Appeal No.UKEAT/0657/03/SM

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	                   At the Tribunal
	      On 18 November 2003
Judgment delivered on 13 January 2004

Before
HIS HONOUR JUDGE PETER CLARK
MR R LYONS
MR M WORTHINGTON

CANADA LIFE LTD	APPELLANT

(1) MR P R GRAY
(2) MR D FARRAR	RESPONDENTS

Transcript of Proceedings

JUDGMENT

Revised

	APPEARANCES

For the Appellant	MR P NICHOLLS
(of Counsel)
Instructed by:
Canada Life Ltd
Legal Department
Canada Life Place
High Street
Potters Bar
Herts  EN6 5BA

	
For the Respondents	MR GIGG
Solicitor
Messrs Ashton Bond Gigg
Solicitors
Pearl Assurance House
Friar Lane
Nottingham
NG1 6BX	

HIS HONOUR JUDGE PETER CLARK

1	On 30 January 2003 the two Applicants, Mr Farrar and Mr Gray, presented Originating Applications to the Employment Tribunal alleging that, as Commission Agents with the Respondent, Canada Life, they had not received holiday pay to which they were entitled under the provisions of the Working Time Regulations 1998 (WTR) from the date on which those Regulations came into force, 1 October 1998 until the termination of their respective engagements with the Respondent on 31 October 2002.  Mr Farrar had commenced his engagement with the Respondent, or its predecessor, in 1968; Mr Gray in 1975. 

2	The claims were resisted.  Before an Employment Tribunal sitting at Nottingham under the Chairmanship of Mr J Threlfell on 29 April 2003 the Respondent took three points; that the Applicants were not workers within the meaning of WTR; that they had not taken holiday as required by the Regulations and thirdly that the claims were time-barred.  The Tribunal, by a Decision with Extended Written Reasons (EWR) promulgated on 16 May 2003, rejected each of those arguments, upheld the Applicants’ claims of unlawful deductions from wages and awarded Mr Farrar £19,107.14 and Mr Gray £30,078.32, those sums respectively being agreed as a calculation between the parties subject to liability.  It was common ground that throughout the relevant period, 1 October 1998 - 31 October 2002, neither Applicant had received any holiday pay.  

3	This appeal by the Respondent focuses on the Tribunal’s findings that it was unnecessary for the Applicants to take their holiday entitlement and that the claims were not time-barred.  The Tribunal’s finding that they were “workers” within the meaning of Regulation 2(1) WTR is not challenged.  

4	Both Applicants were self-employed consultants engaged by the Respondents under the terms of a commission only agreement which did not provide for holiday pay.  Neither had taken holidays during the month of September and October 2002.  The last commission payments made to the Applicants were on 20 October 2002, for the month of September 2002; 20 November 2002 for the period 1 - 25 October and 20 December 2002 for the final period of work up to 31 October.  

5	Having found that the Applicants were workers within the meaning of WTR the Tribunal dealt with both issues in this appeal at paragraphs 27 - 28 EWR.  They had earlier referred to various provisions of WTR and sections 13 and 23 of the Employment Rights Act 1996 (ERA) under which these complaints were brought.  Their reasoning was as follows:

“27  We turn then to the issue of whether these applications were brought in time which is linked with the secondary issue of whether it is necessary to take holiday to have entitlement to pay for that holiday.  No issue was raised before us to show that it was not practicable for the complaints to have been presented within three months of the payment for the last holiday.  The difficulty we are in here is that there is conflicting authority.  The most direct authority on the point is the decision in List Design Group”  
[List Design Group -v- Douglas & Others [2002] ICR 686 ]
“It is on exactly the same point that is before us, which is whether the applicants’ claim for the entitlement to holiday is a justifiable claim or whether it is necessary for the applicants to have taken holiday without pay.  The decision in that case was that it is the entitlement to holiday and, specifically, not the taking of it.  There is the contrary authority of the Scottish case in MPB Structures Ltd -v- Munro.”
[MPB Structures Ltd -v- Munro [2003] IRLR 350 (CS)]
“We accept that we are bound by an Employment Appeal Tribunal decision in Scotland, but we are not bound by a Court of Sessions decision.  On the wording of the Court of Session decision, although we have not seen the EAT decision itself, it indicated the Employment Appeal Tribunal said that holiday pay should be paid as and when holiday is taken.  However, the issue was a different point relating to the rolling up of holiday pay into the total pay rather than the specific period of holiday.  Similarly, with the Kigass case”
[Kigass Aero Components Ltd -v- Brown [2002] ICR 697]
“it is clear that the comment about the need to give notice for holiday and to take holiday was an obiter comment.
28  Accordingly, despite the strength of the contrary views, as an Employment Tribunal we consider that we are bound by the decision in List Design Group -v- Douglas.  On that basis the entitlement to holiday pay lasted up to work done on 31 October 2002 for which payment should have been made.  Even if payment was made at that date the application is in time and as payment for that period was due on 20 December 2002 it would still have been in time.  We are satisfied that these complaints are in time and the third point of whether notice should be given also falls under the same decision.  Clearly the deductions from wages in respect of holiday entitlement are a series of deductions from the inception of the Working Time Regulations until at least 31 October 2002.”

6	It is convenient to take the issues raised by Mr Nicholls, on behalf of the Respondent, Canada Life, in the following order:
(1) Is it necessary for a worker to actually take his holiday entitlement in order to claim holiday pay subsequently;
(2) were these claims time-barred;
(3) was the Tribunal wrong to link the first two issues?

First question
7	It was submitted by Mr Nicholls that a conflict arises between the EAT judgments in Kigass (Lindsay P presiding) and List Design [Bell J presiding).  

8	Kigass was heard on 19 January 2002 and judgment delivered on 25 February.  Meanwhile List Design was heard and judgment then delivered on 22 January 2002.  It is apparent that neither division of the EAT was aware of the other’s involvement in this issue.

9	In the case of List Design Group -v- Catley the point arose for determination.  It was argued on behalf of List Design that Regulation 16(1) WTR, read with Regulation 13(9)(b) precluded a claim for unlawful deductions from wages under section 23 ERA where the worker had not taken the holiday entitlement in respect of which holiday pay was said to be unpaid.  

10	Regulation 16(1) provides:
“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”
By Regulation 13: 
“(1) …….. a worker is entitled to four weeks’ annual leave in each leave year.
….
   (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.”

11	The EAT in List Design rejected those submissions (judgment paragraphs 41 - 45), reasoning (1) that the worker was entitled to four weeks’ paid leave per annum; the right to holiday pay was not dependent on leave actually taken and (2) Regulation 13(9)(b) was directed to the vice of an employer persuading workers to take money instead of holiday (the purpose of the Regulations, we would add, being to promote health and safety at work by ensuring that workers take holidays).  

12	In contrast, the point did not arise directly for determination in Kigass.  In each of the three conjoined appeals, of which Kigass was the lead case, the three applicants were all workers employed by their respective employers throughout the relevant leave years; however, each had been absent from work on grounds of sickness throughout the year.  The issue was whether, in those circumstances, the worker was entitled to be compensated for leave related to a period of sick absence.  The EAT held that each was.  

13	In the course of a general review of the Regulations the President proffered the view (Judgment, paragraphs 8,12) that the effect of Regulation 13(9) was that there is no right to holiday pay where the entitlement to annual leave is not in fact exercised and that right must be exercised in the appropriate leave year, failing which the right to that leave expires.  Further, by Regulation 15, which provides for the dates on which leave to which the worker is entitled under Regulation 13 is taken, he has to give his employer notice in accordance with Regulation 15(4)(a) specifying the date on which leave is to be taken in order to exercise his right to (paid) annual leave.  

14	Mr Nicholls invites us to apply the President’s approach in Kigass to the facts of this case; Mr Gigg urges us to follow that of the EAT in List Design and uphold the conclusion of this Employment Tribunal, that the claims of these Applicants were not dependent upon them having taken four weeks’ actual leave during the relevant holiday years, beginning with 1 October 1998 when the Regulations came into force.  

15	Having considered the earlier cases and the submissions of Mr Nicholls and Mr Gigg, developed before us, we agree with Mr Gigg that the Employment Tribunal’s conclusion ought to be upheld for the following reasons; 

(1)  The observations by Lindsay P in Kigass (paragraphs 8, 12) were not strictly necessary for the determination of the issues in those appeals.  His remarks were obiter or per curiam as the approved headnote in the ICR law report confirms.  Conversely the reasoning of the EAT in the case of Catley -v- List Design (paragraphs 41 - 45) forms a necessary part of the decision in that case.  As a matter of general principle and insofar as any conflict actually exists we prefer to follow the reasoned decision of one division to the obiter comments of another division of the EAT, particularly where each proceeded in ignorance of the other’s involvement in the issue, whilst recognising that we are not strictly bound by either approach.  
(2) As a matter of independent statutory construction we adopt the approach of Bell J in List Design, on the particular facts of the present case.  As to the conflict between List Design and Kigass in our judgment the fallacy of Mr Nicholls’ submissions purportedly based on the President’s approach in Kigass, is to equate the worker’s entitlement to paid leave during the employment with a claim for unlawful deductions from wages based on his entitlement to that paid leave following termination of the employment.  

In the case of the former, Lindsay P correctly pointed out that 
(a) under Regulation 13(9)(a) the entitlement to four weeks’ paid leave could not be carried forward, in whole or in part, to the next holiday year.  Thus a worker who takes two weeks’ paid leave only in year one cannot claim entitlement to six weeks’ paid leave under the Regulations in year two;
(b) in order to exercise his right to leave entitlement under Regulation 13(1) during any leave year the worker is required to give notice of his holiday dates in accordance with Regulation 15, and
(c) he cannot, during the employment, claim entitlement of pay in lieu of leave not actually taken.  That is clear from Regulation 13(9)(b).  

16	However, following termination of the employment the position is quite different, again on the facts of this case.  Here, it was the Tribunal’s finding (EWR paragraph 4) that when the WTR came into force both Applicants enquired of the Respondent whether they would be paid holiday pay and were told that they would not.  In fact, no holiday pay was paid to them throughout the period 1 October 1998 until termination of their employment on 31 October 2002.  In fairness to the Respondent their reason for refusing to allow the Applicants paid holiday was because they believed, we have no doubt genuinely, but, in the event, mistakenly, that the Applicants were not workers within the meaning of the Regulations and were thus not entitled to the protection of the Regulations.  

17	Regulation 14 makes express provision for pay in lieu of leave to which the worker was entitled pro rata, but had not taken, in circumstances where his employment is terminated during the course of the holiday year.  We shall return to that provision later in this judgment in a different context.  

18	However the claims of these Applicants were not brought under Regulation 30(1) of the Regulations but under the provisions of Part II ERA.

19	The distinction between a claim under Regulation 30(1) and that under Part II ERA was considered by the EAT in List Design.  It was there argued on behalf of the employer that the claims could only be properly brought under Regulation 30 and not Part II of the Act.  The EAT rejected that submission, as did the Employment Tribunal below.  On this aspect of the case Bell J held (paragraphs 30 - 31) that the sums of holiday pay claimed fell within Part II ERA in that:
(a) the sums were payable not under the workers’ contracts, but “otherwise” for the purposes of section 27(1)(a), that is under WTR and
(b) constituted holiday pay within that definition of wages for the purposes of a complaint of unlawful deductions brought under section 23(1)(a), read with section 13 (prohibition on an employer making an unauthorised deduction from wages).  

Further, the EAT held that by withholding holiday pay the employers made unlawful deductions from wages within the meaning of section 13(1).  That is precisely the position in the present case.  

20	It follows, in our judgment, that there is no conflict between Kigass and List Design, properly understood.  The President’s observations in Kigass relate to the position during employment, with which we are not concerned in the present case; List Design deals with the position following termination with which we are concerned and we shall follow the approach of Bell J in that case.  

(3) As a matter of policy we are fortified in the construction which we favour, following the EAT’s reasoning in List Design.

21	WTR implements Council Directive 93/104/EC on Working Time.  That directive is a health and safety provision.  It is designed to ensure, by the requirement on employers to give their workers paid holiday leave, that a worker is not disinhibited from taking holidays, necessary for his health, because he would otherwise lose money where his employer would not permit paid holidays under the contract of employment or contract for services.  

22	However, balancing the interests of the employer, the worker’s entitlement to paid leave during employment is circumscribed.  By Regulation 15 he must give proper notice of when he wishes to take that holiday; otherwise the orderly organisation of the employer’s affairs may be damaged.  The entitlement is limited to four weeks’ paid annual leave; if he wants more holiday it will not be paid holiday, absent contractual agreement.  He is discouraged from not taking his full holiday entitlement by the express prohibition on an employer making payment in lieu of holiday (Regulation 13(9)(b).  He cannot save up his paid leave entitlement in one year and demand it as accrued paid leave in a subsequent holiday year.  All of these measures are directed to this simple proposition; workers need their annual holidays in the interests of their health.  

23	However, what is the position where, as here, the employer refuses to permit paid leave, as required by WTR?  If the worker wishes to keep his job he must, during the employment, put up with that state of affairs.  But if protected by the Regulations he is thereby deprived of paid holidays.  Following termination of the employment the provisions applied during employment, designed to regulate holiday arrangements between employer and worker, cease to be relevant.  Now, the only questions are:
(a) has the employer made unlawful deductions from wages, in the form of unpaid holiday pay to which the worker was entitled, not under the contract of employment or for services but “otherwise” (that is, under the Regulations);
(b) if so, is the claim time-barred?

24	We answer the first question in the affirmative for reasons earlier given.  To the second question our answer is as follows:

Second question
25	Given that these claims were properly brought under Part II ERA the relevant provisions are to be found in section 23.  They are, so far as is material:
“(2) …… an employment tribunal shall not consider a complaint under this section unless it is presented before the end of the period of three months beginning with -
(a) in the case of a complaint relating to a deduction by the employer, the date of payment of the wages from which the deduction was made
…
(3) Where a complaint is brought under this section in respect of - 
	(a) a series of deductions or payments
……
the references in subsection (2) to the deduction or payment are to the last deduction or payment in the series ……”

It was not suggested in this case that it was not reasonably practicable for the Applicants to present the complaints within time (see section 23(4) ) EWR paragraph 27. 

26	The issue in this case is whether the Respondent made a series of deductions, starting during the first holiday year commencing on 1 October 1998 and ending within the period of three months preceding presentation of the Applicant’s complaints to the Employment Tribunal on 30 January 2003.  Mr Nicholls directs his attack on the Tribunal’s affirmative answer to that question (EWR paragraph 28) to the end of that period.  

27	He submits that since the Applicants took no actual holiday during the months of September and October 2002 there was no holiday pay due when payments of wages were made on 20 November.  Accordingly there was no unlawful deduction from wages during the three months preceding presentation of the Applicants’ complaints.  

28	We have earlier held, following List Design, that it is unnecessary for actual holiday to be taken in order to claim arrears of holiday pay.  On that basis, no holiday pay having been made during the holiday year ending 30 September 2002, there was a series of deductions up until that date at least. The real question is whether a further deduction or deductions in that same series took place thereafter and within the limitation period prescribed by section 23(2) ERA.  

29	The Tribunal found that the Applicants’ entitlement to holiday pay lasted up to work done on 31 October for which payment should have been made.  Even if payment was made at that date the applications were in time and as payment for that period was due on 20 December 2002 it would still have been in time (EWR paragraph 28).  

30	Mr Nicholls submits that in so finding the Tribunal misunderstood the decided cases.  First, he submits that, in the absence of a contractually agreed term for “rolled up” holiday pay (cf Marshalls Clay Products -v- Caulfield [2003] IRLR 552) holiday pay is due only when holiday is actually taken.  MPB Structures Ltd -v- Munro.  

31	Since there was no contractual agreement for holiday pay at all in this case it is unnecessary for us to consider the conflict on this latter question arising from the EAT decision in Marshalls Clay and the earlier Court of Sessions decision in Munro.  We would simply observe that those cases were concerned with whether holiday pay was payable in circumstances where it was contended by the employer that it had been paid as part of a “rolled up” rate of pay to include ordinary pay and holiday pay.  In the present case it is common ground that no holiday pay was paid by Canada Life throughout the Applicants’ employment.  

32	Mr Nicholls points out that in List Design -v- Catley, the EAT found that Mr Catley’s last day of unpaid holiday was 1 September 2000, which was within the three month time limit ending on the date of presentation of his Originating Application, 8 November 2000.  It follows, he submits, that contrary to this Employment Tribunal’s finding that it was bound by List Design to hold that since the Applicants’ entitlement to holiday pay continued until 31 October 2002, failure to make payment for holiday on 20 December amounted to an unlawful deduction, even if the ending of the contract did not itself trigger a deduction, List Design decides nothing of the sort.  

33	In our judgment the Tribunal correctly found that there was an unlawful deduction on 20  December ( and/or 20 November), both within time, but we arrive at that conclusion by a different route.  

34	In opening his appeal Mr Nicholls took us to various provisions of WTR which he submitted were relevant, in addition to the provisions of ERA.  He omitted mention of Regulation 14.  We enquired whether that provision had any bearing on this case.  He responded, correctly, that its application was not argued below; indeed, the Employment Tribunal omit that provision from their recital of the WTR provisions (EWR paragraph 22).  Mr Gigg accepted that this was the case.  

35	However, following discussion as to its possible relevance Mr Gigg applied to take the point in support of the Tribunal’s Decision that under Regulation 14(2) the Applicants were entitled to that proportion of the year’s holiday pay attributable to the period 1 - 31 October 2002 by way of pay in lieu of leave.  That payment became due on 20 November and 20 December, when wages, by way of commission, were paid by the Respondent for October; no payment in lieu of leave was then made; those were unlawful deductions from wages due under the WTR; those deductions form part of the series stretching back to 1 October 1998.  Accordingly the complaints brought under section 23 ERA and presented on 30 January 2003 were in time.  

36	Mr Nicholls opposed that application.  He took what is often referred to as the Kumchyk point; that is to say a party to an appeal before the EAT will not be permitted to take a new point of law, not raised before the Employment Tribunal, save in exceptional circumstances.  Kumchyk -v- Derby City Council [1978] ICR 1116.

37	We considered that application.  We accepted the proposition of law advanced by Mr Nicholls by reference to Kumchyk and later cases.  We also accepted that the principle applied to respondents to an appeal as well as appellants.  Hellyer Brothers Ltd -v- McLeod [1987] ICR 526, 560-570, per Ralph Gibson LJ.  

38	However, we took into account the fact that the new point related to a jurisdictional question, whether or not these claims were in time.  Dedman -v- British Building and Engineering Appliances Ltd [1974] ICR 53.  We acknowledge that the mere fact that the point goes to the Tribunal’s jurisdiction will not of itself allow the point to be taken for the first time on appeal (cf House -v- Emerson [1980] ICR 795; Russell -v- Elmdon Freight Terminal Ltd [1989] ICR 795).  The true position is, we think, explained by the Court of Appeal in Glennie -v- Independent Magazines (UK) Ltd [1999] IRLR 719.  

39	In Glennie Laws LJ summarised the position in this way (paragraph 18):
“A new point ought only to be permitted to be raised in exceptional circumstances …… If the new issue goes to the jurisdiction of the Employment Appeal Tribunal (sic) below, that may be an exceptional circumstance, but only, in my judgment, if the issue raised is a discrete one of pure or hard edged law requiring no or no further factual inquiry.”

Brooke LJ (paragraph 16) referred to “an obvious knock out point”.  

40	Applying that guidance we concluded:
(1) the Regulation 14(2) point, as formulated above, went to a jurisdictional issue;
(2) it involved a discrete and hard-edged point of law;
(3) no further factual enquiry was required;
(4) it was a potential knock-out point in favour of the Applicants.

41	In these circumstances we permitted Mr Gigg to take the new point, having first offered Mr Nicholls a two hour adjournment in order to consider it.  

42	On resumption of the hearing Mr Nicholls argued first, by analogy with the House of Lords decision on pay in lieu of notice in Delaney -v- Staples [1992] ICR 483, that the remedy granted by Regulation 14(2), pay in lieu of leave, did not represent a payment of wages for the purposes of section 27(1)(a) ERA.

43	We cannot accept that submission.  As we understand the House of Lords reasoning in Delaney -v- Staples a payment in lieu of notice following summary termination of the employment by the employer is not a payment of wages, rather damages for wrongful dismissal paid not in connection with the employment but rather with its termination; the notice entitlement following the date of termination.  

44	By contrast, although Regulation 14(2) speaks of pay in lieu of leave, it relates to past leave entitlement during the employment, payment for which is only permitted following termination of the employment as compared with the prohibition on making payment in lieu of holiday during the employment (Regulation 13(9)(b) ).  It is therefore properly to regarded as holiday pay within the meaning of section 27(1)(a) ERA.  It is also, we think, significant that the Court of Appeal decision in Delaney -v- Staples [1991] IRLR 112, that outstanding holiday pay in that case fell within the definition of wages and a failure or refusal to pay it amounted to an unlawful deduction for the purposes of what is now Part II ERA, was not disturbed on further appeal.  By parity of reasoning we hold that unpaid pay in lieu of leave under Regulation 14(2) is similarly capable of giving rise to a claim for unlawful deductions,

45	In so concluding we also reject Mr Nicholls’ further submission that the remedy for pay in lieu of leave due under Regulation 14(2) is actionable only under Regulation 30(1)(b) of WTR.  We repeat the reasoning of the EAT in List Design, paragraphs 30 - 31.  

46	Mr Nicholls’ next point was that for section 23(3)(a) ERA to apply there must be a series of deductions.  Whereas no payment of holiday pay for the holiday years commencing on 1 October 1998 and ending on 30 September 2002 may, subject to his earlier arguments which we reject, constitute a series, the “Regulation 14(2)” payment in lieu of leave does not fall within that same series.  We cannot see why not.  The simple fact is that this employer failed or refused to pay any holiday pay from the introduction of the WTR to the termination of the Applicants’ employment on 31 October 2002.  There was a continuous series of deductions from wages (holiday pay) throughout that period, ending with the final payment of wages for the month of October 2002 on 20 November and 20 December 2002.  

47	It follows, in our judgment, that Mr Gigg is correct in submitting that there was here a series of deductions from wages ending on 20 December 2002.  The complaints were presented within time.  
Third question
The Tribunal’s elision of the time issue and the question of the Applicants’ entitlement to holiday pay.  

48	Insofar as this was a separate argument advanced by Mr Nicholls we reject it for the reasons already given.  The Tribunal were right to conclude that having found that the Applicants’ entitlement to holiday pay arose whether or not they took actual holiday, as to which no findings of fact were made save in respect of September and October 2002, it followed that there were here unlawful deductions from wages.  The linked question then arose whether there had been a series of deductions, the last of the series being within the three month limitation period.  

Conclusion
49	It follows that we shall dismiss this appeal.  We do so without regret.  If Mr Nicholls’ submissions were correct it would mean that an employer who refused to acknowledge a worker’s entitlement to paid leave under the Regulations throughout his employment would escape liability for compensating the worker for that breach of his statutory rights.  That cannot be and is not correct for the reasons we have given.