United Kingdom House of Lords Decisions

    APPELLATE COMMITTEE

    Her Majesty's Revenue and Customs (Respondents)

        v.

    Stringer and others (Appellants)

    REQUEST FOR A PRELIMINARY RULING

    BY THE COURT OF JUSTICE OF THE

    EUROPEAN COMMUNITIES

    REPORT

    8th REPORT

    from the Appellate Committee

    13 DECEMBER 2006

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

    Request for a preliminary ruling by the Court of Justice of the European Communities pursuant to Article 234 of the Treaty Establishing the European Communities

    The Committee (Lord Nicholls of Birkenhead, Lord Hoffmann, Lord Hope of Craighead, Lord Walker of Gestingthorpe and Lord Brown of Eaton-under-Heywood) have met and considered the cause Her Majesty's Revenue and Customs (Respondents) v. Stringer and others (Appellants). We have heard counsel on behalf of the appellants and respondents.

1.   This is the considered opinion of the Committee. The cause should be referred to the Court of Justice of the European Communities for a preliminary ruling pursuant to Article 234 of the Treaty establishing the European Communities.
2.   In this preliminary reference the Court of Justice is asked to interpret Directive 2003/88/EC of the European Parliament and of the Council of 4 November 2003 concerning certain aspects of the organisation of working time, formerly Directive 1993/104/EC. In particular, it is asked to provide answers to questions concerning the right to annual leave granted by Article 7 of the Directive as it relates to employees on sick leave.

    Introduction

3.   The dispute before the House of Lords relates to the Working Time Regulations 1998 (SI 1998/1833) ("the WTR"), which implement the Directive in national law. It relates to the entitlement of every worker to paid annual leave of at least four weeks conferred by Article 7 of the Directive. The issues are (i) whether or not a worker who is absent on sick leave is entitled to take paid annual leave during the period of sick leave; and (ii) the extent, if any, to which a worker who has been absent on sick leave for all or part of the leave year in question is entitled to an allowance in lieu on termination of employment.
4.   A preliminary reference by Landesarbeitsgericht Düsseldorf - Germany (Preliminary Reference C-350/06) for a preliminary ruling on questions arising under Article 7 of the Directive on entitlement to leave or an allowance in lieu of annual leave during a long period of incapacity for work was notified to relevant British authorities by a letter dated 27 September 2006 from the Court of Justice. Given the similarity of issues, it is suggested that it would be appropriate for the present case and Preliminary Reference C-350/06 to be heard together.
5.   The Appellants ("the workers") were all employed by the Respondents ("the employer"). The workers fall into two categories.
6.   The first category concerns Mrs Khan. She was absent on indefinite sick leave for several months, receiving sick pay. On 10 October 2003, during the course of that sick leave, she gave notice to the employer that she wished to take 20 days' paid annual leave from 17 November to 11 December 2003. The employer refused her request. She brought proceedings before the Employment Tribunal based on regulation 13 WTR, claiming that she was entitled to take annual leave and to be paid during her annual leave under regulation 16 WTR. The Employment Tribunal upheld her claim and ordered the employer to pay her the sum of £595.32.
7.   The second category concerns Mr Ainsworth, Mrs Kilic and Mr Thwaites. They were each dismissed by the employer. Each had been absent on long-term sick leave and was absent on sick leave throughout the leave year in which his or her dismissal occurred. None of them had taken any annual leave during that year. Each brought proceedings before the Employment Tribunal, claiming payments under regulation 14 WTR (set out below), which deals with the position where the employment relationship is terminated. In each case the Employment Tribunal upheld their claims, calculated the compensation due in accordance with the formula in Regulation 14(3) WTR and awarded Mr Ainsworth £16.14, Mrs Kilic £454.74 and Mr Thwaites £967.14 (there is no dispute about the calculation of the sums awarded).
8.   The employer appealed each of the decisions to the EAT. The EAT dismissed the appeals, stating that it was inappropriate to overrule recent EAT decisions, all of which were against the employer's arguments. The EAT granted permission to appeal to the Court of Appeal.
9.   The Court of Appeal (Kennedy, Laws and Maurice Kay LJJ), hearing all of the cases together, allowed the employer's appeal in each case. It held (amongst other things) as follows:

    (1)  In the case of Mrs Khan, the Court of Appeal accepted the submission of the employer that a worker cannot take annual leave for the purpose of regulation 13 during a period in which the worker is absent on sickness leave and is consequently not under an obligation to work.

    (2)  In the cases of Mr Ainsworth, Mr Kilic, and Mr Thwaites, the Court of Appeal accepted the employer's argument that, for the purpose of calculating the compensation due on termination under regulation 14, if a worker had nil entitlement to take annual leave under regulation 13 because he or she was absent because of sickness, then he or she was not entitled to a compensation payment under regulation 14.

10.   The employees all appealed to the House of Lords. After hearing counsel for the parties, the House decided that the cause should be referred to the Court of Justice for a preliminary ruling to enable it to dispose of the appeals.

    The Community Legal Provisions

11.   Directive 2003/88/EC provides as follows:-
"Article 1 - Purpose and scope

(1)  This Directive lays down minimum safety and health requirements for the organisation of working time.

…

    Article 7 - Annual leave

    (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.

…

    Article 15 - More favourable provisions

    This Directive shall not affect Member States' right to apply or introduce laws, regulations or administrative provisions more favourable to the protection of the safety and health of workers or to facilitate or permit the application of collective agreements or agreements concluded between the two sides of industry which are more favourable to the protection of the safety and health of workers."

    The National Legal Provisions

12.   Regulations 13 and 16 WTR implement Article 7(1) of Directive 2003/88/EC in the United Kingdom, and, in part also, Article 7(2) of the Directive. They provide as amended by the Working Time (Amendment) Regulations 2001 (SI 2001/3256) (so far as material) as follows:-

    "13(1)  Subject to paragraph (5), a worker is entitled to four weeks' annual leave in each leave year.

…

    (5)  Where the date on which a worker's employment begins is later than the date on which (by virtue of a relevant agreement) his first leave year begins, the leave to which he is entitled in that leave year is a proportion of the period applicable under paragraph (1) equal to the proportion of that leave year remaining on the date on which he employment begins.

…

    (9)  Leave to which a worker is entitled under this regulation may be taken in instalments, but -

    (a)  it may only be taken in the leave year in respect of which it is due, and

    (b)  it may not be replaced by a payment in lieu except where the worker's employment is terminated.

…

    16(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."

13.   The calculation of the amount of "a week's pay" is specified in legislation. In broad terms, it equates to the worker's normal weekly earnings.
14.   In order to exercise his entitlement to annual leave under Regulation 13 WTR, a worker is required to give prior notice to his employer in compliance with Regulation 15 WTR. This provides (so far as material) as follows:-

    "(1)   A worker may take leave to which he is entitled under regulation 13 on such days as he may elect by giving notice to his employer in accordance with paragraph (3), subject to any requirement imposed on him by his employer under paragraph (2).

    (2)   A worker's employer may require the worker -

    (a)  to take leave to which the worker is entitled under regulation 13; or

    (b)  not to take such leave,

      on particular days, by giving notice to the worker in accordance with paragraph (3).

    (3)   A notice under paragraph (1) or (2) -

    (a)  may relate to all or part of the leave to which a worker is entitled in a leave year;

    (b)  shall specify the days on which leave is or (as the case may be) is not to be taken and, where the leave on a particular day is to be in respect of only part of the day, its duration; and

    (c)  shall be given to the employer or, as the case may be, the worker before the relevant date-

    (4)   The relevant date, for the purposes of paragraph (3), is the date-

    (a)  in the case of a notice under paragraph (1) or (2)(a), twice as many days in advance of the earliest day specified in the notice as the number of days or part-days to which the notice relates; and

    (b)  in the case of a notice under paragraph (2)(b), as many days in advance of the earliest day so specified as the number of days or part-days to which the notice relates."

15.   Regulation 14 WTR deals with the position where the employment relationship is terminated. It provides (so far as material) as follows:-

    "(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).

    (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 agreement1, or

    (b)   … 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

      where-

    A  is the period of leave to which the worker is entitled under regulation 13;

    B  is the proportion of the worker's 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."

16.   Regulation 30 WTR creates the remedies in relation to regulations 13, 14 and 16. It provides (so far as material) as follows:-

    "(1)   A worker may present a complaint to an employment tribunal that his employer-

    (a)  has refused to permit him to exercise any right he has under -

      (i)   … regulation 13; or

    (b)  has failed to pay him the whole or any part of any amount due to him under regulation 14(2) or 16(1).

…

    (3)   Where an employment tribunal finds a complaint under paragraph (1)(a) well-founded, the tribunal -

    (a)  shall make a declaration to that effect, and

    (b)  may make an award of compensation to be paid by the employer to the worker.

    (4)   The amount of the compensation shall be such as the tribunal considers just and equitable in all the circumstances having regard to -

    (a)  the employer's default in refusing to permit the worker to exercise his right, and

    (b)  any loss sustained by the worker which is attributable to the matters complained of.

    (5)  Where on a complaint under paragraph (1)(b) an employment tribunal finds that an employer has failed to pay a worker in accordance with regulation 14(2) or 16(1), it shall order the employer to pay to the worker the amount which it finds to be due to him."

    Summary of the Arguments

17.   The arguments of the parties before the House of Lords are based to a considerable extent on the interpretation of WTR rather than of Directive 2003/88/EC. This is particularly the case in relation to regulation 14 WTR, which is concerned with the position on termination of employment. In that regard, Article 7(2) of the Directive provides only that "the minimum period of annual leave may not be replaced by an allowance in lieu, except where the employment relationship is terminated". However, both the workers and the employer rely on the Directive, and on the proper interpretation of Article 7 of the Directive in particular, in support of their arguments.
18.   The workers argue (i) that a worker may designate a period as annual leave, even though the worker has sickness leave extending to that period, and (ii) that regulation 14 WTR means that there can be no discount to the payment on termination on account of sickness absence. As to Article 7, the right to annual leave under the Directive is an important social right from which there can be no derogations: see R (Broadcasting, Entertainment, Cinematograph and Theatre Union) v Secretary of State for Trade and Industry (Case C-173/99) [2001] ICR 1152, ECJ. A worker absent on sickness leave owes an obligation to return to work if he or she recovers, and may owe other obligations to his employer. Such a worker, in common with any other worker, is entitled to designate a future period as rest and to take holiday then, even though he is or expects to be sick during that period. Moreover, if a worker can only take annual leave under Article 7 during a period when he is under an obligation to work or to make himself available for work, many workers in the UK will be excluded from the social right. This is because as a matter of UK law many workers (often termed "casual workers") do not owe an obligation to work for any particular future period but are engaged to work as required. In addition, the workers contend that a Member State has a discretion to determine how the allowance under Article 7(2) is calculated and that regulation 14 WTR precludes any discount on account of sickness absence.
19.   The employer argues, in summary, that paid annual leave can be taken only during a period in which the worker would otherwise be obliged to work (or make himself available for work) and cannot therefore be taken (whether at the request of the worker or the employer) during a period when the worker would in any event be off work on sick leave. Otherwise, the time taken off would not be "leave". It is contended that this corresponds with the purpose of the Directive, which is related to health and safety. According to the employer, the purpose of the annual leave provisions in Article 7 is to ensure that workers have an opportunity to rest from their labours, and this purpose is satisfied only if annual leave is taken during a period when the worker owes an obligation to work or to make himself available to work. Further, the employer argues that, because regulation 14 WTR should be interpreted in a manner consistent with regulation 13 WTR, a worker should be entitled to compensation on termination of employment only in lieu of leave which he could have taken during the part of the final leave year which expired prior to termination of his employment. Alternatively, the employer contends that it is for the Member State to decide whether or not to provide for an allowance in lieu where the employment relationship is terminated, and to decide how such an allowance (if any) should be calculated.

    The Reasons for the Reference

20.   Given that the application of Article 7 of the Directive to workers who are or have been absent on sick leave is already to be considered by the Court of Justice in relation to Preliminary Reference C-350/06, the issues raised by the present proceedings in the United Kingdom should also be considered by the Court of Justice. These issues overlap with those which arise in Preliminary Reference C-350/06. But they are in some respects different. So the answers given by the Court of Justice in Preliminary Reference C-350/06 may not be determinative of the issues in the present appeal.

    Questions referred

    (1)  Does Article 7(1) of Directive 2003/88/EC mean that a worker on indefinite sick leave is entitled (i) to designate a future period as paid annual leave and (ii) to take paid annual leave, in either case during a period that would otherwise be sick leave?

    (2)  If a Member State exercises its discretion to replace the minimum period of paid annual leave with an allowance in lieu on termination of employment under Article 7(2) of Directive 2003/88/EC, in circumstances in which a worker has been absent on sick leave for all or part of the leave year in which the employment relationship is terminated, does Article 7(2) impose any requirements or lay down any criteria as to whether the allowance is to be paid or how it is to be calculated?

1 Defined in regulation 2(1) as a workforce agreement, a collective agreement or a written contract or agreement - not applicable to the facts of any of the present cases.