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|Judgments - Her Majesty's Revenue and Customs (Respondents) v Stringer and others (Appellants)
HOUSE OF LORDS
 UKHL 31
on appeal from: EWCA Civ 441
OF THE LORDS OF APPEAL
FOR JUDGMENT IN THE CAUSE
Her Majestys Revenue and Customs (Respondents) v Stringer and others (Appellants)
Lord Hope of Craighead
Lord Rodger of Earlsferry
Lord Walker of Gestingthorpe
Lord Brown of Eaton-under-Heywood
Lord Neuberger of Abbotsbury
Christopher Jeans QC
(Instructed by Thompsons)
John Cavanagh QC
(Instructed by Inland Revenue Solicitors Office)
30 OCTOBER 2006 and 30 APRIL 2009
WEDNESDAY 10 JUNE 2009
HOUSE OF LORDS
OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT
IN THE CAUSE
Her Majestys Revenue and Customs (Respondents) v Stringer and others (Appellants)
 UKHL 31
LORD HOPE OF CRAIGHEAD
1. I have had the advantage of reading in draft the opinions of my noble and learned friends Lord Rodger of Earlsferry, Lord Walker of Gestingthorpe and Lord Neuberger of Abbotsbury. I agree with them, and for the reasons they give I would allow the appeals, set aside the order of the Court of Appeal and restore the order of the Employment Appeal Tribunal.
LORD RODGER OF EARLSFERRY
2. The appellant, Mr Keith Ainsworth, complains that his former employers, Her Majestys Revenue and Customs (the Revenue), wrongly made a deduction from his wages. Workers have been making complaints of this kind for centuries. More surprisingly, perhaps, for centuries also, the legislature used the Truck Acts to try to prevent employers from making arbitrary deductions - for example, for errors or misconduct - which would deprive the workers of the substance of their earnings. The case law on the subject was not always consistent and eventually Parliament passed the Truck Act 1896 which prescribed what deductions were permissible and in what circumstances. The long history of the legislation is conveniently set out in the speech of Lord Ackner in Bristow v City Petroleum  1 WLR 529, 532-535.
3. Bristow was the last case to be heard by this House under the Truck Acts for, by the second half of the twentieth century, it was widely recognised that the legislation needed to be updated. The existing Acts were therefore repealed and replaced by Part I of the Wages Act 1986. In 1996 Part I was re-enacted as Part II of the Employment Rights Act 1996 (the 1996 Act). The 1996 Act was a consolidation Act, which was passed on 22 May 1996 and came into force three months later.
4. Although the current legislation is modern, Parliament remains concerned to regulate the deductions which employers are entitled to make from an employees wages. Section 13(1) of the 1996 Act accordingly provides:
An employer shall not make a deduction from wages of a worker employed by him unless -
(a) the deduction is required or authorised to be made by virtue of a statutory provision or a relevant provision of the workers contract, or
(b) the worker has previously signified in writing his agreement or consent to the making of the deduction.
Subsection (3) then goes on to explain what can count as a deduction from wages:
(3) Where the total amount of wages paid on any occasion by an employer to a worker employed by him is less than the total amount of the wages properly payable by him to the worker on that occasion (after deductions), the amount of the deficiency shall be treated for the purposes of this Part as a deduction made by the employer from the workers wages on that occasion.
By subsection (4), subsection (3) does not apply to a deficiency which is simply due to an error in computing the gross amount of the wages properly payable. Subject to subsection (4), any failure by an employer to pay any amount of wages properly payable to an employee amounts to a deduction from his wages for the purposes of section 13(1): Delaney v Staples  IRLR 112, 113-115, paras 1-15, per Nicholls LJ.
5. If a worker considers that his employer has made a deduction from his wages in contravention of section 13, he is entitled to complain to an employment tribunal: section 23(1)(a). Section 23(2) contains a time-limit of three months for presenting such a complaint. But subsection (4) allows the tribunal to consider a complaint presented within a reasonable time after that period if it is satisfied that it had not been reasonably practicable for the complaint to be presented within the three-month period. In addition, section 23(3) allows a complaint in respect of a series of alleged deductions to be made within three months of the last deduction in the series.
6. For reasons which will be fully explained in the speech of my noble and learned friend, Lord Walker of Gestingthorpe, Mr Ainsworth complains that the total amount of wages paid by the Revenue to him in November 2002 was less than the total amount of the wages properly payable to him at that time. He argues that, because he was paid less than he was due, the Revenue was in breach of section 13(1). He therefore made an application to his local employment tribunal on 9 January 2003, one stated basis for his complaint being unlawful deduction from wages". That was an application in terms of section 23(1)(a) and it was brought within the three-month period allowed by section 23(2). Mr Ainsworth also specified another basis for his application. I must come back to that.
7. Section 13(1) of the 1996 Act applies only to deductions from wages". The contention for the Revenue is that the sum in question - which concerns holiday pay - does not count as wages". More particularly, they argue that it does not fall within the definition of wages in section 27(1) and (2) of the 1996 Act:
(1) In this Part wages", in relation to a worker, means any sums payable to the worker in connection with his employment, including
(a) any fee, bonus, commission, holiday pay or other emolument referable to his employment, whether payable under his contract or otherwise,
(b) statutory sick pay under Part XI of the Social Security Contributions and Benefits Act 1992,
(c) statutory maternity pay under Part XII of that Act,
(ca) statutory paternity pay under Part 12ZA of that Act,
(cb) statutory adoption pay under Part 12ZB of that Act,
(d) a guarantee payment (under section 28 of this Act),
(e) any payment for time off under Part VI of this Act or section 169 of the Trade Union and Labour Relations (Consolidation) Act 1992 (payment for time off for carrying out trade union duties etc.),
(f) remuneration on suspension on medical grounds under section 64 of this Act and remuneration on suspension on maternity grounds under section 68 of this Act,
(g) any sum payable in pursuance of an order for reinstatement or re-engagement under section 113 of this Act,
(h) any sum payable in pursuance of an order for the continuation of a contract of employment under section 130 of this Act or section 164 of the Trade Union and Labour Relations (Consolidation) Act 1992, and
(j) remuneration under a protective award under section 189 of that Act,
but excluding any payments within subsection (2).
(2) Those payments are
(a) any payment by way of an advance under an agreement for a loan or by way of an advance of wages (but without prejudice to the application of section 13 to any deduction made from the workers wages in respect of any such advance),
(b) any payment in respect of expenses incurred by the worker in carrying out his employment,
(c) any payment by way of a pension, allowance or gratuity in connection with the workers retirement or as compensation for loss of office,
(d) any payment referable to the workers redundancy, and
(e) any payment to the worker otherwise than in his capacity as a worker.
8. If the Revenues contention is correct, Mr Ainsworth has no remedy under the 1996 Act. That does not mean, of course, that he or any worker in a similar position is without a remedy. It just means that his remedy must be found elsewhere, viz under the Working Time Regulations 1998 (the 1998 Regulations) which confer the statutory right to holiday pay that Mr Ainsworth is claiming.
9. The origin of the 1998 Regulations lies in Council Directive 93/104/EC of 23 November 1993, concerning certain aspects of the organisation of working time. The directive, the policy of which was opposed by the British Government, was adopted under article 118a of the Treaty establishing the European Community. That article provided that Member States are to pay particular attention to encouraging improvements, especially in the working environment, as regards the health and safety of workers. Measures under it could be adopted by Qualified Majority Voting under article 189c. The then Government considered that the directive did not fall within the scope of article 118a. It should have been adopted, the Government contended, on the basis of article 100 or article 235 - both of which required a unanimous vote of the Council. The challenge to the validity of the directive on this, and certain other, grounds, failed, except in one minor respect. The European Court of Justice gave judgment upholding the directive on 12 November 1996: United Kingdom v Council of the European Union (Case C-84/94)  ICR 443. The time for transposing the directive into national law expired ten days later, on 23 November 1996. In fact, the 1998 Regulations, which effected the transposition, did not come into force until 1 October 1998. The 1993 directive was replaced by Council Directive 2003/88/EC of 4 November 2003, concerning certain aspects of the organisation of working time, but that change has no practical importance for the present dispute.
10. Article 7 of the 1993 Directive, which is identical to article 7 of the 2003 Directive, provided:
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.
11. Article 7(1) was transposed into the law of Great Britain in regulations 13 and 16 of the 1998 Regulations, while article 7(2) was transposed in regulations 13(9)(b) and 14. Article 7(1) is designed to ensure that every worker is entitled to at least four weeks annual leave (regulation 13) and that he is paid while he is on leave (regulation 14). Article 7(2) first makes it plain that, ordinarily, an employer cannot avoid the obligation to give his workers paid annual leave by paying them an allowance in lieu of leave (regulation 13(9)(b)). This reflects the underlying philosophy of the directive, that it is necessary for the health and safety of workers that they should have a minimum entitlement to leave and that they should be paid so that they are in a position to take it. See, for instance, Robinson-Steele v RD Retail Services Ltd (Cases C-131 and 257/04)  ICR 932, 958, paras 48-50, and p 959, para 58.
12. Article 7(2) makes an exception, however, and permits, indeed requires, an allowance in lieu of annual leave to be paid where the workers employment comes to an end at a stage when he has not taken his leave, or part of his leave, for that year. Since the worker is no longer employed, he cannot, of course, take the annual leave in question, but article 7(2) gives him a right to an allowance in lieu of the leave. The directive left it to Member States to give effect to that right in a way that fitted the scheme of their employment legislation. But the Court of Justice spelled out the basic requirements of article 7(2) in its decision on the reference in these proceedings: Schultz-Hoff v Deutsche Rentenversicherung Bund; Stringer v Her Majestys Revenue and Customs (Cases C-350/06 and C-520-06), paras 60 and 61:
60 According to the case-law of the Court, Directive 2003/88 treats entitlement to annual leave and to a payment on that account as being two aspects of a single right. The purpose of the requirement of payment for that leave is to put the worker, during such leave, in a position which is, as regards remuneration, comparable to periods of work (see Robinson-Steele and Others, paragraph 58).
61 It follows that, with regard to a worker who has not been able, for reasons beyond his control, to exercise his right to paid annual leave before termination of the employment relationship, the allowance in lieu to which he is entitled must be calculated so that the worker is put in a position comparable to that he would have been in had he exercised that right during his employment relationship. It follows that the workers normal remuneration, which is that which must be maintained during the rest period corresponding to the paid annual leave, is also decisive as regards the calculation of the allowance in lieu of annual leave not taken by the end of the employment relationship.
13. The aspect of article 7(2) which gives a worker an entitlement to an allowance in lieu of leave at the end of his employment was transposed into British law as regulation 14 of the 1998 Regulations:
(1) This regulation applies where
(a) a workers employment is terminated during the course of his leave year, and
(b) on the date on which the termination takes effect (the termination date), the proportion he has taken of the leave to which he is entitled in the leave year under regulation 13(1) differs from the proportion of the leave year which has expired.
(2) Where the proportion of leave taken by the worker is less than the proportion of the leave year which has expired, his employer shall make him a payment in lieu of leave in accordance with paragraph (3).
(3) The payment due under paragraph (2) shall be
(a) such sum as may be provided for the purposes of this regulation in a relevant agreement, or
(b) where there are no provisions of a relevant agreement which apply, a sum equal to the amount that would be due to the worker under regulation 16 in respect of a period of leave determined according to the formula
(A x B) - C
whereA is the period of leave to which the worker is entitled under regulation 13(1);
B is the proportion of the workers leave year which expired before the termination date, and
C is the period of leave taken by the worker between the start of the leave year and the termination date.
(4) A relevant agreement may provide that, where the proportion of leave taken by the worker exceeds the proportion of the leave year which has expired, he shall compensate his employer, whether by a payment, by undertaking additional work or otherwise.
The formula in regulation 14(3) is straightforward: in effect, the worker receives a proportion of the total amount of pay relating to his annual leave that corresponds to the proportion of the leave year for which the worker has been employed at the time his employment comes to an end. So, if he has worked for three months without taking leave, he gets a quarter of the total pay relating to his annual leave; if he has worked for six months, he gets half etc. Where the worker has already taken some leave, the payment in lieu is reduced accordingly. No criticism is made of the transposition.
14. If a worker considers that his employer has failed to pay him any sum due under regulation 14(2), he can make an application to an employment tribunal under regulation 30(1)(b) of the Regulations:
A worker may present a complaint to an employment tribunal that his employer -
(b) has failed to pay him the whole or any part of any amount due to him under regulation 14(2) or 16(1).
15. Regulation 30(2) provides, however, that an employment tribunal is not to consider such a complaint unless it is presented within three months beginning with the date on which it is alleged that the exercise of the right should have been permitted, or within such further period as the tribunal considers reasonable in a case where it is satisfied that it was not reasonably practicable for the complaint to be presented before the end of the period of three months. These limits correspond to the limits in section 23(2) of the 1996 Act. But regulation 30 does not contain an equivalent of section 23(3), extending the time-limit where there has been a series of deductions.
16. Mr Ainsworth was employed by the Revenue from 1976 until 4 November 2002 when his employment was terminated. From December 2000 he was absent from work due to sickness. His leave year ran from 1 November until 31 October and so, when his employment ended, he was just four days into his 2002-2003 leave year. He had not taken any leave during those four days. Mr Ainsworth therefore contended that, when his employment was terminated, under regulation 14(2) he was entitled to a payment in lieu of leave calculated by reference to those four days, in accordance with regulation 14(3).
17. The Revenue declined to pay Mr Ainsworth any sum under regulation 14 because he had been off sick during the four days of the leave year. Therefore, in his application to the employment tribunal he included a complaint of a breach of the Working Time Regulations". (He also complained of matters relating to earlier periods of employment, but those complaints are no longer live and are not relevant for present purposes.)
18. The employment tribunal found in favour of Mr Ainsworth. The relevant part of their decision was that the Revenue made an unauthorised deduction from the wages of the applicant by failing to make a payment representing holiday accrued and untaken upon the termination of his employment and the respondents are directed to pay the applicant the sum of £16.14. This was plainly a decision upholding Mr Ainsworths complaint, under section 23 of the 1996 Act, of an unauthorised deduction from his wages, contrary to section 13(1).
19. The Revenue now accept that, in the light of the ruling of the European Court of Justice, they were obliged by regulation 14(2) of the 1998 Regulations to pay Mr Ainsworth the sum in question. So, as they accept, he would have been entitled to succeed in his complaint brought under regulation 30 of the 1998 Regulations.
20. The Revenue contend, however, that Mr Ainsworth was not entitled to make a complaint to the employment tribunal under section 23 of the 1996 Act and so the tribunal had no jurisdiction to make the order that they did. The Revenue argue that a payment under regulation 14 does not fall within the definition of wages in section 27 of the 1996 Act and so, even if an employer fails to pay such a sum, he does not make a deduction from wages", contrary to section 13(1) of the Act. So Mr Ainsworths only remedy was under regulation 30 of the 1998 Regulations. The Court of Appeal not only held that Mr Ainsworth was not entitled to any payment under regulation 14, but also upheld the contention for the Revenue that his only remedy for an alleged breach of regulation 14 was a complaint under regulation 30:  ICR 1149, 1158-1159, paras 21-24. Mr Ainsworth appeals to this House.
21. As already explained, the Revenue accept that Mr Ainsworths appeal on his entitlement to a payment under regulation 14 must be allowed. And, actually, he himself gained nothing by presenting his complaint relating to the period from 1 to 4 November 2002 under section 23 of the 1996 Act as well as under regulation 30 of the 1998 Regulations. Not only was Mr Ainsworths application in respect of that complaint lodged in time, but, in addition, it relates to a single deduction, rather than to a series of deductions - so he had no occasion to invoke any extended time-limit under section 23(3) for presenting his application. But the appellants counsel, Mr Jeans QC, told the House that the decision of the Court of Appeal - that no complaint about a deduction of holiday pay due under the 1998 Regulations could be brought under section 23 of the 1996 Act - had led to successive applications being made to employment tribunals to avoid the time-limit in regulation 30, in relation to a series of deductions of payments allegedly due under regulation 16. The applicants were incurring unnecessary expense and the tribunal system was being cluttered up with unnecessary applications. But for the Court of Appeals decision, the applicants in question could have relied on the extended time-limit in section 23(3) and made one application within three months of the last deduction in the series. On that narrative I accept that the point is one of practical importance which the House should decide.
22. Since the time-limit was said to give rise to the practical issue behind this aspect of the appeal, counsel tended to come back to that aspect in their submissions. Naturally, Mr Jeans emphasised the inconvenience of the successive applications. For his part, Mr Cavanagh QC suggested that Parliament might have chosen not to include any sums due under regulation 14 or 16 in the definition of wages in section 27 of the 1996 Act in order to make sure that all complaints relating to holiday pay were brought promptly. I consider that it would be unwise, however, to concentrate on the time-limits. The real issue is much broader: whether a failure to pay sums due under regulations 14 and 16 of the 1998 Regulations is properly regarded as the kind of impermissible deduction from wages that Parliament wanted to prevent by enacting section 13 of the 1996 Act. If it is, then employees have the benefit of the system provided by the 1996 Act, which includes the extended time-limit in section 23(3). But if a failure to pay the sums is not properly regarded as this kind of impermissible deduction from wages, then employees have to content themselves with the provisions of the 1998 Regulations - including the shorter time-limit in regulation 30(2). The time-limits do not dictate the interpretation of the definition of wages in section 27; rather, the correct interpretation of wages determines which statutory régimes apply and, hence, which time-limits apply. So the case turns on the interpretation and application of section 27.
23. Before turning to that section, a minor point which surfaced in the judgment of the Court of Appeal can be disposed of quickly. Section 205(2) of the 1996 Act provides that the remedy of a worker in respect of a contravention of section 13 is by way of a complaint under section 23 and not otherwise". In something of a throwaway line, Maurice Kay LJ suggested,  ICR 1149, 1159, para 24, that, if the failure to pay the sum due under regulation 14 could indeed be treated as a violation of section 13 of the 1996 Act, then the effect of section 205(2) would be that the only remedy for that failure would be under section 23. In other words, thus interpreted, the provision would prevent the worker from raising proceedings under regulation 30 of the 1998 Regulations. For the Revenue, Mr Cavanagh rightly accepted that the argument was fallacious. Section 205(2) simply prescribes that a complaint of a violation of section 13(1) must be made to an employment tribunal under section 23 - and not, for example, by proceedings in the ordinary civil courts. But if the aggrieved employee wishes to present his complaint simply as a failure by his employer to pay a sum due under regulation 14, nothing in section 205(2) prevents him from making that complaint under regulation 30. Section 205(2) is accordingly irrelevant for present purposes.