Bamsey v Albon Engineering and Manufacturing plc

The Court of Appeal held that regulation 16 of the Working Time Regulations 1998, which entitles a worker to be paid for annual leave "at the rate of a week's pay", incorporates sections 221 to 224 of the Employment Rights Act 1996 and, by necessary implication and express cross-reference in section 223(3), the definition of "normal working hours" in section 234 of the 1996 Act. Consequently, where overtime is payable under the contract only if worked but is not contractually guaranteed (i.e. there is no mutual obligation on employer and employee), those overtime hours do not form part of "normal working hours" for the calculation of a week's pay.

The court rejected the appellants' submission that regulation 16 should be purposively construed in light of Council Directive 92/104 to treat "normal working hours" as the hours an employee actually and regularly worked so as to secure parity between holiday pay and working pay. The Directive leaves the precise conditions and method for calculating holiday pay to national legislation and/or practice and does not require a Member State to provide holiday pay at a level exceeding what the worker is contractually entitled to receive while at work.

Background and parties: The appellants (including Mr Sturge) were employees of the respondent who worked a regular pattern of long working weeks (around 58-60 hours) composed of a contractual basic week of 39 hours plus substantial compulsory but non-guaranteed overtime. During a period of annual leave the employer paid holiday pay based only on the basic 39-hour contractual week. The employees claimed that holiday pay should reflect the overtime-inclusive average earnings.

Nature of the claim and relief sought: The appeal concerned whether holiday pay under regulation 16 of the Working Time Regulations 1998 should be calculated so as to include overtime actually worked (giving an average weekly rate over the preceding 12 weeks) or only contractual "normal working hours" as defined by section 234 of the Employment Rights Act 1996. The appellants sought a construction of regulation 16 that would yield holiday pay reflecting their regular overtime-inclusive earnings.

Procedural posture: The appeal to the Court of Appeal was from a decision of the Employment Appeal Tribunal (27 March 2002) which upheld the Employment Tribunal's conclusion that only the contractual basic hours counted as "normal working hours" for the calculation.

Issues framed: (i) The meaning of "normal working hours" in ss.221-224 of the Employment Rights Act 1996 for the calculation of "a week's pay"; (ii) Whether that meaning applies to regulation 16 of the Working Time Regulations 1998; (iii) Whether a purposive construction required by Directive 92/104/EC compels inclusion of regularly worked overtime when calculating holiday pay; and (iv) Whether sections 221-224 are workable without section 234.

Court's reasoning: The court analysed the statutory scheme in Part XIV of the 1996 Act and concluded that section 234 is the definitional provision for "normal working hours" throughout the Act, supplying the necessary clarity where overtime is involved. Regulation 16 expressly incorporated sections 221-224 of the Act to determine "a week's pay" and, by necessary implication and by the express reference in section 223(3), also incorporated the definitional reach of section 234. The court further held that the Working Time Directive did not require a different domestic construction: Article 7 guarantees an entitlement to paid leave but leaves the conditions and method of payment to national law or practice, so regulation 16's approach did not frustrate the Directive. The court also rejected policy arguments of likely abuse and concluded that the statutory scheme was intended to and does provide legal certainty.

Appeal dismissed. The Court of Appeal concluded that regulation 16 of the Working Time Regulations 1998 incorporates sections 221 to 224 of the Employment Rights Act 1996 and, by necessary implication and the express reference in section 223(3), the definition of "normal working hours" in section 234. Accordingly, overtime which is not contractually guaranteed (mutual obligation to provide and perform it) is not part of "normal working hours" for calculating a week's pay for holiday purposes; the Directive did not require a contrary domestic construction.

On appeal from the Employment Appeal Tribunal (decision dated 27 March 2002). The Court of Appeal ([2004] EWCA Civ 359) dismissed the appeal.