British Gas Trading Ltd v Lock & Anor, Court of Appeal - Civil Division, October 07, 2016, [2016] WLR(D) 512,[2016] EWCA Civ 983

Resolution Date:October 07, 2016
Issuing Organization:Civil Division
Actores:British Gas Trading Ltd v Lock & Anor
 
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Case No: A2/2016/1163

Neutral Citation Number: [2016] EWCA Civ 983

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE EMPLOYMENT APPEAL TRIBUNAL

Mr Justice Singh

UKEAT/0189/15/BA

Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 07/10/2016

Before :

THE MASTER OF THE ROLLS

LADY JUSTICE GLOSTER

and

SIR COLIN RIMER

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Between:

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John Cavanagh QC (instructed by Eversheds LLP) for the Appellant, British Gas Trading Limited

Michael Ford QC and Simon Cheetham (instructed by Camilla Belch, Legal Officer, UNISON) for the First Respondent, Mr Z.J. Lock

Adam Tolley QC (instructed by the Government Legal Department) for the Second Respondent, the Secretary of State

Hearing date: 11 July 2016

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JudgmentSir Colin Rimer:

Introduction

1. This appeal is by British Gas Trading Limited (`British Gas'). It is against an order of the Employment Appeal Tribunal (`EAT') dated 22 February 2016 made by Singh J, sitting alone, dismissing British Gas's appeal against a judgment of the Leicester Employment Tribunal (Employment Judge Ahmed, sitting alone) (`the ET') dated 23 March 2015 and sent, with written reasons, to the parties on 25 March. The sole issue before the tribunals was one of statutory interpretation. The practical question that is raised is whether the holiday pay of an employee with statutorily defined `normal working hours', whose remuneration does 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.

2. On 10 April 2012, Mr Lock, a British Gas employee (respondent to the appeal), presented a claim in the ET complaining that British Gas had wrongly failed to calculate his holiday pay so as to include such a commission element. The complaint was formally one of alleged unauthorised deduction from his wages contrary to section 13 of the Employment Rights Act 1996. There is no dispute that, as a matter of European Union (`EU') law, article 7 of the applicable Directive required a commission element to be included. The dispute is as to whether the Working Time Regulations 1998, the UK legislation enacted to give domestic effect to the Directive, can be interpreted as incorporating that requirement.

3. The ET's decision was that they can, although in so deciding it found it necessary to read words into them whose apparent effect is to amend the provision applying to Mr Lock's case. Singh J, in the EAT, upheld that decision. Because of the importance of the point, he gave permission to British Gas for this further appeal. We were told that some 918 like claims against British Gas and thousands of like claims against other employers have been stayed pending its outcome. We had able arguments from Mr Cavanagh QC, for British Gas; Mr Ford QC and Mr Cheetham, for Mr Lock; and Mr Tolley QC, for the Secretary of State for Business, Innovation and Skills, who supported Mr Lock's case.

The facts

4. These are agreed and I take them from the EAT's judgment. Mr Lock became employed by British Gas on 1 February 2010 although he has since moved to other employment. His role was to persuade business customers to purchase British Gas's energy products. At the material time, his annual salary was £14,670 but he was also entitled to the benefit of a commission scheme. He was entitled to 25 days' holiday per year, plus public and bank holidays. Whilst on leave, he was paid at the rate of his basic salary of £1,222.50 per month. His claim related to the pay he received for the leave he took from 19 to 30 December 2011 and for the statutory holidays on 26/27 December 2011 and 2 January 2012: he complained that British Gas failed to include in it a commission element. He alleged an unlawful underpayment of £1,500.

5. The commission scheme of which Mr Lock was a beneficiary was designed to `provide an incentive to encourage and reward individual performance' if, and only if, sales he had negotiated had `gone live', that is to say, the customer had begun to take gas from British Gas. There were three methods of achieving a sale: (i) `cold calling'; (ii) `hot leads', namely where a potential customer had already been contacted by British Gas, the conversion rate in such cases being much higher; and (iii) `upgrades', which involved existing customers not under contract, but who are persuaded to enter into one, the conversion rate in such cases being even higher. The scheme was contained in a document separate from his employment contract but it is agreed that Mr Lock's entitlement under it was a contractual right. His entitlement was based purely on success, namely a sale negotiated by him resulting in the customer beginning to take energy products from British Gas. As Singh J explained:

`14. ... the amount of work done by him in normal working hours did not vary in the sense that the payment was not based on the amount of work done. Rather, payment of commission was based on the outcome of that work, whether or not it was due to good performance. The amount of the commission was not based on the amount of work he carried out during any particular period. It was simply dependent on the outcome of his work: that is the number and type of new contracts which customers entered into.'

6. The commission that Mr Lock earned greatly exceeded his basic salary. Whilst on leave, he was paid any commission earned in previous periods that fell due for payment during his leave; but he says that his leave pay should have been calculated so as also to include a commission element: his argument is that as his remuneration normally included commission, so should his leave pay.

The legislation

7. The relevant EU legislation was originally in Council Directive 93/104/EC (`the Working Time Directive'), enacted on 23 November 1993 and amended in 2000 by Council Directive 2000/34/EC (known as the Horizontal Amending Directive). The current EU Directive (`the Directive'), a consolidation of those Directives, is Council Directive 2003/88/EC `concerning certain aspects of the organisation of working time.' It was enacted on 4 November 2003 and came into force on 2 August 2004. Article 7 (`Annual Leave') provides:

`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.'

8. The Working Time Directive was given national effect by the Working Time Regulations 1998 (SI 1998/1833) (`the WTR'), which also gave effect to Council Directive 94/33/EC on the protection of young people at work. The WTR were made under section 2(2) of the European Communities Act 1972 and came into force on 1 October 1998. They have since been amended, the latest version dating from 1 October 2013. The relevant regulations are 13 and 16.

9. Regulation 13 (`Entitlement to annual leave') provides in paragraph (1) that, subject to paragraph (5) (which is not material), a worker is entitled to four weeks' annual leave in each leave year. Regulation 16 (`Payment in respect of periods of leave'), which is the key provision, provides:

`(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.

(2) Sections 221 to 224 of the [Employment Rights Act 1996] shall apply for the purpose of determining the amount of a week's pay for the purposes of this Regulation, subject to the modifications set out in paragraph (3).

(3) The provisions referred to in paragraph (2) shall apply -

(a) as if references to the employee were to the worker;

(b) as if references to the employee's contract of employment were references to the worker's contract;

(c) as if the calculation date were the first date of the period of leave in question; and

(d) as if the reference to sections 227 and 228 did not apply.

(4) A right to payment under paragraph (1) does not affect any right of a worker to remuneration under his contract (``contractual remuneration'') (and paragraph (1) does not confer a right under that contract).

(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.'

10. The provisions of the Employment Rights Act 1996 (`the ERA') relating to the determination of the amount of `a week's pay', and incorporated into the WTR by regulation 16(2), are in Chapter II of Part XIV, headed `A week's pay'. They date from the Contracts of Employment Act 1963 and are used for many statutory employment law purposes, for example the calculation of redundancy payments. Section 220 (`Introductory') provides that the amount of a week's pay of an employee shall be calculated for the purposes of the ERA in accordance with Chapter II. Sections 221 to 223 are in a division of Chapter II headed `Employments with normal working hours', which is Mr Lock's case. Section 224 is in a division headed `Employments with no normal hours', which is not his case. Sections 221 and 222 provide:

`221. General

(1) This section and sections 222 and 223 apply where there are normal working hours for the employee when employed under the contract of employment in force on the calculation date.

(2)...

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