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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> MPB Structures Against, Re Decision Employment Appeal Tribunal [2003] ScotCS 90 (1 April 2003) URL: http://www.bailii.org/scot/cases/ScotCS/2003/90.html Cite as: [2003] SCLR 542, 2003 SLT 551, [2003] ScotCS 90, [2003] IRLR 350, 2003 GWD 13-421, [2004] ICR 430, 2003 SC 485, [2004] 2 CMLR 44

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MPB Structures Against, Re Decision Employment Appeal Tribunal [2003] ScotCS 90 (1 April 2003)

FIRST DIVISION, INNER HOUSE, COURT OF SESSION
Lord President Lady Cosgrove Lord Carloway	XA80/02 OPINION OF THE COURT delivered by THE LORD PRESIDENT in APPEAL under Section 37 of the Employment Tribunals Act 1996 in the cause M P B STRUCTURES LIMITED Appellant; against a decision of the Employment Appeal Tribunal dated 16 April 2002 _______

 

 

Act: Napier, Q.C.; Semple Fraser, W.S. (Appellants)

Alt: Truscott, Q.C.; Balfour & Manson (Respondent)

1 April 2003

1. The Working Time Regulations 1998 ("the Regulations") were intended to implement the Working Time Directive (Council Directive 93/104/EC) ("the Directive") which entitled workers to paid annual leave. The primary question in this appeal is whether, on a correct interpretation of the Regulations, it is lawful for the employer and the worker to agree that payment in respect of that entitlement to annual leave should form part of the wages paid throughout the working year, in other words, "rolled up" as part of ordinary pay, or, on the other hand, whether such payment must be paid when the leave is taken. If the latter proposition is correct, the consequential issue is whether the payments which were "rolled up" can be treated as discharging the employer's liability in respect of holiday pay.
2. In the present case Mr Alexander Munro, the respondent, was employed by the appellant at its site at Tollcross in Edinburgh from 21 June 1999 to 8 May 2000. He had previously been employed by it on an adjacent site. When he was engaged at the Tollcross site he was paid at a rate of £8.50 per hour. However, following discussions and negotiations at site level his normal hourly rate was increased to £10.00 per hour. He was asked to go to the appellant's site office at Tollcross in order to complete the contractual documentation. He attended at the site office and signed the contract. It is not in dispute that the terms of that contract were contained in a standard form to which the court was referred.
3. The front page of the form stated:

"Rate of Pay: £ /per normal day-shift hours (as notified by site management)"

Above the place for the worker's signature were the words:

"I have read and understood the terms and conditions of employment on the back of this form and agree that they accurately reflect the terms under which I am employed".

On the back of the form, section 1 of the terms and conditions contained a number of definitions and interpretations. These included at para. 1.5:

"'the rate of pay' means and includes the amalgam of all earnings, payments, allowances and other payments referred to in the WRA [the Working Rule Agreement of the National Joint Council for the Building Industry]. For the avoidance of doubt there is within the rate an 8% allowance for your holiday pay. It is your responsibility to retain such advance payments in order that you are in funds at the time you do take holidays".

Para. 1.7 stated:

"Holiday Entitlement

(a) Entitlement to holidays will accrue at a rate of 0.41665 days for each

week worked. The maximum entitlement in any full Holiday Scheme Year shall be 4 weeks/20 days (0.41665 x 48 weeks). Your maximum entitlement includes all local/national public/bank holidays.

(b) Any person who is continuously engaged by the company for the

whole of the Holiday Scheme Year will be required to take the maximum holiday entitlement during the Holiday Scheme Year in which they are so engaged.

(c) The Company cannot continue to pay any monies whatsoever after 48

weeks continuous engagement during a Holiday Scheme Year unless holidays have been taken in accordance with the Working Time Regulations 1998. In this respect, the Company will be required to insist that your holiday entitlement is taken in accordance with such regulations".

4. It appears that the arrangement by which the pay was "rolled up" was adopted by the appellant in order to reduce administrative inconvenience associated with the calculation of average weekly pay for the purposes of holiday payments. It also appears that a worker who did not want to work under such an arrangement was not compelled to do so.
5. The principal provisions of the Regulations with which we are concerned in this appeal are as follows: Paragraph (1) of Regulation 13 provides for a worker's entitlement in each leave year to a period of leave in accordance with paragraph (2) of that Regulation. Regulation 15 provides that a worker may take leave to which he is entitled under Regulation 13(1) on such days as he may elect by giving notice to his employer in accordance with paragraph (3), subject to any requirement imposed on him by his employer under paragraph (2).
6. Paragraph (9) of Regulation 13 states:

"leave to which a worker is entitled under this regulation may be taken in instalments, but -

(a) it may only be taken in the leave year in respect of which it is due, and

(b) it may not be replaced by a payment in lieu except where the worker's

employment is terminated".

7. Paragraph (1) of Regulation 16 states:

"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".

Paragraph (5) of Regulation 16 goes on to provide:

"Any contractual remuneration paid to a worker in respect of a period of leave goes towards discharging any liability of the employer to make payments under this regulation in respect of that period; and, conversely, any payment of remuneration under this regulation in respect of a period goes towards discharging any liability of the employer to pay contractual remuneration in respect of that period".

8. Finally, Regulation 35, which contains a number of restrictions on contracting out, provides by paragraph (1):

"Any provision in an agreement (whether a contract of employment or not) is void in so far as it purports -

(a) to exclude or limit the operation of any provision of these regulations,

save in so far as these regulations provide for an agreement to have that effect, or

(b) to preclude a person from bringing proceedings under these regulations

before an employment tribunal".

Paragraph (1) is subject to certain qualifications set out in paragraph (2), which are not relevant for present purposes.

9. The treatment of the respondent's holiday pay became the subject of the proceedings before the employment tribunal, and it was arranged that this case should be regarded as a test case. It was also agreed that the employment tribunal would deal with the question whether the term in the respondent's contract of employment relating to an 8% allowance for holiday pay was void. Having heard the parties the employment tribunal held that para. 1.5 of the respondent's contract of employment was contrary to Regulation 13(9)(b) and was rendered void by reason of the terms of Regulation 35(1). The employment tribunal also held that it followed that it was not open to the appellant to rely on Regulation 16(5) so as to set off the allowance against the respondents' statutory entitlement. The appellant appealed to the Employment Appeal Tribunal, which held that the employment tribunal had been in error in deciding that Regulation 13(9)(b) applied, but went on to hold that para. 1.5 had "the effect of limiting the effect of the Regulations". They considered that "the only way that the provisions of the Regulations and, indeed, their spirit can be met, is for holiday pay to be paid as and when the holiday is taken at the appropriate rate". The Employment Appeal Tribunal made no reference to Regulation 16(5).
10. For the appellant, Mr Napier submitted that the Employment Appeal Tribunal had been correct in holding that Regulation 13(9)(b) was not relevant since the terms of the respondent's employment did not envisage the replacement of leave with payment. He also submitted that they were not in conflict with terms of Regulation 16(1). He accepted that the Regulations required to be construed in a way which was consistent with the objective of the Directive, which was to ensure that the worker had four weeks paid leave. He pointed out that in Gridquest Limited v. Blackburn [2002] ICR 1206 the Court of Appeal had reserved its opinion in regard to the primary question in the present case, namely whether the payment of holiday pay as part of a weekly "rolled up" rate was unlawful. He also pointed out that in R(BECTU) v. Secretary of State for Trade and Industry [2001] ICR 1152, which was concerned with whether the making of annual leave conditional on a minimum period of continuous employment was contrary to Community law, the Advocate General at paragraph 32 referred to the interpretation of Article 7(1) of the Directive. It provided that workers' entitlement to paid annual leave of at least four weeks was to be granted "in accordance with the conditions for entitlement to, and granting of, such leave laid down by national legislation and/or practice". He observed at paragraph 34 that member states enjoyed some latitude in defining the arrangements for enjoyment of the right to leave, and in particular the Directive was intended to allow them to provide a legislative framework governing the organisational and procedural aspects of the taking of leave, such as planning holiday periods. At paragraph 61 the European Court of Justice observed that the Directive did not prevent the member states from organising the way in which the right to paid annual leave might be exercised by regulating, for example, the manner in which workers might take the annual leave to which they are entitled during the early weeks of their employment.
11. Mr Napier accepted that the effect of the arrangement for "rolling up" holiday pay might be to discourage a worker from taking leave early in the year. This might appear to work harshly but it did not conflict with the health and safety objective of the Directive. There was nothing in the Directive or the Regulations which gave the worker the right to take a holiday at the time of his or her own choosing.
12. Mr Napier criticised the decision of the Employment Appeal Tribunal which, he said, had misread Regulation 35(1) in three respects. First, that Regulation was not concerned with a contractual provision which excluded or limited "the effect" of the Regulations. It was concerned with a provision of which purported "to exclude or limit the operation of any provision of these Regulations". Secondly, it rendered such a provision void only in so far as it purported to do so. Thus it remained valid for other purposes. This was crucial in regard to whether there could be a set off under Regulation 16(5) c.f. Sutherland v. Network Appliance Limited [2001] IRLR 12, Lindsay J. at paragraph 9. Thirdly, it was not enough for the Employment Appeal Tribunal to state that the arrangement was against the "spirit" of the regulations. It had not identified the provision which was affected by the contractual arrangement. There was no basis for regarding Regulation 35 in a way which made para. 1.5 either wholly void, or void for the purpose of other Regulations, the operation of which was not limited by what had been agreed. It did not purport to exclude Regulation 16(5). By its reading of Regulation 35(1) the employment tribunal had effectively penalised the employer in two ways, first, by finding that it had not discharged its obligation under the Regulations and, secondly, by holding that the employer was not entitled to credit for the payments which had been made in accordance with the contract of employment. Accordingly, even if the court were to hold that there had been a breach of Regulation 16(1) or Regulation 13(9)(b), it was still open to the appellant to obtain set-off in accordance with the terms of Regulation 16(5).
13. Since it is not in doubt that the Regulations fall to be interpreted in the light of the purposes of the Directive, it is to the Directive that we turn first. Among the matters which it recites is that "in order to ensure the safety and health of Community workers, the latter must be granted minimum daily, weekly and annual periods of rest and adequate breaks; whereas it is also necessary in this context to place a maximum limit on weekly working hours". Article 7, which is concerned with annual leave, states:

"1. 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 for entitlement to, and granting of, such leave laid down by national legislation and/or practice.

2. The minimum period of paid annual leave may not be replaced by an allowance in lieu, except where the employment relationship is terminated".

Thus it is clear that the directive treats the right to annual leave and to payment for it as part of a single entitlement. This is not directly reproduced in the Regulations since entitlement to annual leave is created by Regulation 13, whereas the entitlement to payment is created by Regulation 16. The wording of the Directive strongly suggests, in our view, a close association between the two. The submission made by Mr Truscott on behalf of the respondent was that workers had the right to be paid for annual leave at the time when it was taken. He emphasised, in our opinion correctly, that this was supported by the intention of the Directive to ensure the safety and health of workers. In the end of the day the question, in our view, comes to be whether Regulation 16(1) bears this implication, and in particular by providing for a worker's entitlement to be paid "in respect of any period of annual leave".

14. There is no doubt that the injunctions contained in Article 7 in regard to paid annual leave are of fundamental importance. That Article is excepted from the scope of the power of member states to derogate in terms of Article 17. Within the scope of Article 7 there is, as was observed in the BECTU decision, scope for member states to regulate certain matters. However, we are of the opinion that it is essential not only that payment should be made for annual leave, but also that it should be made in association with the taking of that leave.
15. There is no suggestion that the appellant adopted the arrangement of "rolling up" the holiday pay in an attempt to avoid the requirements of the Regulations. However, this arrangement was, we consider, not in accordance with the requirements of the Regulations, and would tend to lead to situations in which workers were discouraged from taking their holidays when they would otherwise have sought to do so, and hence it would have conflicted with what the Regulations and the Directive sought to achieve.
16. The remaining issue is as to the consequence of the conclusion that the arrangement was not in accordance with Regulation 16(1). In our view the arrangement set out in the form of contract which applied to the respondent's employment, which expressly provided for the rolling up of holiday pay, purported to exclude the operation of Regulation 16(1). It follows that para. 1.5 was, for this purpose, void. If so, it follows, in our view, that the respondent's rate of pay did not to any extent qualify as discharging any liability of the appellant in respect of holiday pay under Regulation 16(1). It also follows that the respondent's claim in respect of holiday pay remains unsatisfied. If it were otherwise it would be possible, in effect, for an employer to defeat the intention of the Regulations and the Directive that payment for annual leave should be in association with the taking of that leave.
17. In these circumstances we refuse the appeal and adhere to the decision of the Employment Appeal Tribunal