Appeal No. UKEAT/0068/06/LA

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
	On 13 July 2006
Judgment delivered on 13 October 2006

Before
HIS HONOUR JUDGE SEROTA QC
MR P SMITH
PROFESSOR P D WICKENS OBE

(1) MR J HERRING	APPELLANTS
(2) MR S HARRISON

CO-OPERATIVE INSURANCE SOCIETY LTD	RESPONDENT

Transcript of Proceedings

JUDGMENT

Revised

	APPEARANCES

For the Appellants	MR MATHEW PURCHASE
(Of Counsel)
Instructed by:
Messrs Graham Bash & Company Solicitors
26 Wattisfield Road
London 
E5 9QH	
For the Respondent	MR OLIVER SEGAL
(Of Counsel)
Instructed by:
Co-operative Insurance Society Limited 
Solicitors Department
Miller  Street
Manchester
M60 0AL	

SUMMARY

Employment Tribunal struck out case despite fairly arguable case on facts and law.  Remitted for hearing at Employment Tribunal.

HIS HONOUR JUDGE SEROTA QC

Introduction and Background

1.	This is an appeal from the Employment Tribunal at Stratford (I S Lamb Esq, Chairman) dated 22 September 2004.  The initial proceedings involved the Claimants and others but so far as concerned these claimants, the Employment Tribunal (i) refused the Claimants’ applications for an adjournment and stay, (ii) struck out the originating applications, (iii) ordered the Claimants to pay the Respondent’s costs in the sum of £4725, and (iv) refused the Claimants’ application for costs.

2.	The matter was referred to a preliminary hearing on 18 January 2006, and on 16 March 2006 HHJ Burke QC referred the appeal to a full hearing on amended grounds.

The factual background
3.	The Respondent is a well-known insurance company.  The Claimants were among eight former employees of the Respondent involved in proceedings in an Employment Tribunal.  The other six had withdrawn their claims at one time or another.

4.	The Respondent employs a number of persons known as “agents”.  There is no dispute that the Claimants and others in their position are employees of the Respondent.  Agents generally buy their “book” from another agent, and what are referred to as “agency” payments of a recurring nature are made to agents for the time being.  Thus, if an agent writes business one year and retires, any commissions payable on renewal of those policies will be paid to his successor agent.

5.	Both Claimants were employed, as I have said, as insurance agents.  They received a small salary together with commission and procuration fees.  Commission was payable on the renewal of a policy.  Some policies, such as life policies, or policies connected with pensions might have a long life with many renewals.  Procuration fees were payable when a new policy of insurance was brokered by the Claimant. 

6.	The particular issues before the Employment Tribunal revolved around issues as to holiday pay.  In essence, commission and procuration fees were not paid when a policy was entered into or renewed.  I am more concerned with issues as to procuration fees than commission.  Procuration fees were payable 14 days after the Respondent received payment for a policy brokered by the Claimants, or other agent.  Payment of procuration fees was, therefore, always in arrears.  While on holiday the Claimants were entitled to receive whatever commissions and procuration fees had accrued while they were on leave, together with their basic salary.  

7.	The complainants’ complaints were in essence that:
 (a) 	had they worked during their annual holidays they would have entered into more contracts and thus earned more procuration fees and eventually more commissions; 
(b) 	the Respondent did not pay any specific sum in respect of their holiday entitlement; 
(c) 	the payments made while they were on their annual holidays reflected substantially the payment, not for the holiday period, but in respect of work already done and in effect monies already earned; and
(d) 	there were consequential claims for loss of pension contributions which were dependent on earnings and, under section 11 of the Employment Rights Act 1996, for failing to provide adequate particulars of their employment by identifying which parts of their pay constituted holiday pay and how this was calculated.  

8.	The Respondent’s case was quite simple.  The Claimants, it is said, were paid throughout the year on the same basis whether they were on holiday or not.  
Chronology of the proceedings
9.	Mr Herring’s originating application is dated 5 July 2002.  His claim was in respect of “illegal deduction of wages including (1) holiday pay (2) pension”.  He also complained that he had sold policies in the last weeks of his employment but was not paid commission, nor was he paid in lieu of holiday.  He had asked that the case should not be listed, as another case then pending in the Court of Appeal (Walker v Co-operative Insurance Society Limited [2003] EWCA Civ 632) might influence his case.  Mr Walker had in fact commenced his proceedings on 19 December 2000.  He was also an agent employed by the Respondent on terms similar or identical to those of the Claimants and his claim raised similar issues.  On 12 March 2001 the Employment Tribunal had decided against him and there was an outstanding appeal to the EAT.  The EAT dismissed the appeal in May 2002 but a further appeal was taken to the Court of Appeal which was thus outstanding in July 2002. 

10.	On 26 November 2002 Mr Herring asked for his case to be listed because it was different to Walker.  However, on 8 January 2003 he applied again for a stay pending the decision of the court of Appeal in Walker.  Mr Harrison’s originating application was presented on 16 June 2003.  The relief he sought was similar to that sought by Mr Walker, and he also applied for an adjournment pending the decision of the Court of Appeal in Walker which was in fact delivered on 11 April 2003.  Mr Walker was represented in the Court of Appeal by a member of the bar, Mr Sykes, who acted as a consultant and who has also appeared for these Claimants.  The Court of Appeal in Walker had been prepared to entertain the appeal from the EAT on the basis that it raised a point of general importance after an initial refusal of permission.  Mr Walker petitioned the House of Lords but his petition was unsuccessful.  So far as I can tell, throughout the life of the Walker case, all Employment Tribunal cases said to raise the same or similar issues were stayed pending the outcome of Walker.  On 5 July 2004 the regional chairman, Mr Lamb, gave directions.  The Claimants had made submissions in relation to a further stay and possibly for Mr Herring’s case to be heard before Mr Harrison’s.  There was also canvassed the possibility of a stay pending the decision of the European Court of Justice in a holiday pay case (I believe Robinson-Steele v RD Retail Services Ltd [2006] IRLR 386) to which I shall refer later.

11.	The Employment Tribunal gave directions for a preliminary hearing at the request of the Respondent to determine whether the Claimants’ claims were mis-conceived in the technical sense; i.e. as having no reasonable prospect of success.  The Employment Tribunal gave directions for the preliminary hearing, requiring the Claimants and Respondents to serve definitive statements of their case, and emphasised that the “only evidence which will be considered at the preliminary hearing will be that comprised in the contracts of employment.  No evidence of witnesses will be heard.  Therefore, no question should arise of seeking any disclosure of additional documents from the Respondents.”  

12.	Mr Lamb did, however, provide in his order that should it emerge from the Claimants’ statements of case that a preliminary hearing was not appropriate, then after consultation with the Respondents and other Claimants, he would consider whether the direction for a preliminary hearing should be revoked.

13.	The parties did supply their written statements.  It was submitted on behalf of the Respondent that Mr Herring had introduced a new claim concerning the formula for calculating pay in lieu of holiday on termination.  The Employment Tribunal considered that as there was no application to amend before it, his case should be treated as that which he had particularised in November 2002.

14.	We shall come in due course to the decision of the Employment Tribunal.  

The legal framework
15.	In order to understand the issues before the Employment Tribunal it is convenient at this stage to refer to section 224 of the Employment Rights Act and various of the Working Time Regulations 1998.  We start with section 224:
 “224  Employments with no normal working hours
(1)	This section applies where there are no normal working hours for the employee when employed under the contract of employment in force on the calculation date.
(2)	The amount of a week’s pay is the amount of the employee’s average weekly remuneration in the period of twelve weeks ending—
(a)	where the calculation date is the last day of a week, with that week, and
(b)	otherwise, with the last complete week before the calculation date…”

16.	I now turn to the Working Time Regulations 1998.  Regulation 13 provides that a worker is entitled, so far as concerns these Claimants, to four weeks’ annual leave in each leave year.  Regulation 15 makes provision for compensation in cases where a worker’s employment is terminated during the course of a leave year or where the proportion of leave taken by the worker is less than the proportion of the leave year which had expired.  

17.	Regulation 16 provides as follows: 
“16	Payment in respect of periods of leave
(1)	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…
(4)	A right to payment under paragraph (1) does not affect any right of a worker to remuneration under his contract (“contractual remuneration”).
(5)	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.”

18.	It is also convenient at this point in time to refer to the decision of the European Court of Justice in Robinson-Steele [2006] IRLR 386.  The case concerned claims by workers that they had not been paid holiday pay under the Working Time Regulations.  The employer’s case was that holiday pay was included in a “rolled-up” basic rate.  I first refer to a passage from the opinion of Advocate General  Stix-Hackle: 
“51	The aim of the Directive is to lay down minimum requirements intended to improve the living and working conditions of workers through approximation of national provisions, in particular on working time.  The Court deduces this, first, from the legal basis of the Directive – Article 138 EC (formerly Article 118a of the EC Treaty), which aims at improved protection of the safety and health of workers – and, second, from the working of the first, fourth, seventh and eight recitals in the preamble to the directive and the wording of Article 1(1).
52	According to those provisions, Community-wide harmonisation of the organisation of working time is to ensure better protection of the safety and health of workers by guaranteeing minimum rest periods and adequate breaks.
53	But for increased protection of the safety and health of workers actually to be achieved, it is necessary that the worker is actually granted the rest periods prescribed, and hence also annual leave.  For that reason Article 7(2) of the Directive prohibits replacing the minimum annual leave by a money payment, except where the employment relationship is terminated.
54	Effective grant of the entitlement to leave thus also means that the worker is put in a position actually to take the leave that is due to him and is not, for example, deterred from doing so by factual pressures.  That is the purpose of the continuation of pay during the leave, in other words, the guarantee of minimum paid annual leave.
55	Consequently, with the entitlement to minimum paid annual leave under Article 7 of the Directive, what is in the foreground is not so much the payment for the periods concerned as the effective possibility of taking the leave in question.  In the light of the main proceedings – and their differing facts - it must now be examined how far the methods of remuneration of annual leave at issue affect this effective possibility of taking leave.”
 
19.	At paragraphs 47 to 50 of its decision the European Court of Justice said:
“47	Beyond this recognition of an entitlement in principle, the wording of Article 7(1) of the Directive contains only little indication of how the employer’s corresponding obligations are to be fulfilled.  With respect to the ‘conditions for entitlement… and granting’, there is merely a reference to ‘national legislation and/or practice’.
48	It follows from the wording of Article 7(1) of the Directive that the employee is entitled to ‘actual rest’ during which he continues to be paid.  However, it is left open what principles are to be used for remuneration of the period of leave.  From this point of view, it is open whether a corresponding payment must be made during the leave, or whether it may be made in advance or afterwards.  It might even be concluded from the reference to national laws and /or practice that the Directive leaves it as far as possible to the Member States to fill in the gap in the legislation.
49	With respect to the scheme, it must then be observed that the Directive does not contain any further provisions that address the point in question.  Moreover, Article 15 of the Directive permits generally the application or introduction of national rules that are more favourable to the protection of the safety and health of workers.   Article 17 provides, however, that the Member States or the two sides of industry may derogate only from certain exhaustively listed provisions of the Directive under certain conditions.  Article 7 of the Directive is not one of the provisions in respect of which the Directive expressly allows a derogation, however, as the Court already said in BECTU.
50	(b)	Spirit and purpose of minimum annual leave
The Court also already had occasion in the BECTU judgment to consider the ratio legis of Article 7(1) of the Directive.

20.	The European Court of Justice went on at paragraph 51 to conclude that an agreement under which the amount payable to the worker as both remuneration for work done and part-payment for minimal annual leave would be identical to the amount payable prior to the entry into force of that agreement as remuneration solely for work done, effectively negated by means of a reduction in the amount of that remuneration.  The worker’s entitlement to paid annual leave was under article 7 of the EC Working Time Directive 93/104 upon which the Working Time Regulations are founded.   The European Court of Justice continued: 
“52	According to those provisions, community-wide harmonisation of the organisation of working time is to ensure better protection of the safety and health of workers by guaranteeing minimum rest periods and adequate breaks.”

21.	The European Court of Justice considered there was no objection to “rolling-up” holiday pay as such, providing of course that the sum paid in respect of holiday pay was clearly identified and was in addition to the sum payable for the work done during the period in question.

22.	I should also refer to paragraphs 58 and 59:
“58	The need to ‘save up’ pay for one’s annual holiday is also a deterrent to taking leave in the earlier part of the year.
59	Moreover, it is unlikely, especially in the case of low-paid workers, that the sums paid each week as holiday pay will be saved and not spent.  That results in it being financially impossible to take leave, especially if the period worked in the year concerned has not yet been long enough.”

23.	It is also convenient to have regard to the basis upon which it is appropriate to strike out an originating application under rule 15(2)(c) of the Employment Tribunals (Constitution) Regulations 2001.  The ground relied upon in the present case was that the proceedings were “misconceived”.  Regulation 2 of the Employment Tribunals (Constitution) Regulations 2001 defines “misconceived” as including “having no reasonable chance of success” and that was the test that falls to be applied in the present case.  I was referred to the decision of Three Rivers Council, the bank of England (3) [2001] 2 or ER 513 (HL), a case involving striking-out under the CPR.  The House of Lords held that the Respondent must show clearly that the case was not fairly arguable and if there was a significant dispute of fact or law it was inappropriate for the action to be struck out without a hearing.  Both parties agree that the threshold for the Claimants to overcome in surmounting a strike-out is relatively low.  Clearly, the Court is better able to determine questions of law than questions that are fact-sensitive.  

The Agency Agreements
24.	Before I turn to the decision of the Employment Tribunal it is helpful to have regard to the provisions of the agency appointment.  

25.	The agent was to be a full-time agent and collector of the Respondent, with the responsibilities and entitlements set out in the Agreement and in the second appendix which is entitled “Terms of Appointment”.

26.	My attention was drawn to the duties and obligations of the agent, set out at 5.1 to 5.7.  The agent was not only responsible for selling and providing advice upon the Respondent’s products but was to meet the Respondent’s requirements for customer service.  These obligations included collection of premiums (5.2.1), delivery of certificates and other documents (5.2.2), and dealing with claims, enquiries and complaints in accordance with appropriate procedures (5.2.3).  Further, the agent was responsible for paying or remitting monies to the Respondent and keeping proper accounts (5.3) and to undertake appropriate training (5.4).  Other obligations in the Agreement included those set out at 5.5 and 5.6 in relation to accepting and co-operating with the Respondent’s instructions by reference to matters such as working as part of a sales team and acting in accordance with circulars from general managers.  

27.	Paragraph 7 is headed “Holidays and other authorised absences”:
“7.1 	The Agent will be permitted to take holidays and submit blank accounts in accordance with paragraph 6 of the Terms of Appointment.
7.2	Other authorised leave of absence will be permitted as required by legislation or otherwise in accordance with the practice of CIS from time to time.”

28.	The terms of appointment set out in appendix 2 provide, by paragraph 4, that the Agent was expected to work “such hours as may be necessary for the proper performance of your duties”.  Paragraph 6, which is headed “Holidays” sets out the holidays to which Agents are entitled and provides:
“You will be paid your normal remuneration, including basic salary, during any period of holiday.”

29.	There is a provision (6)(e) for a pro-rata payment in respect of holiday entitlement in the year of termination.

30.	Schedule 1 sets out “Terms of Remuneration”.  Paragraph A.1 provides as follows:
“A.1	The Agent is entitled, whilst this Agreement is in force, to receive a basic salary, an expense allowance and procuration fees and commission on any business comprised in the Agency in respect of which the Agent has an interest.  Such an interest may be acquired by way of purchase or transfer from CIS or another agent or earned by the Agent’s adding new business to the Agency.”

31.	I also refer to paragraph A.3:
“A.3	Except where otherwise specified, all payments and recoveries of procuration fees and commission are due and will normally be made in the fortnightly account following that in which the relevant premium or policy movement is processed by CIS.  Any advance of procuration fees and commission made to the Agent, other than under provision E.7.6 below, will be recovered in the account next following the Date of Termination.” 

32.	I have already made reference to the fact that the Claimants were to receive a small weekly sum and that they were generally entitled to receive commission and procuration fees within 14 days of the receipt of premiums by the Respondent.  

33.	Paragraph E.3.3 provides:
“E.3.3	Where the first year’s premiums in respect of an Ordinary Life Section policy are payable at intervals of less than one year, entitlement to procuration fee shall accrue in instalments as the premiums are received by CIS.”

34.	I also refer to paragraphs E7.1 and E7.2:
“E.7.1	For Industrial Life Business all procuration fees shall be credited in full at issue to the Agent’s Industrial Life Section procuration fee account.  Similarly any debits or credits of procuration fee arising under the provisions of E.4 shall be made to this account.  At the end of the four-weekly Industrial accounting period one-fifth of the balance standing to the credit of the Agent in this account shall be payable to the Agent and any debit balance shall be carried forward and set off against future credits.  Should there be a debit balance at the date on which the Agency is transferred to the Agent’s successor or at the expiration of three lunar months after the Date of Termination, whichever is the sooner, such amount shall be deducted from the selling price of the Agency.”
E.7.2	Upon the termination of the Agreement; any entitlement to receive and/or liability to refund procuration fees (including any credit balance in the aforementioned Industrial Life Section procuration fee account) shall be transferred to the succeeding agent without thereby affecting the selling price of the Agency.  This provision shall apply similarly in respect of any part of the Agency which is sold to another agent."

The decision of the Employment Tribunal
35.	As I have already noted, no evidence was called and the matter proceeded on the basis of legal submissions based upon the contracts of employment and the statements of the parties.  The Employment Tribunal declined to stay the proceedings further pending the decision of the European Court of Justice in Robinson-Steele.  I am not concerned with the stay issue.

36.	Mr Sykes, who appeared on behalf of the Claimants, had submitted to the Employment Tribunal that there were points argued before the Court of Appeal in Walker but not determined, or points not argued at all, and that Mr Walker’s case was simply dependent upon its own facts and the relevant findings of fact were very narrow.  The Employment Tribunal concluded:
“This is a perverse view of the Court of Appeal judgment.  It entirely ignores the fact that leave to appeal was granted because there was a general point of importance…  If there were points that were indeed raised in argument but not referred to in the judgements, we have no doubt that that was because they were not considered to merit a determination.  The representation throughout the litigation of Mr Walker’s case was specialised and experienced and we find it inconceivable that there was any point which escaped anybody’s attention.” (paragraph 24).

37.	The Employment Tribunal was unable to find any issue that had arisen which could be affected by references to the European Court of Justice in the Walker case and the same consideration applied to these instant cases.

38.	The Employment Tribunal, quoting from Walker, identified submissions made by Mr Sykes in that case.  The principal question before the Court of Appeal, according to Mr Walker, was whether pay he received in respect of his annual leave complied with Regulation 16(1)(2)(5) and the failure to apply the section 224 formula.  We shall turn to the decision in Walker shortly.  The Employment Tribunal correctly directed itself that to strike-out a claim on the basis that it was misconceived was to be “cautiously” used; the normal expectation of parties to litigation in the Employments Tribunals would be that their cases would be heard and determined according to the evidence put before the Tribunal, with the law applied as it is at the date of the relevant hearing after full opportunity to argue both about the evidence and the application of the law.  

39.	The Employment Tribunal noted that Mr Walker’s case was never intended to be a “test case” nor were other cases consolidated with it.  It would not, therefore, be a case to which the rule in Henderson v Henderson or Ashmore v British Coal Corporation applied.  The Employment Tribunal, however, concluded:
“34	On the other hand, it was implicit throughout Mr Segal’s submissions, oral and written, that he was relying upon the finality of the judgment of the Court of Appeal in the case of Mr Walker and its direct application to the remaining cases: see e.g. para 42 of his written submissions.
35	The Tribunal accepts and adopts the arguments of Mr Segal.  The complaints of Mr Herring and Mr Harrison have no reasonable prospect of success because they inevitably re-litigate issues which have already been resolved in the Walker litigation in favour of the Respondent.  The Court of Appeal has considered every relevant aspect of the standard form of contract.”

40.	The Employment Tribunal went on to exercise its discretion to order the Claimants to pay a contribution of £4725 towards the Respondent’s costs.  The Employment Tribunal (paragraph 40) appreciated that it had a discretion to exercise.  The basis upon which the originating applications had been struck out provided the Employment Tribunal with a clear and obvious basis for making an order for costs but it was not obliged to do so.  The Employment Tribunal recognised it was very unusual for costs orders to be made but it had no doubt that it was the correct order to make.  
Amended Notice of Appeal and Claimants’ submissions
41.	Mr Purchase, who appeared on behalf of the Claimants submitted firstly that the Claimants need do no more than show that the Employment Tribunal was wrong in saying that their case was not reasonably arguable.  Secondly, before considering his more detailed grounds of appeal, he submitted that monies payable to workers that had been earned by reference to earlier work - although receivable later when on holiday – could not properly be considered to be holiday pay.

42.	He recognised it was necessary for him to be able to distinguish Walker.  We accordingly refer to that decision at this point in time.  Mr Walker’s claim was based upon the same terms and conditions as applied to these Claimants.  He claimed that he had not received his full entitlement to holiday pay.  The Court of Appeal noted that Mr Walker had initially been refused permission to appeal but the appeal, after a further hearing, had been allowed to go forward:
“primarily on the ground that a point of general interest and importance arises.   That point relates to the computation of holiday pay under the provisions of regulation 16 of the WTR and sections 221 to 224 of the Employment Rights Act 1996…”

43.	The Court of Appeal referred to certain facts found by the Employment Tribunal.  At paragraph 24(12) the Court of Appeal records that it was found that the “lost opportunity to generate more business when an agent is away on holiday is highly insignificant”.

44.	At paragraph 25 the Employment Tribunal concluded that section 224 could not be relevant and there was a possibility of distortion by Mr Walker if the section 224(2) formula were used, one of the reasons being that the opportunity to earn commission might possibly pass by:
“25.	…but as is clear from the evidence in this case such a point must be realistically regarded as totally de minimis”.

45.	The Court of Appeal noted that the Employment Tribunal had found:
“There was absolutely no evidence to suggest that Mr Walker had lost out through not obtaining new business while away on holiday…”

46.	The Court of Appeal also noted the Employment Tribunal had concluded that:
“29.	…that for the purposes of Regulation 16(5) the evidence demonstrated that the payments made on an annualised basis extinguished CIS’s liability to Mr Walker.  The Tribunal accepted the evidence of Stephen Riley, the agency superintendent (sales) for CIS, whom they found to be an impressive witness.  He said that commission was not paid to an agent purely in relation to collections, but was also recompense for managing the business generally throughout the year.   Hence the Tribunal’s conclusion (in paragraph 24 of their decision) that “the reality is that Mr Walker is an insurance agent paid commission on an annualised basis in respect of the servicing and selling of the material customer business”.  His commission payments were in respect of the entire 52 weeks, including the annual leave period.”

47.	I also need to refer to paragraphs 42 and 43:
“42.	Mr Sykes’ argument relies on the failure to apply the section 224 formula and hence to comply with regulation 16, which, he says, might have produced more from [sic] Mr Walker.  Whereas before the Tribunal and the EAT the complaint concentrated on Mr Walker losing out because of the opportunities lost during a holiday period for him to obtain further business – a hopeless argument in view of the finding of fact to the contrary by the Tribunal that that element was “highly insignificant” – Mr Sykes has concentrated on the absence of manual collections by Mr Walker while on holiday.  The highest he can put it is that Mr Walker may have lost out.  He complains, as I have indicated, of the extra time and effort required from Mr Walker before he went on holiday and after he came back from holiday to make those collections.  Again that seems to me to be an impossible argument in the light of the facts.  I have noted that the Tribunal recorded Mr Walker as indicating that if an agent is about to take a period of annual leave which would coincide with his collection and/or district office accounting date, he would do the necessary collection in advance.  Further, he was allowed to leave it to others to make the collections on his behalf.  As for the additional time taken in making collections outside the holiday periods, that has to be considered against the provision in paragraph 4 of the Terms of Appointment that he was expected to work such hours as might be necessary for the performance of his duties.  He was not paid by the hour.  In any event, the time devoted by an agent on making collections is small.  Mr Riley in his evidence said that typically an agent would devote six days to collecting in each four-weekly period.  In my judgment, on the evidence there is simply no factual basis for any assertion that Mr Walker lost out through being unable to collect the procuration fees and commission during the holiday period.
43.	Further, the Tribunal have found in paragraph 11(xiii) that the application of the section 224 formula to arrive at an average over the 12-week period prescribed by section 224(2) does not show that Mr Walker has suffered any loss through receiving his contractual pay.   On the contrary, Mr Walker has benefited (by a very small amount), his contractual pay being greater than the figure produced by the application of the section 224 formula…”

48.	Finally, it is necessary to refer to paragraph 46, at which Peter Gibson LJ said:
“I come back to the questions raised on this appeal.  First, on Mr Sykes’ principal question, in my judgement the Tribunal, although wrong not to accept the applicability of section 224, were right on the material before them and on their findings of fact to find no breach of regulation 16(1).  That is because weekly pay, calculated in accordance with section 224 and applicable to the holiday period, did not exceed the contractual pay actually paid by CIS, and so, on the application of Regulation 16(5), there was no breach of Regulation 16(1) and nothing is payable under Regulation 30.  There was an adequate explanation by the Tribunal of how they arrived at that conclusion.  There was no unlawful education from Mr Walker’s wages, and so it is unnecessary to consider the application of the 1970 Act.”

49.	Mr Purchase made the following submissions in relation to Walker:
(a)	the case did not set out any general statement of principle, but was dependent upon its facts as the passage from paragraph 46 which I have just referred to made clear;
(b)	the Court of Appeal did not have the benefit of any arguments as to what constitutes holiday pay and the decision of the European Court of Justice in Robinson-Steele; 
(c)	there were a number of factual differences between the instant case and Walker.  Whereas when Mr Walker was on holiday his clients were left a contact number and his colleagues were able to deal with enquiries in relation to current policies or new business and there were facilities for making payments credited to his agency, the position of these Claimants was quite different and their evidence would be that they had no-one to cover for them while on holiday and in effect they – or rather their agencies – was unable to generate any business;
(d)	whereas in Mr Walker’s case the loss of opportunity to generate business was “highly insignificant”, in the case of these Claimants the position was quite different.
(e)	whereas the Employment Tribunal found that normal payments of procuration fees throughout 52 weeks could be regarded as paid equally in respect of the 52 weeks, the Claimants’ payments only related to the period when they actually worked.
(f)	the Employment Tribunal’s finding that payments were annualised was wrong on the facts of the present case.

50.	Mr Purchase submitted that it was unfair that the Claimants should be bound by findings of fact in a case to which they were not parties.  He also drew attention to a specific finding of the Employment Tribunal (a copy of the decision was placed before us) to the effect that Mr Walker was paid procuration fees and commissions arising from business sold and premiums collected on his agency by others.

51.	Mr Purchase submitted, therefore, the Employment Tribunal were wrong to find that the decision of the Court of Appeal in Walker effectively disposed of the Claimants’ cases.  There were crucial factual differences, most significantly that these Claimants were not able to earn procuration fees and write insurance while on holiday.  Their loss was certainly not insignificant as the loss of Mr Walker was found to be.  Indeed, Mr Herring would say that he did not always take his full holiday entitlement for fear of loss of income.

52.	Mr Purchase went on to submit that holiday pay could not include monies paid during a holiday as payment for work that had already been done.  In this regard, he relied upon the decision of the European Court of Justice in Robinson-Steele.   He submitted, having regard to the decision in that case, that if a worker was in a position where he could earn more money if he did not take leave, it would be an obvious deterrent to his taking leave.  That informs the construction one should place on the Regulations, in particular Regulations 16(1), 16(4) and 16(5).  
53.	Mr Purchase gave an example.  If a man, for example, made televisions, and was paid for every television he manufactured, if he were to go on holiday he would get paid what he had earned during the previous 12 weeks by virtue of section 224.  If he were to be paid only when televisions were sold, he would receive nothing for his holiday period, because although he would receive payments while on holiday, the payments were in respect of work that actually had been done previously.  This supported his submission that a payment “in respect of any period of annual leave” could not be interpreted as to apply to payments in respect of work that had been done.  The question that needed to be considered was whether it was appropriate to include as holiday pay payments for work that had actually been done.  Holiday pay was paid for in respect of work that would have been done had the Claimant been at work and not on holiday. 

54.	Mr Purchase pointed to paragraphs 47 and 52 of the decision of the European Court of Justice that payments in respect of holiday pay as showing that such pay could not include payments attributed to work already done.  It was necessary for the worker to receive an additional payment.  An employer cannot make a payment in respect of “work done” and treat that as a payment in respect of annual leave.  

55.	Another way of putting it was that Regulation 16(5) should be interpreted as requiring payments for annual leave to be additional to payments for work done.  He referred to paragraph 58 and submitted that the principle to be applied was that payments in respect of annual leave should enable a worker to be earning or remunerated as though he had been working.  If the Respondent was correct, employers could spread out payments over a year in respect of procuration fees and commissions and thus be able to avoid the effect of the Directive. 

56.	Mr Purchase had a second point relating to “rolled-up” holiday pay.  Mr Segal very properly conceded that if his primary submissions were rejected as to the annualised nature of payments made he could not argue that the payments were in accordance with the Working Time Regulations.  In the circumstances, we do not need to deal with this particular submission.

The Respondent’s submissions
57.	We now turn to deal with the Respondent’s submissions.  

58.	Mr Segal submitted that this case was indistinguishable from Walker so it was wholly correct for these claims to be struck out.  The critical question was whether money paid when the Claimants were on holiday was paid “in respect of annual leave” within the meaning of Regulations 16(1) and 16(5) of the Working Time Regulations.  This point, he submitted, was fully and decisively argued and decided in Walker and confirmed by Robinson-Steele.  The issue of whether or not the Claimants had cover while on holiday was irrelevant to that question, so any factual issue in relation to that was also irrelevant.

59.	Mr Segal took us through the contract, the relevant terms of which we have already set out or referred to.  He drew particular attention to the wider duties in paragraphs 5:1 to 5:7 and the fact that the contract provided for the Claimants to be paid their normal remuneration while on holiday (clause 6).  The weekly pay was calculated in accordance with section 224.

60.	He sought to draw assistance from Robinson-Steele and in particular paragraphs 53 to 54 of the opinion of the Advocate General, and stressed the words “continuation of pay” in paragraph 54.  The purpose, he submitted, of holiday pay was that workers on holiday should be paid comparably to when they were at work so as not to put them under pressure.  The decision of the European Court of Justice at paragraphs 49 and 50, to which we have referred, meant that “paid annual leave” required that for the duration of annual leave, remuneration must be maintained.  The reference in paragraph 51 to “remuneration for work done” meant no more and no less than the payment payable during working days.  The Claimants’ submission that it meant payment in respect of money earned while at work drew no support from neither Robinson-Steele nor Walker.  The Claimants’ case is that the Claimants should be put in the position they would have been in had they in fact been working.  He submitted that the point was addressed by the Court of Appeal to the European Court of Justice in Robinson-Steele and the European Court of Justice at paragraphs 53 to 59 said, in effect, that workers are paid in respect of a period, not an activity.  

61.	We do not need to set out Mr Segal’s submissions in relation to the point relating to “rolled-up” holiday pay because of the concession that he made.
Conclusions
62.	As we have already noted, the threshold to escape a strike-out is not a high one.  Prima facie cases should be tried unless as in this case the Respondent is able to demonstrate quite clearly that there is no reasonable chance of success.  We recognise that the expense of litigation in an Employment Tribunal for an employer makes the prospect of a quick knock-out very tempting.  It avoids a bruising, costly hearing; however, a strike-out can only be made in a clear case where there is no reasonable chance of success.

63.	We have read Walker and we understand Mr Segal’s powerful submission but it seems to us at least fairly arguable that there is a significant factual difference between that case and the present which may affect the construction of the contract in the case of the Claimants.  It is clear that considerable importance appears to have been attached to the fact that Mr Walker’s earnings were not affected while he was on holiday and that his loss was no more than de minimis.  It is also fairly arguable that the sums payable to these Claimants while they were on holiday were not simply annualised payments but reflected monies earned previously when, for example, policies were brokered.  

64.	It also seems to us that the Court of Appeal did not, of course, have the benefit of the decision of the European Court of Justice in Robinson-Steele.  In our opinion it is also fairly arguable that the Regulations require a sum to be paid in addition to that payable in respect of “work done”; see paragraph 47 of the European Court of Justice judgment.  It seems fairly arguable that an employer cannot make a payment in respect of “work done” and treat it as a payment in respect of annual leave.  We think that the submissions made by Mr Purchase disclose a fairly arguable case that a worker, while on annual leave, should be remunerated as though he had been working.

65.	We considered the position of the worker manufacturing televisions given as a paradigm by Mr Purchase.  Suppose he is paid a basic wage of £15 per week, plus a commission payable when each television is sold.  Payment is to be made seven days after each television is sold and each television will be sold within seven days of manufacture.  If an employee takes two weeks holiday and continues to be paid on the annual basis, in weeks one and two he will, in effect be paid his basic salary plus his commission for the televisions that he manufactured in the last two weeks.  If, however, he were to take a third week’s holiday of the four allowed to him, in the third week he would receive no more than his basic salary because by definition all the television sets that he had made in the two weeks prior to his holiday would have been sold and accounted for.  Such a result appears to us to be wholly anomalous and points to the fact that it is at the least fairly arguable that where a worker’s remuneration includes commission earned and accrued prior to annual holiday, but is payable during the period of the holiday, it cannot be counted towards holiday pay.  

66.	It seems to us that the arguments raised in this case by the Claimants were not such that could be described as having no reasonable chance of success.

67.	In those circumstances, the appeal must be allowed.  We stress that we are doing no more than hold that the case is fairly arguable.  We have not determined finally or conclusively any of the points of law raised by the Claimants.