This article reports on the cases of Bear Scotland Ltd & Others v Fulton & Others (UKEATS/0047/13/BI), Hertel (UK) Ltd v Woods & Others (UKEAT/0160/14/SM) and Amec Group Ltd v Law & Others (UKEAT/0161/14/SM), which considered the issue of the inclusion of overtime in the calculation of holiday pay.
The EAT rejected the appeal of Bear Scotland, Hertel and Amec (the ‘employers’) and held that Article 7 of the Working Time Directive should be interpreted to include payments for overtime which employees were required to work, but the employer was not obliged to offer, as part of normal remuneration to be included in the calculation for holiday pay.
The Working Time Regulations (specifically Regulation 13 relating to annual leave and Regulation 16 relating to pay for annual leave) can be interpreted so as to conform with this interpretation of Article 7.
It was confirmed that claims in relation to arrears of holiday pay can be brought as a claim for a series of unlawful deductions from pay under section 13 of the Employment Rights Act 1996. However, in such a case the claim must be brought within three months of the last deduction. If there is a gap of more than three months between two deductions in the chain, the ‘series’ of deductions is broken.
Taxable remuneration for time spent travelling to work also falls within normal remuneration for the purpose of calculating holiday pay.
The appeal of the employers was upheld in relation to the payment of overtime in the context of a PILON based upon the construction of the relevant contractual provisions.
Bear Scotland is a company which carries out the road construction and maintenance of Scottish roads.
Hertel and Amec are also construction companies and the claims related to employees working on a construction site at West Burton, England. The claimants in Hertel and Amec were working under the terms of the National Agreement for Engineering and Construction Industry, which provided for a basic working week of 38 normal working hours. Under the Agreement there was an obligation on the employee to work overtime; there was no corresponding obligation on the employer to provide overtime to be worked.
There was a separate Supplementary Practice Agreement (SPA) in place in respect of the West Burton project which provided that overtime would be required during the project, but that it was not guaranteed, nor covered by any guaranteed working hours provisions and that it did not form part of the normal working hours and would not form part of any of the calculations on holiday pay entitlement.
The claims all related to unauthorised deductions from the wages of their employees by failing to include overtime when calculating holiday pay due to them.
There was also a specific claim by the Hertel and Amec employees in relation to a failure, in breach of contract, to pay them full pay in lieu of notice when their employment ended and a cross-appeal by these Claimants in relation to the employment tribunal’s decision that taxable remuneration for time spent travelling to work did not fall within normal remuneration for the purpose of calculating holiday pay.
The Working Time Directive, 2003/99/EC replacing Directive 93/104/EC, provides:
Member States shall take the measures necessary to ensure that every worker is entitled to paid annual leave of at least four weeks in accordance with the conditions of entitlement to, and granting of such leave laid down by national legislation and/or practice.
The minimum period of paid annual leave may not be replaced by an allowance in lieu, except where the employment relationship is terminated.
Regulation 13 of the Working Time Regulations (WTR) 1998 implements Article 7 and under Regulation 16 WTR:
A worker is entitled to be paid in respect of any period of annual leave to which he is entitled under Regulation 13, at the rate of a week’s pay in respect of each week of leave.
Sections 221-224 of the Employment Rights Act 1996 shall apply for the purpose of determining the amount of a week’s pay for the purposes of this regulation….
Section 234 of the Employment Rights Act 1996 defines “normal working hours”.
British Airways plc v Williams [2010] IRLR 541 involved claims by airline pilots under the Civil Aviation (Working Time) Regulations 2004 (which contained the same provisions as the Working Time Regulations). The Supreme Court asked the ECJ to what extent, if any, European law defined or laid down any requirements as to the nature and level of payments required to be made in respect of paid annual leave and to what extent Member States might determine how such payments were to be calculated.
The ECJ determined that any aspect of pay which is “linked intrinsically to the performance of the tasks which the worker is required to carry out under his contract of employment and in respect of which a monetary amount is provided which is included in the calculation of the worker’s total remuneration such as, in the case of airline pilots, the time spent flying, must necessarily be taken into account for the purposes of the amount to which the worker is entitled during his annual leave”. This contrasted with the components of the worker pay which were intended exclusively to cover occasional or ancillary costs arising from the performance of his tasks.
In Lock v British Gas Trading Ltd [2014] ICR 813 the ECJ considered the case of a salesman whose remuneration consisted of basic salary and commission (which was paid on a monthly basis and represented 60% of his pay). During periods of annual leave there was no opportunity for commission to be earned and that had an adverse effect on the Claimant’s salary during the months following periods of leave. The Tribunal asked the ECJ whether there were any indications in Article 7 concerning the methods of calculating the commission to which a worker was entitled in respect of annual leave. The ECJ’s response was that remuneration paid in respect of annual leave must in principle be determined in such a way as to correspond to the normal remuneration received by the worker. The commission received by the Claimant was “directly linked” to his work with the company, consequently, there was an intrinsic link between the commission received each month by the Claimant and the performance of the tasks he was required to carry out under his contract of employment. It followed that such commission must be taken into account in the calculation of total remuneration to which a worker is entitled to in respect of annual leave.
The first issue for the EAT (Langstaff P) to consider was what Article 7 required by way of paid annual leave and whether it followed from Williams and Lock that non-guaranteed overtime and the other elements of remuneration which the workers in the present cases received had to be included in the calculation of holiday pay.
The EAT confirmed that it regarded the decisions of the ECJ in Williams and Lock as representing a “settled view” as to the meaning of Article 7. Namely that the pay to be received during a holiday should be a natural continuation of the pay which has been received before the holiday began i.e that “normal pay” is the pay which is normally received.
The EAT considered that the payment would need to be made “for a sufficient period of time” to justify the label “normal”. In the present cases, the work pattern was settled, and the EAT had no difficulty in identifying the “normal pay”. The EAT accepted that where “normal” remuneration could not so easily be identified an average taken over a reference period determined by the Member State would be appropriate. No indication was given as to what an appropriate reference period would be.
In relation to the present cases, the EAT determined that on the basis the work was required by the employers, the Employment Tribunal was entitled to determine that the overtime payments should be considered normal remuneration.
The EAT felt it would be perverse to hold that overtime in these cases was not intrinsically or directly linked to the tasks which the worker was required to carry out. Article 7 therefore requires non-guaranteed overtime to be paid during annual leave.
The EAT did not consider there was any scope for ambiguity in this regard, no reference to the ECJ was necessary.
The EAT held that the WTR and the ERA could and should be interpreted so as to achieve the result required by Article 7.
The EAT said this would be best achieved by reading words into Regulation 16 (payment for annual leave) which disapply sections 223(3) and 234 ERA which have the effect of excluding certain overtime payments from the definition of a “week’s pay”.
The EAT concluded that on the basis that it was Parliament’s intention to implement the Directive fully and accurately it was appropriate to adopt a conforming interpretation of the WTR.
The EAT referred to Bamsey and ors v Albon Engineering and Manufacturing plc ICR 1083 (Brief 756) where the Court of Appeal held that compulsory but non-guaranteed overtime did not have to be taken into account when calculating a worker’s holiday pay, had been decided before relevant ECJ authorities on the proper interpretation of Article 7 and the scope of ‘normal remuneration’. The premise in that case that Article 7 left Member States to decide how to calculate holiday pay was no longer correct.
Under section 23(3) ERA a Tribunal loses jurisdiction to consider a complaint that there has been an unlawful deduction from wages unless it is brought within three months of the deduction or the last of a series of deductions being made (unless it was not reasonably practicable for the complaint to be presented within that three month period, in which case there may be an extension for no more than a reasonable time thereafter).
The EAT accepted that whether there was a series of deductions was a question of fact based on (i) a sufficient similarity of subject matter (factual link) and (ii) a frequency of repetition (temporal link).
The EAT considered that it was not intended that jurisdiction should be regained simply because a later non-payment, occurring more than three months later, could be characterised as having such similar features that it formed part of the same series. If therefore there is a gap of more than three months between any two deductions the ‘series’ of deductions is broken.
This is a new development in the law generally and will significantly restrict the scope for workers to claim arrears of holiday pay, which it had been thought could possibly be claimed as far back as 1998.
The EAT upheld the appeals of Hertec and Amec and concluded that the construction of the provision in the National Agreement for Engineering and Construction Industry relating to overtime, which stated that it would not form any part of normal working hours, meant that despite working 44 hours per week almost without fail (the normal contractual working week being 38 hours) these additional hours could not be taken into account when calculating payment in lieu of notice.
The Radius Allowance was paid to any employee who travelled daily between his or her home and a site over 8 miles away. HMRC treated some of the payment as reimbursement of travelling costs, but the balance as taxable remuneration.
The Travel Time Payment entitled employees to be repaid for time spent travelling at the rate of one hour of basic pay for the first 30 miles travelled and half an hour for each subsequent 20 miles.
The EAT concluded that time spent travelling was time spent linked to work and as such, the taxable element of the Radius Allowance and the Travel Time Payment formed part of the worker’s normal remuneration and the taxable element should be included in the calculation of holiday pay.
Article 7 provides for non-guaranteed overtime payments to be included as part of normal remuneration when calculating holiday pay and it is possible for the WTR to be construed so as to conform.
Travel allowances for time spent travelling that was linked to work should also be included as normal remuneration when calculating holiday pay.
The employers have been granted leave to appeal to the Court of Appeal. In granting the appeal Langstaff P stated that he did not consider that an appeal on the first two issues has a reasonable prospect of success but recognised the issues were of considerable importance and would benefit from a definitive resolution. He considered the third issue (i.e. the backdating of claims) to be an arguable point.
The Department for Business, Innovation and Skills have launched a taskforce to consider the impact of the judgment on businesses.
