Why is Ireland's Working Time Legislation Still Out of Date? Barrister Paul Joyce reviews the UK Employment Appeals Tribunal case of Dudley Metropolitan Borough Council v Mr G Willetts and Others [2017] UKEAT033416JOJ.

Introduction

Of the basic employment rights provided to workers under employment legislation, the right to a minimum period of paid annual leave is understandably one of the most valued. Up until 1997, the Holidays (Employees) Act 1973 allowed for a minimum entitlement of three weeks annual leave.

1997 then saw the passing of the Organisation of Working Time Act (OWTA) (transposing the European ‘Working Time Directive) which provided for the gradual introduction of a right to four weeks of such leave, with part-time employees becoming gradually entitled to 8% of hours worked (subject to a maximum of four working weeks).

These rights are, of course, without prejudice to an individual’s contract of employment which can, and often does, provide for a better entitlement. In providing for a statutory minimum nonetheless, this legislation at least ensures a ‘bottom line’ for all.

A key feature of the effective enjoyment of this entitlement is the right to payment in advance of the annual leave, provided for under s.20 (2) of the OWTA. This sub-section goes on to state that payment for annual leave should be ‘be at the normal weekly rate or, as the case may be, at a rate which is proportionate to the normal weekly rate’. Sub-section (4) in turn provides that “normal weekly rate” means ‘the normal weekly rate of the employee concerned's pay determined in accordance with regulations made by the Minister for the purposes of this section’.

Not long after the OWTA was passed, Statutory Instrument 475/1997 – the Organisation of Working Time (Determination of Pay for Holidays) Regulations – was signed into law.

Regulation 3 provides that if the relevant employee’s rate of pay is fixed, his or her normal weekly rate is ‘the sum (including any regular bonus or allowance the amount of which does not vary in relation to the work done by the employee but excluding any pay for overtime) that is paid in respect of the normal weekly working hours last worked by the employee before the annual leave’. If the employee’s rate of pay is not fixed, normal weekly pay must be averaged over the 13 weeks prior to the annual leave beginning, but again excluding any pay for overtime.

The appeal case to the UK’s Employment Appeal Tribunal reviewed in today’s email, that of Dudley Metropolitan Borough Council v Willetts and Others,

and other recent case law in both the UK and in preliminary rulings of the Court of Justice of the European Union (CJEU) on the scope of the working time Directive, suggest that this 20 year old, narrow definition of normal weekly pay in the Irish regulations is incorrect and in breach of the working time directive.

These decisions make it clear that pay for annual leave purposes should include not just basic pay but normal remuneration (see British Airways plc v Williams); commission where it is routinely earned (see Lock v British Gas Trading Ltd) and overtime where it is frequently worked, regardless of whether it is contractually required of the employee or whether it is voluntarily performed (see Dudley). Employers across the country therefore arguably now face a quandary; whether to calculate pay for annual leave purposes in accordance with the standards set out in the latest European case law or with domestic regulations that are clearly out-of-date.

A summary of the decision is set out below, followed by a brief commentary.

Dudley Metropolitan Borough Council v Willetts and Others

(UK EAT/0334/16/JOJ), Judgment of 31st July 2017).

The claimants in this case were a number of tradespersons working with the respondent council on the maintenance and repair of its housing stock. They claimed under the UK Working Time Regulations 1998 that a number of elements of their remuneration, including overtime, should be included in the calculation of their holiday pay.

The Employment Tribunal hearing their initial complaint found that these hours of overtime were worked ‘almost entirely at the whim of the employee, with no right to enforce work on behalf of the employer’. Nonetheless, it held that they should be included in the calculation of their holiday pay.

On appeal to the EAT, legal argument appears to have focused on whether voluntary as opposed to compulsory overtime should be included in the calculation of holiday pay. This is because a previous decision of the EAT in Bear Scotland v Fulton (2015) had already decided that both guaranteed overtime and non-guaranteed overtime that the employee was contractually obliged to work should count in the calculation, if it had been worked over a sufficient period.

The respondent council’s core submission was that the Court of Justice of the EU in the cases of British Airways plc v Williams (2012) and Lock v British Gas Trading Ltd (2014) had set out an overarching principle that the holiday pay should correspond to normal remuneration. It argued that voluntary overtime did not come under the heading of normal remuneration as it lacked the necessary intrinsic link to the performance of tasks required under the contract of employment.

The judgment of Simler.J, the President of the EAT, began by examining the position of annual leave in the scheme of European law. He noted that it was specifically addressed in the Charter of Fundamental Rights of the European Union at Article 31 (2) – ‘Every worker has the right to limitation of maximum working hours, to daily and weekly rest periods and to an annual period of paid leave’.

He also noted that the recital to the Working Time Directive (WTD) required that account should be taken of the principles of the International Labour Organisation with regard to the organisation of working time and that the relevant ILO Convention required that a worker be paid for annual leave at a rate that is at least his normal or average remuneration.

He then restated the overarching principle from the Williams and Lock cases that payment for annual leave should correspond to the normal remuneration received by the worker. Crucially, he observed that the purpose of this requirement was to ensure that a worker did not suffer any financial disadvantage by taking annual leave that might deter him or her from availing of it.

In this context, it is important to remember that the WTD is a health and safety measure and the taking of paid annual leave is mandatory, with no ‘derogation’ allowed from it. Thus, the purpose of Article 7 of the WTD, he suggested, is to ensure that holiday pay corresponds to normal remuneration while working and is not just broadly comparable to it. For a payment to come under the heading of ‘normal’ it must have been paid over a sufficient period of time and that would be a question of fact and degree. Thus, it would appear that each case must be considered on its own merits.

The Employment Appeal Tribunal then went on to consider the respondent Council’s argument that normal remuneration was dependent on a link between that element of pay and the compulsory performance of duties under the contract of employment.

Simler.J held that this was a decisive criterion but not the only decisive criterion and its absence did not automatically exclude a payment from counting. By way of illustration, he pointed out that payments such as in respect of seniority and length of service may count as normal remuneration, even though they are not necessarily linked to the performance of tasks under the employee’s contract of employment.

Expanding on the ramifications of not including voluntary overtime, he then suggested that the exclusion of annual leave payment for hours voluntarily’ as opposed to compulsorily’ worked might also lead to the abuse of employment rights. This could lead employers to categorise pay into different elements to minimise levels of holiday pay. With an eye clearly on zero hour and low hour contracts, he suggested that this might allow employers to set artificially low levels of basic hours, with the remainder of working hours counting as voluntary overtime that would not count for annual leave purposes. This could act as a further deterrent to taking annual leave.

Finally, the EAT suggested that even if there had been a requirement that there must be an intrinsic link between receiving payments in respect of annual leave and the performance of duties required by the contract of employment, that test was satisfied in the case of voluntary overtime. Without a contract, an arrangement for voluntary overtime could not exist and once the claimants commenced a shift of voluntary overtime, they were performing tasks linked to their contracts. In that sense, the contract of employment was an umbrella contract.
http://www.bailii.org/cgi-bin/format.cgi?doc=/uk/cases/UKEAT/2017/0334_16_3107.html&query

Commentary

One commentary has suggested that the decision in Dudley ‘has a significance going way beyond voluntary overtime’ and that ‘had the respondent’s argument succeeded, then the logical consequence would have been that workers on zero hours contracts had no “normal remuneration” at all, and therefore no entitlement to paid annual leave’.

It is perhaps somewhat ironic that as the UK (including Northern Ireland) appears to be preparing to leave the European Union, its Employment Appeals Tribunal is recognising and applying key judgments of the CJEU and upholding key entitlements under an EU Directive which many governments in Britain over decades have reviled. Indeed, the extent to which the UK’s working time regulations will survive Brexit must be a worry for many workers on minimum entitlements.

But what of ourselves in Ireland? Where are we on tracking and applying developments in working time? Certainly, as the introduction to this review hopefully makes clear, our definition of normal weekly pay for the purposes of annual leave is so clearly out of step with current EU case law that it potentially deprives workers of rights to which they are entitled.

And this is not the only occasion this has happened. In January 2009, the Court of Justice ruled in the joined Stringer and Schultz-Hoff cases that, although Member States were entitled in applying the working time directive to provide that workers could not take paid annual leave during sick leave, they must have a right to accrue annual leave during periods of certified sick leave. In November 2011, the Court ruled in the case of KHS v Winfried Schulte that a German national law which provided that the annual leave entitlement of a worker who is on prolonged sick leave is extinguished 15 months after the end of the relevant leave year was not a breach of the working time directive.

Our existing working time legislation clearly contradicted those decisions. Section 20 of the OWTA1997 provided that an employee:

• must work at least 1365 hours per leave year to be entitled to a period of four weeks’ annual leave or
• must work 117 hours per month to be entitled to 1.66 days’ annual leave or
• is entitled to annual leave at a rate of 8% of hours worked.

It also provided that an employer must ensure that annual leave is taken in the leave year to which it relates or with the employee’s consent, within six months of the next leave year. It took well over six years for the State to plug this gap in the law, via Section 86 of the Workplace Relations Act 2015, which essentially now reflects the case law position.

In the interim, the Labour Court appeared to apply these decisions in appeals brought by public sector employees but would not or could not apply them to the private sector, on the basis that the EU doctrine of ‘direct effect’ applied to those employed by the State but did not apply between private parties.

Contrast, in this regard, for example, the finding in HSE North East v A Worker (July 2009) with that of Seclusion Properties and O’Donovan (December 2014) where the Court confirmed that there was no interpretive rule available to it to construe the working time legislation in Ireland in a manner in conformity with the working time directive. In effect, this meant that private sector employees would have had to sue the State under the so-called ‘Francovich’ principle for failure to properly transpose the Directive.

It may of course be difficult for Member States to keep up when the Court of Justice can run ahead, especially where the relevant Directive is often sparse and the Court is intent on developing it.

However, where the case law is clear and reasonably unambiguous as it appears to be in this instance, is there any excuse for a Member State such as Ireland not to amend its legislation in a reasonably timely manner to reflect this? It is not as if the State is always slow to change the law when it is perceived to be urgent.