Case No: CH 2002 APP 0135
Neutral Citation Number:[2002] EWHC 1013 (Ch)
 
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 23 May 2002

Before :

THE HONOURABLE MR JUSTICE JACOB
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Between :

	The Mayor and Burgesses of the London
Borough of Newham	Appellant	
	- and -		
	Gary Skingle
-and-
The Pensions Ombudsman	First Respondent
Second
Respondent	

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Jacques Algazy (instructed by London Borough of Newham Legal Service) for the Appellant
Nicholas Randall (instructed by Messrs Thompson) for the First Respondent

Hearing dates : 14 May 2002
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Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

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THE HON MR JUSTICE JACOB

Mr Justice  Jacob:

1.	This is an appeal by the London Borough of Newham from a determination of the Pensions Ombudsman of the 30th January 2002.  He found in favour of the pensioner, Mr Skingle, the first respondent.  There were earlier proceedings between the parties concerned with the issue with which I am concerned, including an appeal to the Secretary of State of the Department for the Environment, Transport and Regions.  In these, Mr Skingle was unsuccessful.   He accordingly took the matter to the Pensions Ombudsman, claiming maladministration arising from an error of law.  I am only indirectly concerned with those earlier proceedings.   Because a question of law arises, appeal lies to the Court (s.151(4) Pensions Schemes Act 1993).
 
2.	The point at issue is short but important.  It is important because it has application to a wide range of local government employees and, possibly, also to other public service employees.  

3.	Mr Skingle is now retired.  His pension depends upon his final earnings.  Like many other local government employees, he worked not only normal hours but overtime.  Does his final salary for the purposes of computing his pension include his overtime earnings?   If it does he will have a larger pension than if his overtime earnings in his last year of work do not count. Many employees work overtime.  Hence the general importance.

The Legislation to be construed

4.	The relevant regulations are the Local Government Pension Scheme Regulations 1995.  Although these have been replaced by 1997 Regulations there is no relevant or material difference between the two sets of regulations. Mr Skingle’s pension is related to his “remuneration”.  This is defined in Part C of the Regulations as follows:

“(1)	Subject to paragraphs (2) and (3) and Schedule C5 (limitations on contributions and benefits), in these regulations “remuneration”, in relation to an employee, means the total of:

(a)  	all the salary, wages, fees and other payments paid to him for his own use in respect of his employment, and
(b)	the money value of any benefits provided for him by reason of  his employment,

and any other payment or benefit specified in his contract of employment as 
a pensionable emolument.

The Regulations then go on to provide exceptions to this basic definition:

(2)  "Remuneration" does not include -

(a)  	payments for non-contractual overtime;
(b)  	any travelling or subsistence allowance or any other allowance paid to an employee in respect of expenses incurred in relation to the employment;
(c)	any payment made to an employee in consideration of loss of holidays;
(d)	any payment accepted by an employee in lieu of notice to terminate his contract of employment;
(e)	any payment made to an employee as an inducement not to terminate his employment before the payment is made;
(f)	subject to paragraph 7 of Schedule C2, the money value to the employee of the provision of a motor vehicle or any payment accepted by him in lieu of such provision …"

5.	This case is concerned with the meaning of exception (a) - what does "non-contractual overtime” mean?   Were Mr Skingle's overtime earnings "payments for non-contractual overtime?" 

6.	I proceed initially on the same premise as did the Ombudsman, namely that Mr Skingle's contract of employment provided for a basic salary for a basic working week (of 36 hours).   The contract also set forth an agreed rate for overtime.  But it did not provide that either the authority or Mr Skingle could insist upon any overtime working.   There was no compulsory overtime. 

7.	The Ombudsman put his conclusion this way:

“There was nothing to stop him [working] overtime (and being paid for it), but he was in no sense contractually bound to [do so] himself.  My understanding that he was entitled to be paid for such overtime work is based on the reference to such payments being made not at his usual rate of pay but at the abated caretakers rate.  That he was not bound to undertake such work himself does not mean that the remuneration he received was non-contractual.  On the contrary it seems to me that there were specific contractual arrangements for such payments.  I agree with Newham, however, that there was no obligation on Mr Skingle to undertake such work.

It is not clear to me what payments for overtime working could fall within a definition of "non-contractual overtime" and I suspect there is a need to amend the Regulations either to provide some definition of the term or to replace the wording with some other term.  It may be possible to amend the Regulations to accord with what Newham tells me is the accepted practice in Local Government.  For the moment however, I need to interpret the Regulations as presently enacted and it is clear to me that the payments made to Mr Skingle should not be regarded as being as payment for non-contractual overtime but should be regarded as part of Remuneration within the definition of Regulation C2(1) and thus to be taken into account for the purposes of calculating his retirement benefits."

8.	So the Ombudsman’s reasoning ran:  the contract provided for the rate of pay if overtime was worked.  Hence any overtime was contractual.  It was not outside the contract.

9.	The Borough say that is wrong:  “non-contractual overtime” means overtime not called for by the contract – non-compulsory, that is voluntary, overtime is what is meant.   The mere provision in the contract of employment for a rate of pay if optional overtime is worked does not make the overtime “contractual.”    Despite Mr Randall’s attractively presented argument, I have concluded that the Borough are right.   Here are my reasons:

10.	Focus first on the word “overtime”.   This indicates time spent working beyond the basic hours provided by the contract.   But it does not mean time spent working at some other employment – it is work on the job that is being referred to.  Now if payment for all work on the job (normal hours plus all overtime, voluntary or not) counts as the “remuneration” the exclusion is meaningless.   That cannot be right.   Some payment for work on the job is clearly to be excluded – and that can only be payment for work done on the job which is not required by the contract – namely voluntary overtime.

11.	Mr Randall felt the force of this, as did the Ombudsman.  The latter could not find any meaning to “non-contractual overtime” (“it is not clear to me what payments for overtime could fall within [the definition]”).  Mr Randall suggested ex gratia payments for voluntary additional hours not recognised officially as overtime.   That is too loose a concept – an ex gratia payment is just a gift and would not fall within the basic definition of remuneration at all.   Remuneration is “payments  … in respect of employment.”

12.	I am confirmed in this view by a second order argument.  This is based on exclusion (c) – payment for loss of holidays.   If an employee works for part of his holiday entitlement and gets paid, he is in effect doing much the same thing as overtime during a working week.  It hardly seems rational that voluntary overtime should be included, but similar voluntary work during holidays excluded.  Originally it was Mr Randall who prayed this provision in his aid.  He said “look, payment for work done in lost holiday time is excluded specifically, the same could have been done for voluntary overtime but it was not.”   When the provision was turned against him he suggested instead that it was aimed at something altogether different – payments for lost holidays that were never taken at all, as for instance may happen when an employee leaves without having taken his full holiday entitlement.    But the provision is not so limited – it covers both payments in lieu of holidays and payments for working during holidays.

13.	Mr Randall raised several other points which I should mention briefly.  He submitted that the provision, being an exception, should be construed narrowly.  Whilst this is a principle of interpretation of European legislation, I am not aware that it is a principle for the construction of our domestic legislation.  Besides, even if one applies the principle one must give the exception some sensible meaning.  As I have said, none can be found if “non-contractual overtime” covers both compulsory and voluntary overtime.

14.	Next he submitted that the alternative argument did violence to the actual language, that it amounted to substitution of the word “compulsory” for the word “contractual”.   That at first appealed to me, but on reflection I think it appealed because of the way Mr Randall put it.  If one reads “contractual” as “called for by the contract” there is no such violence.

15.	Mr Randall also submitted that the Borough’s construction made no sense in the real workplace.  There, he said, many workers in practice do overtime and are happy to do so.  It makes no difference whether they are required to do so or not.   Many workers indeed do overtime not just for more money but because they want to see their jobs done properly.  From his evidence Mr Skingle, as a good public servant, fell in that class.   Why in practice should one sort of overtime be included, but another not?   The answer is that is what the exception does – it differentiates between contractual and non-contractual overtime.

16.	Finally I should mention arguments based on administrative convenience.   If one does the calculation simply on an employee’s basic pay the sums are easy.   But if one has to consider whether a particular piece of overtime was required by the contract there might be difficulties.   It is easy to envisage a contract under which some overtime may be voluntary and some compulsory.  In practice there could be difficulties in knowing which was which when one came to look at the actual position.   Furthermore, if not all overtime was included, an unscrupulous employer who could require an employee to do overtime under the contract, might deliberately refrain from doing so in an employee’s last year so as reduce the pension.   In the end I think the arguments cut both ways – they are equally valid whichever construction is adopted.   I get no help from them.

17.	I conclude that the Ombudsman fell into error of law in construing the Regulations.   That brings me to Mr Randall’s alternative argument which he raises by way of a respondent’s notice.   He says that in any event Mr Skingle’s overtime was worked pursuant to a contractual obligation, that it was “contractual overtime.

18.	Mr Skingle was employed as a Site Supervisor (in common parlance, caretaker) at a Community School. The Pensions Ombudsman held that Mr Skingle’s contract included terms contained in two documents headed “Site Supervisor – Purpose of Job” and “Job Specification”.  He made no such finding in relation to a third document headed “Site Supervisors’ Agreement”.   It is not open to me on appeal to hold that this document in fact also formed part of the contract.  Mr Randall did not actually contend otherwise though he took me to it.

19.	Neither of the two documents say Mr Skingle had to work overtime when called upon by the employer.  Nor did a third document, called the “purple book” which also contained terms of his employment.   The “Site Supervisor – Purpose of Job” document says nothing about hours of work.   The “Job Specification” merely says (para.8) that the employee is to “manage and operate systems of staff cover for lettings and other out-of-hours usage of the premises.”   It adds a note “the duties of this post may involve working outside normal hours, including weekends and bank holidays, as necessary” but that does not necessarily mean extra hours rather than unusual hours.   The “purple book” again has nothing about overtime, merely saying that the employer should discourage working outside usual hours and that “where such working arrangements are unavoidable, the officer shall be entitled to the appropriate allowances.”

20.	Mr Randall suggests that despite these contractual terms, the Borough could require Mr Skingle to work overtime, and if he refused that would be a breach of his contract.  In practice the position was the lettings out of hours had to be manned and it was Mr Skingle’s job to arrange cover.  Often he could not find anyone and did the job himself.  But I can see no basis upon which he could have been compelled to do that – even if no other employee could be found.   

21.	Accordingly I think the Ombudsman was right in his construction of the contract, though for the reasons I have given earlier on, the appeal is allowed.