Clarke v Frank Staddon Ltd.

Article 7 of the Working Time Directive 93/104/EC does not require holiday pay to be paid when annual leave is taken. A transparent contractual arrangement may incorporate an identified amount or percentage for holiday pay into ordinary remuneration.

The decisive question is whether the arrangement creates reasonable conditions for enjoying paid leave or places barriers which prevent or substantially inhibit its reasonable enjoyment. A properly negotiated collective agreement strongly indicates legitimacy. An English court is not bound by a Scottish court’s decision through the common law doctrine of precedent, although comity and practical consistency ordinarily favour following an indistinguishable decision.

Two conjoined appeals concerned contractual arrangements under which holiday pay was incorporated into workers’ hourly or daily remuneration. In the Caulfield appeal, the arrangement arose from a collective agreement and identified 13.36% of remuneration as holiday pay. In Clarke, the worker’s contract stated that holiday pay was included in his daily rate, but questions remained about when a specific attribution was first made.

The Employment Appeal Tribunal held that an identified sum or percentage could lawfully be paid on an accruing basis rather than during a particular period of leave. It allowed the employer’s appeal in Caulfield and remitted Clarke for further factual findings.

The principal issue was whether rolled-up holiday pay violated Article 7 of the Working Time Directive 93/104/EC. A further issue was whether the Employment Appeal Tribunal in England was legally bound to follow MPB Structures Ltd v Munro [2003] IRLR 350, a decision of the Inner House of the Court of Session.

1. Disposition. The appeals failed. The contractual arrangements were compatible with the Working Time Directive 93/104/EC and the Working Time Regulations, subject in Clarke to the Employment Appeal Tribunal’s existing order for remission. Laws LJ delivered the judgment, with which Judge LJ and Charles J agreed.

2. Article 7 creates a twofold entitlement: a worker must receive at least four weeks’ annual leave and must be paid for the period of leave as for periods of work. It does not prescribe when holiday pay must be paid. Payment may therefore be made in advance or in arrears, provided that the worker genuinely receives remuneration attributable to annual leave.

3. The court must examine the practical effect of the contractual arrangement. Conditions and frameworks within which paid leave may reasonably be enjoyed are legitimate. Barriers which prevent or substantially inhibit its reasonable enjoyment are incompatible with Article 7. A contractual provision may therefore be unlawful even without formally abolishing the entitlement if it makes enjoyment sufficiently difficult or problematic.

4. Rolled-up holiday pay does not inherently create such an obstruction. The court disagreed with MPB Structures Ltd v Munro [2003] IRLR 350 insofar as it required payment in association with the taking of leave and treated rolled-up pay as discouraging workers from taking holidays. Workers can ordinarily plan their leave against a transparent system of payment. Where the arrangement results from proper negotiation and a collective agreement, that fact carries great weight in favour of legitimacy, although the court remains the final judge.

5. An employer cannot unilaterally characterise ordinary remuneration as including holiday pay. The allocation must be agreed and identifiable, consistently with Gridquest Ltd [2002] ICR 1206. That requirement was satisfied in Caulfield. Whether it was satisfied throughout the relevant period in Clarke remained for the Employment Tribunal on remission.

6. The common law doctrine of precedent operates within the jurisdiction whose courts administer it. An English court is therefore not legally bound by a decision of the Court of Session, or vice versa. Comity and practical consistency nevertheless mean that employment tribunals will ordinarily expect to follow an indistinguishable decision of the higher appellate court in the other jurisdiction.

1. Court of Appeal (Civil Division): The conjoined appeals were dismissed. The court upheld the Employment Appeal Tribunal’s conclusion that sufficiently transparent rolled-up holiday pay was lawful, while leaving its remission in Clarke undisturbed. The court contemplated making an expedited reference to the European Court of Justice and invited further submissions on that procedural course.

2. Employment Appeal Tribunal: In a composite judgment delivered on 24 July 2003, the tribunal allowed Marshalls Clay Products Ltd’s appeal in Caulfield. It held that a contract identifying a specific sum or percentage as holiday pay could satisfy the Working Time Regulations without payment during a particular holiday. Clarke was remitted for findings about the attribution of holiday pay and continuity of the contractual relationship.

3. Employment Tribunals: The tribunal in Caulfield held the rolled-up scheme unlawful. The tribunal in Clarke held that the agreed inclusion of holiday pay in the daily rate involved no breach.