Calculating holiday pay

Mr John Cavanagh, QC, for the employer; Mr Michael Ford, QC and Mr Simon Cheetham for the claimant; Mr Adam Tolley, QC, for the Secretary of State for Business, Innovation and Skills.

SIR COLIN RIMER said that the question was whether the holiday pay of an employee with statutorily defined “normal working hours”, whose remuneration did not vary with the amount of work done during such hours, should (i) be calculated solely by reference to his basic pay; or (ii) include an element referable to the amount of the results-based commission he normally earned.

The claimant contended that his employer ought to have included an element for commission when calculating his pay for annual leave in accordance with regulation 16(1) of the Working Time Regulations 1998 (SI 1998/1833).

Following a decision of the Court of Justice of the European Union that article 7 of Council Directive 2003/88/EC “concerning certain aspects of the organisation of working time” required such results-based commission to be taken into account when calculating an employee’s holiday pay, the employment tribunal construed regulation 16 so as to conform with that interpretation of the Directive, by adding appropriate words to regulation 16(3) and upheld the claim. The critical question came down to whether the conforming interpretation of the Regulations for which the claimant contended was or was not within the grain or underlying thrust of that legislation. There was, however, another way of answering the critical question, one that his Lordship preferred.

There was no dispute that the Regulations had been enacted solely and deliberately for the purpose of implementing the requirements of the Directive; and the court was required to presume that the UK Government intended by the Regulations to fulfil entirely the obligations arising under the Directive.

That presumption also encompassed an intention to fulfil 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 Court of Justice.

Since the enactment of the Regulations, the Court of Justice had explained the true requirements of article 7, an explanation of which the UK Government could not reasonably have been aware when it enacted the Regulations.Consequently, the Regulations were properly to be regarded as in the nature of implementing provisions which, in nearly all respects, properly implemented the Directive as subsequently explained; but which, in the claimant’s case provided, for a lower measure of holiday pay than article 7 in fact required.

As a matter of objective inference, it was likely that the differential treatment inherent in the scheme of the Regulations had simply not been foreseen at the time they had been enacted.

His Lordship therefore concluded that the grain or thrust of the Regulations could fairly be identified as directed at providing holiday pay for workers measured by reference to criteria required by article 7, as since explained by the Court of Justice; and that, in line with that grain or thrust, the court could, and should, interpret the Regulations as providing that the claimant was also entitled to have his holiday pay calculated by reference to his normal remuneration.

The Master of the Rolls and Lady Justice Gloster agreed.

Solicitors: Eversheds LLP, Leeds; UNISON Legal Services; Treasury Solicitor.