British Airways plc v Williams and others

Paid annual leave for civil aviation crew must carry remuneration corresponding to normal remuneration. It includes payments intrinsically linked to contractual tasks and elements relating to personal or professional status. Payments genuinely and exclusively intended to cover occasional or ancillary employment costs may be excluded.

Variable remuneration should be averaged over a reference period reasonably judged to represent normal work and pay. The employer may select that period in the first instance. If it makes no valid selection, the tribunal may determine an appropriate period. Domestic provisions conferring paid annual leave and tribunal remedies must, so far as possible, be construed consistently with these requirements.

British Airways pilots received a fixed salary, a Flying Pay Supplement and a Time Away from Base allowance. They claimed that the supplementary payments should be reflected in their holiday pay under the Civil Aviation (Working Time) Regulations 2004.

Following the Court of Appeal's decision, [2009] EWCA Civ 281, the Supreme Court referred questions concerning paid annual leave to the Court of Justice. The Court of Justice answered in British Airways plc v Williams (Case C-155/10) [2012] ICR 847.

The resumed appeal concerned whether the domestic Regulations effectively implemented the governing European requirements, how a representative reference period should be chosen, and whether any part of the Time Away from Base allowance represented remuneration rather than reimbursement of costs.

1. Appeal allowed and claims remitted. Lord Mance, with whom Lord Hope, Lord Walker, Lord Clarke and Lord Sumption agreed, held that the claims should return to the Employment Tribunal for determination of the appropriate holiday payments and the treatment of the Time Away from Base allowance.

2. The Court of Justice had established that paid annual leave must place the worker in a position comparable, as regards remuneration, to periods of work. Normal remuneration includes components intrinsically linked to contractual tasks and elements relating to personal and professional status. Components genuinely and exclusively intended to cover occasional or ancillary employment costs may be excluded.

3. The appropriate calculation is based on an average over a reference period reasonably judged to be representative of normal work and remuneration. It is not based on the amount the employee might hypothetically have earned by working during the particular holiday period. The governing European law did not prescribe a particular reference period.

4. The Civil Aviation (Working Time) Regulations 2004 effectively implemented the relevant European requirement by using the same expression, “paid annual leave”. The principles identified by the Court of Justice therefore governed regulation 4. The need to exercise judgment in choosing a representative period did not make the domestic right insufficiently certain.

5. British Airways could choose the reference period in the first instance, provided its choice fell within the reasonable parameters of representativeness. If it made no such choice, it could not complain if a court or tribunal selected the period which best represented the employee's normal remuneration.

6. Regulation 18 was to be read consistently with the Aviation Directive. A refusal to permit the exercise of the right to paid annual leave could include refusal to make the appropriate payment forming part of that right. The Employment Tribunal could award just and equitable compensation for that refusal.

7. The taxable treatment of 18% of the Time Away from Base allowance did not determine whether that proportion was remuneration. The tribunal had to identify the real basis upon which the allowance was agreed and paid. The controlling question was whether it was genuinely and exclusively intended to cover costs. Detailed scrutiny of the precise need for, or reasonableness of, a genuine costs payment was unnecessary, although an obviously excessive payment might cease to bear that character.

1. United Kingdom Supreme Court: Following the Court of Justice's ruling, the appeal was allowed and the pilots' claims were remitted to the Employment Tribunal for further consideration.
2. Court of Justice: On the Supreme Court's reference, British Airways plc v Williams (Case C-155/10) [2012] ICR 847 held that holiday pay must include remuneration intrinsically linked to contractual tasks and elements of personal or professional status, while genuine costs payments may be excluded.
3. United Kingdom Supreme Court: By its judgment of 24 March 2010, the court referred five questions concerning paid annual leave to the Court of Justice.
4. Court of Appeal: The present appeal arose from the decision reported as [2009] EWCA Civ 281.