendment deals with construction of the documents and it is the documents which are already at the heart of this case. If it were necessary for us to consider the merits of this amendment, we would hold that it is unnecessary for the Claimants' argument based upon the documents. The application to amend is refused.

The facts

9. The Respondent, C2C Rail Limited, is by statute a railway undertaking operating out of Fenchurch Street, City of London, principally to Essex. The Claimants are customer service assistants previously known as station staff, located at various stations in Essex. In 1998-1999, plans were put in place for restructuring the working practices and terms and conditions of the staff. Previously, it was described by the Tribunal as follows:

"22. Evidence was also given by the employees that prior to restructuring they worked a 37 hour week comprising five days of 7 hours 24 minutes Monday to Saturday. The annual leave entitlement was 22 days (24 for long service employees) which could be applied for throughout the year and would be paid as 7 hours 24 minutes per day. In addition some employees received an annual leave premium which was a percentage of the previous week's earnings prior to taking leave. This was to compensate for overtime which might have been worked if the employee had not been on leave".

10. The restructuring was achieved through collective bargaining conducted by the Respondent with relevant trade unions including, here, RMT. It was an express term of the Claimants' contract of employment that relevant collective agreements were incorporated in it. These include an agreement made on 13 September 1999 for implementation on 9 January 2000. We will call it the Collective Agreement. That, itself, included notes of three negotiating sessions, two of which were agreed and one of which was a draft.
11. The contract of employment made available to the Tribunal was dated 12 April 1999 and it was common ground that, in so far as it differed from the terms incorporated by the Collective Agreement, the latter would prevail. It is, however, convenient to start with the Collective Agreement, for that sheds light on the intention of the parties when construing the contract. The documentation defines key concepts in this case: Committed Hours, Contract Hours, Normal Time, As Required Time, Free Days and Fixed Free Days.
12. The Collective Agreement is in two parts: section 1, productivity and section 2, remuneration. The purpose of the Collective Agreement is described as follows:

1.1 LTS Rail Limited plans to harmonise pay and conditions throughout the company by reorganising and restructuring. Integral to these plans are the terms and conditions for Commercial Staff, which are contained within this document.

1.2 The objectives of Commercial Restructuring are to deliver the following benefits:

TO THE EMPLOYEE: Improved basic salary, improved pensionable pay, increased amount of guaranteed free time, the recognition of achievement for both individuals and teams, and also better provision of career development paths.

TO THE COMPANY: Effective control of labour costs, the improved management of cover, and to allow the business to deliver greater customer satisfaction.

LTS Rail Limited has already successfully introduced flexible working arrangements, including COMMITTED HOURS rosters and salaries, within other departments and groups of staff.

It is the intention to cascade the concept throughout the business to achieve the objective of a single status company.

1.3 …..

1.4 An essential part of the restructuring is the adoption of flexible working practices…"

13. Conclusions

The time is right for Restructuring to occur, both 'sides' are positive. The results of these Productivity savings will be used in determining the new salary and conditions structure. The changes in working practices and remuneration structure provide the following benefits to staff:

simplified structure providing a significant level of guaranteed earnings

significant reduction in working hours

improved pension benefits

flexible benefit option

potential for salary progression within each grade

quality time off

career development opportunities".

There is also this:

"7. Additional Time

Occasions when time worked will be paid for are as follows:

Disruption/late running (official turn)

After "As Required Hours" have been exhausted

Staff working turns of less than 8 hours on a Bank or Public Holiday or Free Day.

The hourly rate for those staff who contract for less than 1,930 hours will be time for time until 1,930 hours is reached".

13. An essential part of the operation of the railway was the completion by staff of rosters as to which the Collective Agreement provides:

"2.1 The formulation of rosters will be compiled using the following base parameters:

Minimum 4 hours to Maximum 12 hours rostered turn of duty per day

2.3 The above parameters facilitate the production of a roster pattern, which we believe gives a greater amount of quality free time".

14. The Collective Agreement then sets out definitions of the various formulations for working and non-working time.

6. COMMITTED HOURS AND ROSTERING

6.1 Allocation of Duties

The allocation of duties shall be based upon a standard 'Committed Hours' contract of 1,930 paid hours inclusive of Sundays.

The option of variable committed hours contracts above and below the 1,930 hours standard contract (including a variation in Free Days), may be available.

6.2 Contract Hours

Contract hours are defined as the total of NORMAL TIME and AS REQUIRED TIME.

6.3 Normal Time

Normal Time describes the basic hours that Customer Service staff are required to work and will be rostered on a shift basis. All rosters will be identified as Normal Time.

6.4 Hours worked above Contract Hours

During times of disruption, where additional staffing is needed or where a member of staff is late, or fails to arrive for duty at short/no notice. Customer Service Assistants may be requested to work beyond their rostered turn of duty. When the turn of duty has not been identified as an EXTENDIBLE TURN, or a Daily/Weekly alteration notice has not been issued, this time will be paid as additional time.

6.5 As Required Time

As required time, also referred to as 'Banked Hours', is the time that staff are paid for but which is not rostered. Staff may be called upon to work this time additionally to NORMAL TIME. All such time will be deducted from the REMAINING TIME.

6.6 Extendible Turns

These are turns of duty for all staff which are identified within the roster and can cover work up to a maximum of an additional 4 hours or, subject to agreement with the individual, more than 4 hours. The first 4 hours of any additional time worked above "Normal Time" will be deducted from "As Required Time". Any further extension to this time will be subject to payment of additional time. There will be a maximum of 50 Extendible Turns per committed hours contract.

6.7 Free Days

There will be 126 Free Days identified in the core contract of a 1,930 hours roster. These are days when an employee is free from any commitment to work.

For each member of staff contracted to work a core contract of 1,930 hours (including those staff who have opted not to work Sundays), 56 of these Free Days will grouped into 4 blocks of 14 days. These Free Days will be identified as Fixed Free Days and will not be moved for any reason (even during Base Roster Amendments).

The rostering of Fixed Free Day blocks will follow a set cycle in order that Fixed Free Day blocks differ from year to year for each individual.

The allocation of work will be decided by management in further consultation as agreed in the current Procedural Agreements.

6.8 Bank/Public Holidays

There will be a requirement for staff to work Bank/Public Holidays. Staff will be rostered to work a Bank/Public Holiday only after consideration has been given regarding the number of volunteers and the number of previous Bank/Public Holidays worked.

7. …..

8. ANNUAL LEAVE AND FIXED FREE TIME

8.1 22 of the FIXED FREE DAYS in any roster will be identified as ANNUAL LEAVE DAYS. Existing staff with 10 years' service or more at the date of implementation (5^th June 1998) will have 24 such days identified as Annual Leave".

15. The contract of employment contains the following relevant provisions:

"3. SALARY

Your basic salary and other components or pay are set out in Annex A. For this, you will be contracted to work 1930 annual contracted hours.

This is a comprehensive salary which reflects the nature of your work and any unsocial working appropriate to your job, including work at weekends and nights and covers both rostered and unrostered hours within the contracted annual hours total.

Your salary will be reviewed on the first Monday in July, and annually thereafter.

Payment of your salary will be made in 13 equal amounts every four weeks by credit transfer into your nominated bank account not later than seven days after the end of the fourth week for which payment is due….

You will receive a constant salary each four weeks, unless you are absent without leave or there is any other reason to suppress payment, based on your annual salary, although your working hours may vary from one four weekly period to the next.

6. HOLIDAYS

Your annual hours contract allows for holidays (excluding those agreed as Bank and Public) which will be taken at such times as are rostered, or otherwise agreed by your Local Manager, according to local circumstances. Customer Service Assistants required to work Bank and Public holidays will be identified. All such hours worked will be paid as additional time".

16. At Annex A to the contract, the basic rate of pay is set out together with a "shift allowance for contracts of 1,930 annual hours or more". According to the nature of the shifts, this additional allowance is either £1,042 or £2,084, on top of a basic salary of between £14,588 and £18,756.
17. By Clause 4 of Annex A to the contract, annual leave is provided:

"4. ANNUAL LEAVE

Depending on length of service, assimilated staff have 22 or 24 Fixed Free Days identified as Annual Leave. Should you give notice to leave LTS employment, you will be identified to pro-rata Annual Leave, less any days already taken. If you have taken leave in excess of your entitlement, you will be required to reimburse LTS (and LTS may make a deduction from your final payment). Upon retirement you will be entitled to the full quota of leave for the annual contract hours cycle".

18. One of the documents relevant to the construction issue in this case is headed "A New Deal for Staff – 1998" in which there appears:

"Q: If I am entitled to extra Annual Leave, e.g. for 10 years service, will there be an increase in hours over the year?

A: Staff at implementation who have 10 or more years service will have 24 of their Fixed Free Days identified for Annual Leave purposes".

19. Some of the figures above have been given life in a document produced by Counsel as an aide-mémoire. 1,930 hours is an average of 37 hours a week. 126 Free Days is the equivalent of two days a week plus 22 days.
20. The Tribunal accepted that the objectives of the negotiations and the representation in the "Deal for Staff" were to achieve a higher hourly rate of pay and more quality free time. The Tribunal accepted that both those objectives were achieved, for it said this:

"The employees have gained more free time with their fixed free days. A higher salary has been negotiated. No where in the contractual documentation is reference made to achieving a higher hourly rate of pay".

21. It held that the key issue in the case was the Claimants' contention that they were paid a fixed sum for an hour's work. But the Tribunal found:

"67 The contractual documents do not refer to a specific number of working hours in the working week or an average of those hours. That is not the way an annual hours contract would be expressed. The contract refers instead to the number of hours that the employee has 'committed' to his or her employer. Clause 3 of the terms and conditions refers to the employee being contracted 'to work' the contracted hours. Clause 6 of the agreement refers to committed hours of 1,930 'paid hours'. It is argued on behalf of the Claimants that that does not say that those were hours which the Claimants had to work. That argument is not accepted by the Tribunal. Committed hours clearly means hours which the employee has agreed to work for his or her employer. If it did not then the contractual documentation would not be showing what the employee has agreed to do in return for the annual salary. The bargain between the parties is that the employee commits to work 1,930 hours in return for an annual salary.

68 As stated, there is no mention of an hourly rate or weekly hours. It is a fact accepted by the Respondent that the way that the 1,930 annual hours was arrived at for the purposes of this agreement was to multiply a 37 hour week by 52 weeks in the year. That was the basis upon which the number of annual hours was arrived at. It does not mean that the employee's pay is calculated by reference to an hourly rate.

69 What was calculated by reference to an hourly rate and what had to be was any payments for additional time. There had to be a means of calculating payment for that additional time. The parties could have agreed a rate for that and included it in the agreement. They chose not to do it that way but to calculate instead an hourly rate. The way they have chosen to do that is evidenced by the various payslips that the Tribunal were shown and was to use the 37 hour week as a basis for that calculation. That does not however mean that the employees were being paid an annual salary based on a 37 hour week, merely that that formula was used for calculating payment for additional time.

70 Within the terms and conditions of employment it is clear that within paragraph 3 the salary for the year is to cover both rostered and unrostered hours. It is accepted by the Tribunal that annual leave fell within rostered hours. It had to be otherwise neither the employer nor the employee would have known which hours they were committed to work and which hours came within Fixed Free Time. Not only annual leave was rostered but the other free days.

71 It is argued for the Claimant that as the annual leave is shown as a zero in the roster that it has not been paid for. That is not accepted by the Tribunal. All free time is shown as zero and it must be on the roster as the commitment by the employee is to work and attend for work for 1,930 hours. There are 126 free days identified in the core contract of a 1,930 hours roster when an employee is free from any commitment to work. If they were all shown as seven or eight hour days on the roster then the total hours shown would be falsely inflated. It would still be necessary for the employer to identify which were Fixed Free Days and which were days on which the employee was committed to work.

72 The employees' salary was paid in 13 equal instalments throughout the year. The benefit to them was that they received a set monthly salary irrespective of the number of hours actually worked. In some months they would have worked more hours and in others less. They were paid that instalment payment irrespective of whether they were working or on Fixed Free Days. The monthly payments did not vary, being a benefit to both the employee and the employer".

22. On the basis of those findings, the Claimants' claims were dismissed.

The Claimants' contentions

23. Miss Romney began by eschewing a representation made in a letter sent by the Claimants' previous solicitor on their behalf which, effectively, destroys their case, for that solicitor said:

"The annual hours contract does indeed allow for holiday. Clause 6 does not say that the annual contracted hours includes holidays. We maintain that the phrase 'your annual hours contract allows for holidays' means that the annual contracted hours have been calculated after taking into account holidays. It does not follow that the annual leave entitlement over and above the contracted hours would be unpaid. It is our client's contention that the annual hours referred to includes both the defined contracted hours (1,930) plus annual leave (22 or 24 days). It also includes the balance of the fixed free days".

24. Although that expression may have been an embarrassment, we do not regard it as relevant to the construction of these contracts. It does, however, illuminate the arithmetic involved in this case and at least one construction. It would involve an increase in pay of almost 10%. It struck all three members of this Appeal Tribunal that had the parties intended to reflect their actual agreement to such a proposition, they would, in the surrounding documentation, have made mention of what would, in fact, be a very substantial increase in remuneration, in addition to the other benefits which obviously arose out of the negotiations.
25. The first principal contention of the Claimants is that the Tribunal erred in holding that each had committed to work 1,930 hours in return for an annual salary. There was no mention of the number of hours required to be worked. It is contended that "the right to be paid for holiday within those 1,930 hours arises from the contract…". It is contended that the Tribunal erred by failing to construe the words "allows for" in Clause 6 of the contract and the word "within" in Clause 3. These words have no meaning unless they include the 22 or 24 days (depending upon service) holidays each year.

The Respondent's case

26. On behalf of the Respondent, it is contended that the contract expressly states that holiday is included within Fixed Free Days both in Clause 6 of the contract and Clause 8 of the Collective Agreement. There was no need to imply any term into the contract and using the canons of construction according to Lord Hoffmann's rules in ICS (above), the common sense and sensible construction of these clauses is that the Claimants were paid a fixed salary for a commitment of 1,930 hours over 52 weeks during which rosters would be produced indicating that they had Free Days and Fixed Free Days.

The legal principles

27. We accept, of course, the principles of construction set out by Lord Hoffmann. The construction of the contract arises by reason of the jurisdiction in which these claims arise before the Employment Tribunal which is given by s13 of the Employment Rights Act 1996 which provides as follows:

"13 Right not to suffer unauthorised deductions

(1) An employer shall not make a deduction from wages of a worker employed by him unless—

(a) the deduction is required or authorised to be made by virtue of a statutory provision or a relevant provision of the worker's contract, or

(b) the worker has previously signified in writing his agreement or consent to the making of the deduction.

(2) …

(3) Where the total amount of wages paid on any occasion by an employer to a worker employed by him is less than the total amount of the wages properly payable by him to the worker on that occasion (after deductions), the amount of the deficiency shall be treated for the purposes of this Part as a deduction made by the employer from the worker's wages on that occasion".

Discussion and conclusions

28. We consider that the approach of the Employment Tribunal was right as a matter of construction and we agree with its experience in indicating that the argument of the Claimants "is not the way an annual hours contract would be expressed". The arrangements brought into effect in 1999/2000 involved a radical overhaul of the way in which the wage-work bargain was to be given effect in this relationship. In practical terms, the employee agreed to be rostered to work for 1,930 hours in exchange for the agreed annual salary. Those hours are spread throughout the year by way of an annual roster. The roster, which is essentially a calendar, includes turns of duty which are between four and twelve hours a day. These turns occur Monday to Sunday throughout the year including bank holidays. The guarantee given by the contract and the Collective Agreement is that an employee who commits "to work" all the turns on the roster is guaranteed 126 free days when he or she need not attend work in accordance with the roster. Of those days, 56 of them are fixed free days grouped into four blocks of 14 days which are immovable. Every four weeks a transfer is made into the Claimant's bank account representing 1/13^th of the annual salary. It will inevitably occur that in one of those four weekly periods, the Claimant will have had 14 Fixed Free Days and possibly other Free Days. On the Fixed Free Days they are, in every sense, on leave, not required to be available to work or to work and can go on holiday.
29. There is, in our judgment, no entitlement to be paid over and above the annual salary a sum representing 22 or 24 days' pay. We accept the contention that this contract does not set an hourly rate, except that such is necessary for the purpose of calculating pay for hours worked over and above the committed hours. This might be described as overtime in another contract; and in yet other contracts, there is no entitlement to additional pay for working above the normal hours. But it is not legitimate to infer an hourly rate of pay for the 1,930 committed hours from the fact that a figure is used for the calculation of additional hours beyond the Committed Hours.
30. We have considered how ingrained is the sense of grievance by the employees of this company, as indicated by the repeated expensive litigation on the subject of holidays. It may be useful if we put this pay system in context, for which both sides invoke Lord Hoffman. Take an ordinary office worker hired for £20,000pa. She is told the hours are 35, from 9-5, Monday to Friday and an hour's break. She gets four weeks' holiday and bank holidays. She does not expressly "commit to work" for a year, but both the contract and the WTR focus attention on the yearly calculation by stipulating four weeks' holidays. She knows that at the end of the year she will have worked 48 weeks (less bank holidays). Having agreed to work for 35 hours every week, she is entitled to four off as holidays with pay. It is possible to view this as an agreement to work 1820 hours of which 140 are holidays; or to work 1680 hours, and to say she is paid an hourly rate of £10.99. But the parties would not express it in these ways, not would that be the way it is seen in everyday employment relations.
31. In our case, the parties have expressed the work as annual hours because of the requirement for rostering. Yet the legal approach is no different from the simple case. The Claimants agree to do work which, spread over a year and performed according to the roster on 3-6 days in a week, gives an average 37 hour week, or 1930 hours On 24 of those days they are formally taking paid holiday. These are "within" the 1930 hours. The office worker in our example simply looks at the calendar and books her four weeks' holidays. Any Claimant looks at the roster (let us say it is published annually) and books her almost five weeks' holidays. Each would correctly say: for my annual salary I have to work the days to which I am committed but I do not have to go in to work on 20 or 24 of those. The commitment of the office worker arises from the calendar (Monday-Friday) and of the Claimant from the roster (3-6 days spread over Monday-Sunday), Neither is entitled to holiday pay on top of the annual salary
32. The only matter which gave us some concern is the approach adopted by the Respondent to persons who leave the employment. It is contended by the Respondent that the benefit of retaining the 24 days' entitlement (i.e. not 22 days) only becomes live on the termination of the contract when a long-serving employee is entitled to be paid for any accrued holiday not yet taken. For such a person, any untaken holiday up to the level of 24 days is available, whereas that long service benefit was not retained after the 1999 restructuring for new employees. We agree with Ms Romney that it may seem odd to retain such a benefit only for the purposes of compensating those who leave. However, it is not an effective means for undermining the construction we have given to the contract.
33. In practical terms, we uphold the approach of now three Employment Tribunals to the problem of holiday pay, articulated by employees of C2C following the 1999 restructuring. We would very much like to thank Ms Romney, Ms Crasnow who argued part of the case, and Mr Hay all for their very helpful submissions. The appeals are dismissed.