Her Majesty's Revenue and Customs v Stringer and others

The House held that payments due under the Working Time Regulations 1998 (in particular regulation 14 (payment in lieu of leave on termination) and regulation 16 (payment in respect of periods of leave)) fall within the definition of "wages" in section 27(1)(a) of the Employment Rights Act 1996. Accordingly a failure to pay such sums can amount to an unauthorised deduction under section 13 and be the subject of a complaint under section 23. The House proceeded on ordinary principles of statutory construction of section 27 and, subsidiarily, on the EC law principles of equivalence and effectiveness; the Grand Chamber of the Court of Justice's rulings in the joined references (Cases C-350/06 and C-520/06) supported the conclusion that the regulation 14 payment must be calculated so as to put the worker in the remuneration position he would have been in had he taken the leave.

The appeals concerned whether sums payable under the Working Time Regulations 1998 (WTR), specifically payments in respect of annual leave and payments in lieu of untaken leave on termination (regs 16 and 14), are "wages" for the purposes of Part II of the Employment Rights Act 1996 (ERA) and therefore actionable as unauthorised deductions under s 13 ERA. The claimants were former employees of HM Revenue and Customs who, after long sickness absences, sought payments representing accrued but untaken holiday on termination.

The procedural history was that employment tribunals and the Employment Appeal Tribunal had found for the employees. The Court of Appeal disagreed and held that WTR payments were not within the ERA definition of "wages"; the House allowed appeal, set aside the Court of Appeal and restored the Employment Appeal Tribunal's orders. The House also made and relied on a reference to the Court of Justice, which in joined cases (Schultz-Hoff and Stringer, Cases C-350/06 and C-520/06) gave rulings favourable to the employees concerning calculation and entitlement to pay in lieu where leave could not be taken.

Nature of claim: claims for unpaid holiday pay / payment in lieu of untaken leave and for unauthorised deductions from wages; relief sought was payment of sums due and a declaration that deductions were unlawful.

Issues framed by the court:

• Whether payments under regs 14 and 16 WTR fall within the ERA definition of "wages" (s 27) and so are enforceable under s 13/23 ERA;
• Whether the procedural regime and time-limits in the WTR (reg 30) are exclusive;
• Whether EC law principles (equivalence and effectiveness) required inclusion of WTR payments within ERA remedies.

Reasoning (concise): the House analysed the ordinary meaning of "wages" in s 27(1) and concluded that payments referable to annual leave are emoluments payable in connection with employment and that the words "whether payable under his contract or otherwise" are ambulatory and include statutory payments arising after enactment of the ERA. The House rejected the view that Parliament must have intended to exclude subsequently created statutory rights which have their own enforcement regime. Even on EC law grounds, exclusion would risk infringing the principle of equivalence and effectiveness because comparable domestic remedies for similar claims have at least as favourable limitation regimes. The Grand Chamber's interpretation of the Directive reinforced the characterization of the payment as pay referable to leave.

Appeal allowed. The House held that payments under regulation 14 and regulation 16 of the Working Time Regulations 1998 fall within the definition of "wages" in section 27(1)(a) of the Employment Rights Act 1996; a failure to make such payments can amount to an unauthorised deduction under section 13 and be complained of under section 23. The Court of Appeal's contrary decision was set aside and the Employment Appeal Tribunal's order restored. The reasoning rested on ordinary statutory construction of s 27 and, additionally, on the EC law principle of equivalence and the Court of Justice's rulings in the joined references.

Appeal to the House of Lords from the Court of Appeal (reported at [2005] ICR 1149; [2005] EWCA Civ 441). The Employment Appeal Tribunal and employment tribunal had earlier decided in favour of the employees; the Court of Appeal reversed those decisions and the House of Lords restored the Employment Appeal Tribunal order.