Case No: A1/2001/2714
Neutral Citation No [2002] EWCA Civ 1037
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE EMPLOYMENT APPEAL TRIBUNAL
HIS HONOUR JUDGE PETER CLARK PRESIDING
Royal Courts of Justice
Strand, 
London, WC2A 2LL

Tuesday 23rd July 2002
Before:

LORD JUSTICE PILL

LORD JUSTICE ROBERT WALKER

and 

SIR MARTIN NOURSE

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Between:

	KEITH BLACKBURN & ORS	Appellants	
	
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GRIDQUEST LTD 
(t/a SELECT EMPLOYMENT) & ORS	

Respondents	

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(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040,  Fax No:  020 7831 8838
Official Shorthand Writers to the Court)
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Brian Langstaff QC and Rachel Crasnow (instructed by Messrs Irwin Mitchell) for the  Appellants
Andrew Clarke QC (instructed by Messrs Merricks) for the Respondents
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Judgment
As Approved by the Court

Crown Copyright ©

Lord Justice Pill: 

1.	This is an appeal against a judgment of the Employment Appeal Tribunal, His Honour Judge Peter Clark presiding, sent to the parties on 20 November 2001. The Tribunal allowed an appeal by Gridquest Ltd (t/a Select Employment) and others (“the respondents”) against a decision of an Employment Tribunal, held at Stratford, sent to the parties on 30 March 2000. The unanimous decision of the Employment Tribunal was that the complaint of Mr K Blackburn and others (“the appellants”) that the respondents severally failed to pay them in respect of holidays contrary to Regulation 16 of the Working Time Regulations 1998 (“the 1998 Regulations”) was well founded. The Appeal Tribunal remitted the case to a fresh Employment Tribunal to determine whether the appellants had been paid what was known as a “rolled-up rate”. The Employment Tribunal were to do so on the basis that “if so, credit for the holiday pay element in that rolled-up rate must be given under Regulation 16(5) against the respondents’ liability to make payments under Regulation 16”. The respondents XR Associates Ltd were not represented at the hearing of the appeal.
2.	Regulation 16 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 1996 [Employment Rights] Act 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 references 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 day of the period of leave in question; and
(d)	as if the references 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’).
(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.”
3.	A week’s pay is to be calculated, for the purposes of Regulation 16, on the basis set out in sections 221 to 224 of the 1996 Act. The relevant sub-section is section 221(2) which provides that “a week’s pay” is “the amount which is payable by the employer under the contract of employment in force on the calculation date if the employee works throughout his normal working hours in a week”. The respondents are employment agencies providing workers for the Ford Motor Company. The appellants were each employed by one of the employment agencies. It is common ground that each appellant was a “worker” within the meaning of Regulation 2 of the 1998 Regulations, was entitled to annual leave as provided by Regulation 13 and to pay in respect of that period of annual leave (now described as holiday pay) under Regulation 16.
4.	There is no doubt that, in order to give effect to the 1998 Regulations, made pursuant to Council Directive 98/104/EC and other directives, attempts were made in industry to introduce a method of paying weekly wages by a “rolled-up” rate of pay. As described by the Employment Tribunal, and not disputed, this was a rate which “included some element of payment for periods of sickness, absences or holiday for which payment was not separately made”. Before the Employment Tribunal, there were issues of fact as to whether the appellants had agreed to be paid at the rolled-up rate and whether they knew that they were being paid on what was claimed to be a rolled-up rate. These issues were resolved in favour of the appellants, as acknowledged by the Appeal Tribunal. Having considered the case of each appellant, the Employment Tribunal concluded that they “did not accept that there was any express contractual agreement for the payment of an element of holiday pay by way of a rolled-up rate in the case of each of the [appellants]”. Detailed findings of fact are stated and the Tribunal also concluded that the rolled-up rate was not even communicated to the appellants. For the respondents, Mr Clarke QC accepts that there was a finding of fact, which he is unable to challenge, that the relevant contracts of employment did not provide, either expressly or otherwise, for the payment of an element of holiday pay by way of a rolled-up rate.
5.	The respondents’ submission, which succeeded before the Appeal Tribunal, is that if the sum paid by the respondents in fact included an element of holiday pay, the appellants had to give credit for that element by virtue of Regulation 16(5). The case was remitted by the Appeal Tribunal to give the respondents an opportunity to establish that the appellants were “in fact paid a rolled-up rate”. The Appeal Tribunal held that the Employment Tribunal had either overlooked or had misconstrued the significance of Regulation 16(5).
6.	Mr Clarke submits that the respondents should have the opportunity to establish before an Employment Tribunal that a rolled-up rate including an appropriate element of holiday pay was paid to the appellants. If they can so establish, it is submitted, that is determinative of the issue notwithstanding the absence of a contractual term to that effect. Failure to reach that conclusion would penalise the employer who had attempted to give effect to the 1998 regulations by paying a rolled-up rate as compared with an employer who had done nothing. The object of Regulation 16(5) is to prevent a double recovery by employees. It is the first limb of Regulation 16(5) on which the respondents rely; it is not suggested what in the Regulation is described as the converse situation bears upon the point at issue or upon the construction of the first limb. Mr Clarke also refers to the fact that payment of a rolled-up rate is a common industrial practice and is reflected in collective agreements, though it is not suggested that a collective agreement covers the cases under consideration. Nor is it suggested that a rolled-up rate had acquired contractual force by virtue of custom and practice.
7.	What at first sight seems to be a startling departure from the ordinary law of contract is, in my judgment, confirmed as such upon analysis. The Appeal Tribunal stated:
“The key to the answer, in our view, lies in the potential distinction between the total remuneration payable to the worker under the contract and a week’s pay as statutorily defined.
There is no doubt as to what was the worker’s contractual remuneration. It was the total amount paid by the employer. However, that does not answer the question as to whether in fact that remuneration included a holiday pay element. If it did then applying Regulation 16(5), any element of that remuneration attributable to holiday pay must be stripped out. That will have two effects.
(a)	a week’s pay is less than the total contractual remuneration paid in a week, and
(b)	the difference representing the holiday pay element, must be set against the number of weeks pay to which the worker is entitled under Regulation 13.”
8.	I do not follow that reasoning. A week’s pay is the amount payable by the employer under the contract of employment for the normal working hours in a week. Only if it is agreed between employer and employee that the weekly payment includes an amount for something else, such as holiday pay, can it be held to do so. An employer cannot unilaterally decide that the week’s pay is a payment not only for the hours worked during the week but includes an element of holiday pay. The claim that holiday pay was “in fact” paid amounts to an assertion that the employer can decide unilaterally what is included in the weekly payment.
9.	In my judgment, Regulation 16(5) does not confer that right upon an employer. Indeed, it expressly refers to “contractual” remuneration paid in respect of a period of leave. If the worker has not agreed that the sum paid includes a sum in respect of a period of leave, it is no part of the contract that the sum includes an element of holiday pay. The remuneration under the contract is for the week’s work.
10.	In The College of North East London v Leather (transcript 30 November 2001), the Employment Appeal Tribunal (His Honour Judge Peter Clarke again presiding), considered the case of a part-time college lecturer who claimed holiday pay under Regulation 13. Her rate of pay was calculated with the aim, it appears, of achieving equivalence with the remuneration of full-time lecturers. The Employment Tribunal referred to the findings of the Employment Tribunal in the employee’s favour:
“4.	In upholding the complaint the Chairman concluded that the contract between the parties, as it existed on 3 September 1998, was for a payment to the Applicant of £17.21 per hour, which payment was solely in respect of hours worked. The Respondent could not unilaterally vary the contract to apportion £3.54 of the hourly rate to holiday pay. That would be to defeat the provisions of the Regulations. Consequently the claim for holiday pay succeeded.”
	Upholding that finding, the Appeal Tribunal distinguished their decision in the present case on the ground that the contract in Leather contained an express term that there was no entitlement to paid holiday under the contract. The Appeal Tribunal concluded:
	“The contract expressly provided that there was no entitlement to paid holiday under the contract. It follows, on the particular facts of this case, that there was no contractual remuneration paid to the applicant in respect of any period of leave.”
11.	There is no relevant distinction from the present case in my view. On the finding of fact of the Employment Tribunal, in the present case, there was no “contractual agreement for the payment of an element of holiday pay” within the sum paid weekly. In Leather, the apportionment claimed was made apparent to the Employment Tribunal, as a figure, whereas in the present case it was not. In each case, however, the employer was, on the findings of fact, attempting to achieve the same result; a unilateral variation of the contract to apportion a part of the sum paid to holiday pay. It follows that the right to set-off conferred by Regulation 16(5) does not arise.
12.	In my judgment, the decision of the Appeal Tribunal in Leather was correct and in the present case incorrect.
13.	Mr Langstaff QC also puts the case for the appellants on the somewhat different basis that, because there was no contractual entitlement to holiday pay, a payment which purported to be holiday pay could not be part of the contractual remuneration for the purposes of Regulation 16. I prefer to deal with the case on the basis that there was no contractual entitlement in the employers to apportion a part of the week’s pay to holiday pay, as already explained. Mr Langstaff also points out the difficulties of calculating an appropriate sum for holiday pay to be included in a rolled-up rate. I do not regard that argument as decisive. It is not necessary to consider the differing facts in the cases of individual appellants because the finding of fact on which my conclusion rests is common to all six appellants.
14.	The Court is also requested by Mr Langstaff to go beyond what is necessary to decide the present case. He invites the Court to find that in the light of R (Broadcasting, Entertainment, Cinematographic and Theatre Union) v Secretary of State for Trade and Industry [2001] ICR 1152 the payment of holiday pay as a part of a weekly rolled-up rate is unlawful in any event in that it defeats the object of the Directive.	The object of the Directive is to ensure that leave is taken, it is submitted, and the payment of holiday pay by rolling it up in the weekly payment to employees discourages that course. In Scotland, the EAT, Lord Johnston presiding, held in MBP Structures Ltd v Alexander Munro (transcript 28 March 2002) that “the only way that the provisions of the Regulations and, indeed, their spirit can be met, is for holiday pay to be paid as and when the holiday is taken at the appropriate rate”. There is no reference in the judgment to Regulation 16(5). 
15.	It is not necessary, and I do not consider it appropriate, to embark upon the more general considerations to which that submission gives rise. In these particular cases, there was no agreement for the payment of an element of holiday pay by way of a rolled-up rate and the provision for set-off in Regulation 16(5) does not operate.
16.	For the reasons given, I would allow this appeal and affirm the decision of the Employment Tribunal.
Lord Justice Robert Walker:
17.	I agree.
Sir Martin Nourse:
18.	I also agree.
Order: Appeal allowed; both Respondents do pay the Appellant’s costs of the appeal, such costs to be assessed if not agreed.
(Order does not form part of the approved judgment)