Caspar Glyn QC analyses the recent Court of Appeal decision:
Restricted to its own facts British Gas’ appeal has been unsurprisingly dismissed. However, the decision was a close one - in the words of the court it “wavered.” Questions as to the correct reference period and whether a banker’s bonus should be reflected in holiday pay were expressly referred to and remain open. The decision should remind all businesses to act and to spur legal professionals to get back in front of their clients to address this issue.
Finally, for those looking to see what the Government’s view as to the WTR may be after BREXIT may be heartened, or indeed disheartened, by BIS’s support of the Claimant position.
The expedited Lock appeal was dismissed by the Court of Appeal on Friday. British employees, who have normal or set working hours, are entitled to be paid commission or any similar payment during 20 of their 28 days of statutory leave.
The Secret Meaning of the Article 7
Sir Colin Rimer who gave the only judgment of the Court set out Article 7 of the Directive which readers will know places the obligation on the UK to ensure that every worker is entitled to at least four weeks of paid annual leave. That Article sets out in terms that the UK by national legislation and or practice shall set the “conditions for entitlement to, and granting of, such [paid] leave.” The Court then expressed, with I think some acidity, that it was not until 2006 that the meaning of this Article became clear to the Court of Justice of the European Union; that Article 7 in fact worked a “secret magic” which was only first explained by the CJEU in 2006 that paid annual leave within the Directive in fact meant “normal remuneration”.
Therefore, in spite of the clear language of the Directive that conditions for entitlement and granting were for the UK to implement that the UK was, in fact, bound to ensure that workers received “normal remuneration” throughout their 20 days of Article 7 leave. Accordingly, given that the CJEU seems to have adopted the application of “normal remuneration” from Robinson-Steele v. RD Retail Services Ltd C-131/04 and C-257/04 it was “unsurprising” according to the Court of Appeal that prior to Robinson the domestic courts had merely taken Article 7 at face value – the rate of pay is a domestic matter.
Now, however, the “secret” meaning had to be applied. The Court of Appeal observed that whilst it was clear from Evans v. The Malley Organisation Ltd (t/a First Business Support)  ICR 432 that if left merely to domestic interpretation Mr Lock’s case would fail that was a decision made before, again I think expressed with some disdain, the “true sense of Article 7” had been revealed by the CJEU in 2006.
British Gas’ First Argument
British Gas accepted that Article 7 of the Directive entitled workers to 20 days of normal remuneration. It advanced two arguments that disentitled the Court of Appeal from giving that right to English and Welsh workers.
The first which appears not to have been pressed home with the greatest of enthusiasm was easily dismissed. It was argued that Bamsey and others v. Albon Engineering and Manufacturing plc  EWCA Civ 359 was binding authority that the Working Time Regulations could not be read to conform with Article 7 of the Working Time Directive as requiring “normal remuneration”. The Court rejected that para 40 of the Bamsey was anything other than merely a domestic interpretation of the Working Time Regulations. In Bamsey the Court had not referred to Article 7 of the Working Time Directive to assist its interpretation as was the present case. It had taken Article 7 at face value and only looked at the domestic legislation. Accordingly, the Court in Bamsey had done no more than decide that Article 7 was irrelevant to the domestic interpretative exercise it undertook in that case.
British Gas’ Second Argument
So to the second argument which Sir Colin Rimer had not found easy and on which he wavered. In previous cases from NHS Leeds v. Larner  EWCA Civ 1034 and Bear Scotland Ltd v. Fulton and another  ICR 221 the Courts have held it possible to re-write the WTR so that they conform to the “secret” meaning of the Directive on “normal remuneration.” The Courts have previously held that all that they are doing is giving effect to the intention of Parliament which was to implement, properly, the Directive in to domestic law. Following the doctrine of conforming interpretation words can be inserted by the Courts into the regulations to ensure that their true meaning as intended by Parliament is put into effect. The Courts can do this as they are simply going with the grain of the Regulations and not against it. There are limits to a court’s ability to do this but they are not engaged here.
British Gas argued that Bear Scotland was wrong and that it was not possible to make the Regulations conform in this case – it was argued, to use Lord Bingham’s turn of phrase, an act of judicial vandalism on the Regulations that went directly against the grain of the legislation to rewrite them to include Mr Lock’s commission. It was accepted by the Court that the meaning of a “week’s pay” has been a matter of domestic legislation and interpretation since 1963; that the domestic interpretation of those provisions not include Mr Lock’s commission. Further, Sir Colin Rimer observed that the “week’s pay” provisions were used in the WTR by Parliament implementing their “apparent” (again the rather disdainful acidity) delegated power under Article 7 to control these matters before the true sense was later revealed.
The Court of Appeal’s Decision
In the end the Court of Appeal dismissed this argument because it found in previous authorities that the test as to whether a court is going to perform an act of judicial vandalism or whether it was going against the grain was not a literal one. The English and Welsh courts do not look at the literal language of merely the instant provision with which they are concerned. Indeed, if one did this with the current regulations it would be going against the grain of the language. Rather, the Court looks at the underlying thrust of the legislation. Further, it was the Court’s obligation to give effect to Parliament’s assumed intention to put Article 7 into effect in domestic law (wait for it, the dripping disdain again) “even those requirements of the Directive which were not apparent at the time of the enactment of the Directive, but which only became clear by later elucidation by the CJEU.” The legislature had not ruled out that the WTR should not give the right to “normal remuneration” during holiday merely that they had not foreseen the “true sense” of Article 7 as it was to be interpreted in due course. Accordingly, it was going with the grain of Parliament’s assumed intent to enact Article 7 in domestic law to give effect to the principle of “normal remuneration” in the instant case.
The decision was expressly restricted to its facts.
British Gas intend to appeal to the Supreme Court.
My prediction, if leave is given, is that the result will be the same, that Sir Colin Rimer arrived at the correct legal decision. The Court perhaps wavered more than it should through its repeated references as to the secret / not apparent meaning of Article 7. However, lucidly the Court set out correctly that the doctrine of conforming interpretation is a broad and purposive one and not a literal narrow one.
The Court restricted the decision to its facts. Then, it set out, in terms that should send a shudder through the financial and other discretionary bonus sectors the arguments which have yet to be determined – should a banker’s bonus be included? What is the correct reference period for a business?
BIS strongly supported the Claimants’ arguments. The Prime Minister said that that she should be judged by actions, not words. Perhaps this Government’s promise to enhance rights at work and not erode them after BREXIT can be taken at face value given the support for normal remuneration during 20 days of leave?
As we have advised many clients and in the tens of lectures that we at Cloisters have given all businesses should take simple steps to protect themselves from claims which would NOT impact on the final pay packet of staff. Of course careful tailored legal advice to the facts of each situation should be given but businesses should be considering one or more of the following:
- investigate your potential exposure
- withhold 8.3% or 12.05% of discretionary pay and make them during leave
- where one can then amend commission and other arrangements to allow for 8.3% or 12.05% to be paid during holiday
- if that is not possible then at the least ensure that payslips set out clearly and transparently that 8.3% or 12.05% of any discretionary / commission pay is in respect of holiday pay. That may be unlawful as being rolled up but should give some protection if done properly against the value of claims.
If you are a client business do contact our clerks for advice on 02078274000 and if a legal professional reading this, then get back in front of your clients and de-risk their businesses – as ever we are ready to advise and work with you.