Judgments - Her Majesty's Revenue and Customs (Respondents) v Stringer and others (Appellants)

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24.  Section 27 came before this House in Delaney v Staples [1992] 1 AC 687 where it was held that payments in lieu of notice, being payments relating to the termination of employment rather than to the provision of services by the employee, were not “wages” within the meaning of what is now section 27. Lord Browne-Wilkinson, who gave the only substantive speech, said, at p 692A-C, that it was important to approach the definition of “wages” in the section:

“bearing in mind the normal meaning of that word. I agree with the Court of Appeal that the essential characteristic of wages is that they are consideration for work done or to be done under a contract of employment. If a payment is not referable to an obligation on the employee under a subsisting contract of employment to render his services it does not in my judgment fall within the ordinary meaning of the word ‘wages’. It follows that if an employer terminates the employment (whether lawfully or not) any payment of wages in respect of the period after the date of such termination is not a payment of wages (in the ordinary meaning of that word) since the employee is not under obligation to render services during that period.”

Applying that approach, it seems to me that payment in respect of annual leave, as envisaged by regulation 16, is plainly part of the consideration which the employee receives in return for the work done, or to be done, under his contract of employment. So, leaving aside the express inclusions and exclusions, payment in respect of statutory annual leave falls to be regarded as coming within the normal meaning of the word “wages” in section 27.

25.  The payment which is due under regulation 14 is, at first sight at least, slightly different. The payment is described as a “payment in lieu of leave” and therefore has something of the flavour of compensation for leave not taken - the compensation taking the form of a liquidated sum calculated according to the formula in regulation 14(3). But, as the passage from the judgment of the European Court in these proceedings, quoted at para 12 above, suggests, the purpose of the payment is, in effect, to make sure that the worker whose employment is terminated and who cannot take the period of leave in question, at least receives the pay which he is due in respect of that leave. True enough, the right to the payment accrues only when the worker’s employment has been terminated and, in Delaney v Staples [1992] 1 AC 687, 697E-F, Lord Browne-Wilkinson said that the basic concept of wages excludes “all payments in respect of the termination of the contract save to the extent that such latter payments are expressly included in the definition in section 7(1) [of the Wages Act 1986]". But he was there contrasting payments in respect of termination of the employment (such as payments in lieu of notice) with “payments in respect of the rendering of services during the employment". As the method of calculation adopted in regulation 14(3) makes plain, the payment in lieu of leave is one which the worker has earned by working for the relevant proportion of the leave year. So, even though he receives it only when his employment has been terminated, just like any other final payment of wages, it is part of the consideration for the services which he has previously performed under his contract of employment. The payment therefore falls within the normal meaning of the word “wages” and the interpretation of section 27 must be approached on that basis.

26.  Although counsel concentrated on section 27(1), the definition of “wages” extends over subsections (1) and (2) - with further clarification being given in subsection (3). Presumably to avoid subsection (1) becoming overloaded, the draftsman has split the definition into two subsections. But both the express inclusions in subsection (1) and the express exclusions in subsection (2) have to be considered. Given that the definition contains both, in Delaney v Staples [1992] 1 AC 687, 695B, Lord Browne-Wilkinson held that “there is no room for an argument that by expressly excluding certain items the draftsman was indicating that such items would otherwise be payments ‘in connection with’ the employment.” Reversing the point, given the specific exclusions as well as inclusions, I am not disposed to attach any considerable weight to the Revenue’s argument that the inclusion of payments under certain specific statutory provisions implies that payments under the 1998 Regulations, which are not listed, are excluded from the scope of “wages". If they were intended to be excluded, why were they not added to subsection (2) by an appropriate amendment? With this caveat, I turn to look more closely at subsection (1).

27.  Counsel for Mr Ainsworth argued that sections 88 and 89 contained examples of payments under a statutory provision which would fall within the scope of the term “wages” in section 27, even though they were not expressly included in subsection (1). But the payments under those sections are payments which an employee is entitled to receive during the period of notice of termination of his employment, provided only that he is ready and willing to work (section 88(1)(a) and section 89(2)) or is unable to work for some legitimate reason (section 88(1)(b)-(c) and section 89(3)). In other words, they are not actually payments in consideration of services which the employee performs under his contract of employment. Following the reasoning of the House in Delaney v Staples [1992] 1 AC 687, 697E-F, they may therefore more properly fall to be regarded as payments in connection with the termination of employment and so as not amounting to “wages". It is unnecessary to decide the point; it is enough to say that the draftsman of section 27(1) may have taken that view. It would accordingly be rash to affirm positively either that payments under section 88 and 89 are impliedly included in an employee’s wages for the purpose of section 27 or that the omission of any reference to these sections must have been due to an oversight on the part of the draftsman. Indeed since, as I go on to explain, the draftsman of the 1996 Act was alive to the need to make appropriate cross-references, an oversight on his part is not, perhaps, a plausible explanation.

28.  The House is, of course, concerned with a possible failure to amend section 27(1) when the 1998 Regulations were drafted. If Homer nodded, doubtless Solon did too. So there is always the possibility of a simple error. And, in fact, there happens to be positive evidence of a slip by Parliamentary counsel in updating the predecessor of section 27(1), section 7(1) of the Wages Act 1986. The 1996 Act began life as a consolidation Bill in the 1994-1995 Session. At that stage it was considered by the Joint Select Committee on Consolidation Bills under the chairmanship of Lord Lloyd of Berwick. The draftsman of the consolidation Bill explained to the committee that, when para 10 of Schedule 5 to the Trade Union Reform and Employment Rights Act 1993 added a new section 78 to the Employment Protection (Consolidation) Act 1978, a reference to that section should have been, but was not, included in section 7(1) of the 1986 Act. Clause 27(1)(h) of the consolidation Bill had been drafted to correct that oversight by including a reference to section 130, which was to re-enact section 78 of the 1978 Act. The committee accepted this explanation and section 27(1)(h) was accordingly enacted in that form. See the minutes of evidence attached to the Fourth Report of the Joint Select Committee, dated 7 June 1995. If such a mistake was made by Parliamentary counsel in the past, it is at least possible that the officials in the Department of Trade and Industry who were responsible for the 1998 Regulations failed to consider whether section 27(1) should be amended to include a reference to the regulations on payments in respect of annual leave.

29.  In the end, however, the dispute on interpretation must be resolved by reference to the words of section 27(1) as enacted. I have already indicated my view that a payment under regulation 14 falls within the normal meaning of “wages". More particularly, it is a sum payable to a worker in connection with his employment. So it comes squarely within the opening words of section 27(1). And, as Mr Jeans observed, there is nothing to take it out of the scope of those words. If one continues into paragraph (a), even if the right to the payment under regulation 14 was created as part of a scheme for improving the health and safety of employees, the payment itself must surely be classified as “holiday pay". Regulation 17 treats annual leave under the 1998 Regulations as being equivalent to annual leave under a contract of employment. This must include the entitlement under regulation 16 to pay during the period of leave. Indeed I understood Mr Cavanagh eventually to acknowledge that it was not possible to draw any plausible distinction between “holiday pay” under a contract and the kind of payment envisaged by regulation 14. In any event, the payment under regulation 14 would count as an “emolument".

30.  Mr Cavanagh conceded that, if the concluding words of para (a) had been “whether payable under his contract or under statute“, then the regulation 14 payment would have been covered, even though the Regulations had been passed after the 1996 Act. So the eventual issue was whether the words “whether payable under his contract or otherwise” were capable of referring to a payment under a regulation passed after the 1996 Act.

31.  In my view, the words “or otherwise” are broad and are apt to cover holiday pay which is payable, whatever the source of the employer’s legal obligation to make the payment. Plainly, the reference to holiday pay that is payable under the employee’s contract is not confined to pay that was payable under contracts which existed at the time when the 1996 Act was passed. I can therefore see no reason why the immediately following words “or otherwise” should be confined to other sources of obligation, whether statutes or statutory instruments (or indeed something else entirely), which existed when the Act was passed. In my view, the words are ambulatory and so are apt to cover holiday pay that is payable under regulation 14 of the 1998 Regulations. I accordingly conclude that a failure to pay a sum due under regulation 14 is the kind of impermissible deduction from wages that Parliament wanted to prevent by enacting section 13 of the 1996 Act.

32.  In these circumstances I do not find it necessary to have regard to the principle of equivalence, but I respectfully agree with what Lord Walker and my noble and learned friend, Lord Neuberger, say about it.

33.  For these reasons, as well as for those to be given by Lord Walker and Lord Neuberger, with which I agree, I would allow the appeals and make the orders proposed by Lord Walker.


My Lords,

The reference to the Court of Justice

34.  The Working Time Regulations 1998 SI 1998/1833 (“WTR”) were made under the European Communities Act 1972 in order to transpose into national law the provisions of the Working Time Directive 1993/104/EC. As appears from its recitals, the Directive was intended to promote health and safety at work by restricting the working day and the working week and requiring workers to be given rest periods and paid holidays (described in the English-language version as annual leave).

35.  All the appellants formerly worked for the respondent Commissioners of Inland Revenue (now HM Revenue & Customs) but most had retired, or been required to retire, after long absences because of illness. The main issue in these appeals was the effect of the annual leave provisions, as transposed by paras 13-16 of the WTR, in relation to employees like the appellants who had been on long-term sick leave. Since the appeals raised an important issue of Community law the House decided, when the appeals came on for hearing on 30 October 2006, to make a reference to the Court of Justice under Article 234 of the Treaty.

36.  The Grand Chamber of the Court of Justice considered the reference together with another reference, raising the same issues, from Germany. On 30 January 2009 the Court gave judgment in both cases (Case C-350/06 Schultz-Hoff v Deutsche Rentenversicherung Bund, Case C-520/06 Stringer v HM Revenue and Customs) in terms favourable to the former employees. The Court of Justice’s interpretation differed from that adopted by the Court of Appeal (IRC v Ainsworth [2005] ICR 1149), which had itself differed from the Employment Appeal Tribunal. Counsel agree that on the main issue the appropriate course for your Lordships is simply to allow the appeals and restore the orders of the Employment Appeal Tribunal.

The jurisdiction issue

37.  Mr Ainsworth (who was an Inspector of Taxes based at Chester but became ill at the end of 2000) and some of the other appellants made their applications to the employment tribunal not only under the WTR but also under sections 13 (Right not to suffer unauthorised deductions) and 23 (Complaints to employment tribunals) of the Employment Rights Act 1996 (“ERA”). That gives rise to the only remaining issue before the House: whether a claim under the ERA was available to these appellants. That issue might be described as technical and in some cases (where an aggrieved employee applies to the employment tribunal promptly) it is of no more than academic interest. But it becomes a matter of practical importance if the normal three-month time limit for an application to the employment tribunal has expired since the complaint arose, and other grounds for extending the time limit are not available. That is because section 23 of the ERA permits (but regulation 30 (Remedies) of the WTR, the corresponding procedural provision, does not permit) an aggrieved employee to make a claim in respect of the whole of a “series” of deductions of which he complains if he acts within three months of the latest deduction in the series. (There is some case law about the meaning of “series", which has been fairly generously interpreted, but it is unnecessary to consider that point in these appeals.)

38.  The time limit point is of practical importance not only to employers and workers but also to those engaged in administering employment tribunals. Sometimes a point of principle about entitlement to holiday pay affects a large class of employees and arises every time any of them takes a few days’ holiday. The sums involved may be relatively small on each occasion but if employees feel that they are not getting their full entitlement, and conciliation fails, they will wish to take the matter to an employment tribunal. This has been strikingly illustrated by the large number of small claims made by pilots employed by BA and other airlines in disputes over whether holiday pay should be calculated on basic pay alone, or should take account of flying time supplements and TAFB (time away from base) allowances: see British Airways plc v Williams [2008] EWCA Civ 281, 19 March 2009.

39.  For that reason the President of the Employment Appeal Tribunal readily gave the Revenue permission to appeal to the Court of Appeal on this issue as well as on the main issue which was referred to the Court of Justice, and the Court of Appeal decided to consider the point even though Mr Ainsworth’s counsel submitted, at that stage, that the point was academic to his client and should not be argued. Since in allowing the appeal the Court of Appeal overruled the Employment Appeal Tribunal’s decisions in List Design Group Ltd v Douglas [2002] ICR 686 and Canada Life Ltd v Gray [2004] ICR 673 it is clearly appropriate for your Lordships to consider the matter, even if it is no longer important to any of the appellants themselves.

Employment tribunals and the WTR

40.  I must give a fuller account of the relevant provisions of the WTR and the ERA. But as this appeal is concerned with the jurisdiction and powers of employment tribunals they are the best starting point. Employment tribunals (renamed in 1998, having previously been industrial tribunals) are regulated mainly by the Employment Tribunals Act 1996 (formerly the Industrial Tribunals Act 1996). Their jurisdiction is entirely statutory, conferred by a wide range of primary and secondary legislation including the Equal Pay Act 1970, the Health and Safety at Work Act 1974, other statutes against discrimination and (most relevantly) the WTR and the ERA.

41.  Because the WTR are concerned primarily with health and safety, breaches of some of the provisions in Part II of the WTR, such as regulations 10 (Daily rest), 11 (Weekly rest period), 12 (Rest breaks) and 13 (Entitlement to annual leave) do not give rise to readily quantifiable monetary claims. If a worker works and receives a week’s pay, when he should have had a week’s holiday with pay, it is rest and recreation, not money as such, that he has lost. Consequently regulation 30 (Remedies) provides for statutory compensation to be awarded by the employment tribunal as is just and equitable in the circumstances, having regard to the employer’s default and any loss sustained by the worker (see regulation 30(1)(a)(i), (3) and (4)). Some other claims under Part II, that is under regulations 14 (Compensation related to entitlement to leave) and 16 (Payment in respect of periods of leave), are liquidated in nature. For them the remedy is an order for payment of the amount due: see regulation 30 (1)(b) and (5).

42.  Mr Ainsworth’s claim, so far as brought under the WTR, was brought under regulation 14 (Compensation related to entitlement to leave), the first two paragraphs of which are in the following terms:

“(1) This regulation applies where -

(a) a worker’s 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 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).”

43.  A worker with contractual rights cannot claim them on top of his rights under the WTR, but can opt for whichever rights are the more favourable. That is the effect of regulation 17 (Entitlements under other provisions):

“Where during any period a worker is entitled to a rest period, rest break or annual leave both under a provision of these Regulations and under a separate provision (including a provision of his contract), he may not exercise the two rights separately, but may, in taking a rest period, break or leave during that period, take advantage of whichever right is, in any particular respect, the more favourable.”

44.  The Working Time Directive required member states to transpose its provisions into national law by 23 November 1996. In the United Kingdom the Directive was a subject of great political controversy. When it was being negotiated the Conservative government opposed many of the proposals, including in particular the proposal for a maximum 48-hour working week from which employers and workers could not agree to opt out. The government went so far as to challenge, in proceedings before the Court of Justice, whether the Directive was under the Treaty (as it then stood) capable of being approved by only a qualified majority of the member states. The challenge was unsuccessful: Case C-84/94 United Kingdom v Council of the European Union [1996] ECR I -577. The WTR were eventually made on 30 July 1998, over 20 months after the final date fixed by the Directive, and contained provisions facilitating the United Kingdom’s derogation from the mandatory 48-hour week (see Article 17 of the Directive and Regulation 31 of the WTR, inserting a new section 45A in the ERA in order to comply with the conditions for derogation).


45.  The ERA is a consolidating Act. The immediate predecessor to Part II (Protection of wages) was the Wages Act 1986, but parts of it have much older roots, going back to the Truck Act 1831. Section 13, which is the first section in Part II, provides (so far as now relevant):

“(1) 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 worker’s contract, or

(b) the worker has previously signified in writing his agreement or consent to the making of the deduction.

(2) defines “relevant provision”

(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 worker’s wages on that occasion.”

46.  The purpose of section 13(3) is not immediately apparent but it has been interpreted as having two important effects. In Delaney v Staples [1991] 2 QB 47 the Court of Appeal (Lord Donaldson of Lymington MR, Ralph Gibson LJ and Nicholls LJ) relied on its predecessor (section 8(3) of the Wages Act 1986) for the conclusion that “a deduction from wages” can for this purpose cover a total failure to pay any wages when due (in that case, contractual commission and holiday pay). But the Court of Appeal also held that the employment tribunal had no jurisdiction to make an award in respect of an unliquidated contractual claim for a payment in lieu of notice. The House of Lords [1992] 1 AC 687 dismissed the ex-employee’s claim on the latter point (on which the law has since been changed, in 1994, to give employment tribunals a limited jurisdiction to hear certain contractual claims for unliquidated sums). There was no cross-appeal against the Court of Appeal’s decision as to the meaning of “a deduction from wages", nor was it challenged before your Lordships.

47.  The other decision of the Court of Appeal on section 13(3) is New Century Cleaning Co Ltd v Church [2000] IRLR 27. In that case the Court of Appeal (Beldam and Morritt LJJ, Sedley LJ dissenting) held, on unusual facts arising out of the way a team of window cleaners operated, that the effect of the words “properly payable by him to the worker on that occasion” excluded anything in the nature of an unliquidated claim from coming within section 13. Again, that decision has not been challenged before your Lordships. It is not directly relevant to Mr Ainsworth’s claim but it shows that the very wide definition of “wages” in section 27 of the ERA (the last section in Part II) must in effect be filtered, for the purposes of a claim under section 13, by eliminating any unliquidated amounts. The definition of “wages” in section 27 (to which I now proceed) does contain some items (for instance, some of those in subsection (1)(e) and (f): see sections 60(3) and (4) and 70(6) and (7) of the ERA) which, like statutory compensation under regulation 30(3) and (4) of the WTR, cannot be quantified until the employment tribunal makes its own evaluative judgment on a claim.

48.  Section 27(1) provides as follows:

“(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).

Subsection (2) then makes five general exclusions: (a) an advance by way of loan; (b) a payment of expenses; (c) a payment making provision on retirement or for loss of office; (d) a redundancy payment; and (e) any payment to the worker otherwise than in the capacity of a worker.

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