Devon General Ltd v Seeney [1993] UKEAT 88_92_1301

EAT

Devon General Ltd v Seeney

[1993] UKEAT 88_92_1301 · 1993-01-13

MR JUSTICE KNOX: Devon General Limited, a bus company, appeals a decision of the Industrial Tribunal sitting at Exeter on the 31st October and the 6th December 1991, the decision being sent to the parties on the 23rd December, whereby it held that Mr N J Seeney, Devon General's employee, was entitled to £449.93 accrued holiday pay. That was a decision under the Wages Act 1986 and the jurisdiction to make that finding under that Act was not challenged before us.

Mr Seeney was employed latterly, and principally, as a Public Service Vehicle Driver from the 12th February 1968 until his retirement on attaining the age of 65 on the 8th April 1991. The issue before the Industrial Tribunal and before us, concerns his entitlement at the termination of his employment in April 1991 to payment in respect of one year's entitlement to holiday which he was debarred from taking in the first year of his employment. It is accepted and common ground between the parties that:

(a) the rate of pay applicable to this holiday entitlement is the rate prevailing at the termination of Mr Seeney's employment;

(b) that the number of hours worked per day also falls to be ascertained as at the termination of his employment; but

The actual days of entitlement in the first year of employment was 12 days and in the last year it was of 25 days. There is no dispute about the accuracy of those two figures, the problem is which of the two is the appropriate figure.

The Industrial Tribunal held that as a matter of construction of the contract of employment the entitlement of Mr Seeney to holiday pay was 12 days, but, that Devon General was estopped by convention from asserting that the number of days was anything other than 25. Devon General appeals that decision by way of estoppel and Mr Seeney cross-appeals the decision against him upon the question of construction.

The skeleton arguments which were helpfully submitted on both sides deal first with the question of construction, as is logical, but it is technically the subject of a cross-appeal rather than the appeal. Since we have reached the conclusion that this cross-appeal succeeds, we propose to allow it and that would render the appeal academic.

The history is as follows. The original employers in 1968 were Western National Bus Company, Devon General was part of the Western National Bus Company but at that stage had no separate corporate existence as employer. The employment contract originally, as found by the Industrial Tribunal, incorporated the provisions of the agreement of the National Council for the Omnibus Industry, which I will call "the NCOI", then in force, which was an agreement dated 3rd April 1960 as amended on the 7th April 1966. The Industrial Tribunal quoted the relevant portions:

" 7. Holidays with pay. (a) Annual holidays (i) An employee shall be entitled to proportionate holidays with pay at the rate of one day [6 hours 40 minutes] per month of service provided the employee has completed six months' continuous service.

(ii) An employee who has completed 12 months' continuous service shall be entitled to 12 days' holiday with 80 hours' pay . . . Any employee who has completed 5 years' continuous service shall be entitled to 3 additional days annual holiday. The period of continuous service referred to in this sub-clause must be completed by February 1st."

They then point out that at that stage the Western National holiday year was the calendar year but later it changed to the financial year which they describe as the 1st April to 31st March. The 1st April to 31st March is in fact the correct period, whether it is accurately described as the financial year we need not pause to discuss. They analysed the effect of that agreement in the following terms:

"The effect of the above Agreement was that each employee had to work a period of at least one year up to 1st February in any year before he could take any holiday, but he would be paid for that holiday entitlement which had not been taken, on the termination of his employment."

and they point out that no problem arose when the holiday entitlement was the same at the beginning and the end of the employment but that if and when a difference in those two entitlements arose a problem did come into existence as to which year one took. In fact the holiday entitlement did increase over the years. There is a helpful table in the papers which sets it out in tabular form. The entitlement when Mr Seeney's service started, as already stated, was 12 days, it went up to 15 days in respect of the year from 1st April 1971 to end March 1972 and stayed there until it went up to 17 days in respect of the year 1st April 1975 to 31st March 1976 where it remained until it went up to 20 days for one year between 1st April 1982 to 31st March 1983, it then went up for two years 1983-1984 and 1984-1985 to 22 days, and then finally from 1st April 1985 to the 31st March 1986, it went to 25 days and at that stage it stayed there. It was at that figure when Mr Seeney's employment terminated. The last increase to 25 days, the Industrial Tribunal found, was agreed in 1985 and they found that that was the last year in which the nationally agreed NCOI agreement applied. They also find that those national agreements were silent on how the employee's entitlement for his first 12 months of employment should be calculated on termination, but say in practice, each employee received pay calculated on his holiday entitlement in the year of termination rather than the year when his employment began. Going on with the history, the Industrial Tribunal found that on the 1st January 1983 the Ominibus industry was deregulated. The original Company, Western National, was split into four local companies, one of which was Devon General Limited. On the 15th August 1986 Devon General was privatised. At the time of deregulation, that is to say, in January 1983, it was necessary they found, that clear agreements had to be passed down to the new companies. A Mr Wilf Dennis, who was then in the Respondents' employment, was responsible for producing a computer print-out which put together all of the existing agreements which applied for Western National with any local variations. He was not required, or expected, to provide any amendments but simply to put together the agreements as they existed and as they had been amended in a form of words that the new companies could work to. They then set out the two relevant clauses, one particularly relevant and indeed critical. The less relevant clause is Clause 7:

"Clause 7. Holidays with pay

(A) ANNUAL HOLIDAYS

(i) The period of continuous service referred to in this clause must be completed by 1 February to entitled staff to inclusion in the holiday roster under the Holiday Provisions.

(ii) Employees having completed twelve months continuous service shall be entitled to four weeks and two days holiday, the pay rate being defined in Schedule 5. Two weeks to be taken during the main summer holiday period and the remainder outside the main holiday period.

(iii) On ceasing to be employed, after six months continuous service, an employee shall be entitled to holidays with pay at a rate proportionate to the length of service. The management may withhold or vary this allowance in the case of an employee dismissed for misconduct."

That is the end of that quotation. There is no question of Mr Seeny being so dismissed. Then one gets the other Clause, which is the critical one, on which the case really turns:

" CLAUSE 56 PAYMENT ON TERMINATION

[sub-clauses (i) and (ii) are not material, sub-clause (iii) is]

(iii) In calculating holiday payments the following will be taken into account:-

(a) That where no annual leave with pay was taken in the first year of employment that to counteract this one full years entitlement is due on termination.

(b) That all holidays from the second year of service till the penultimate year have been taken in full except where a period of long term sickness intervenes.

(c) That a holiday entitlement will be made on a pro rata basis for the current year dependent on the months between the anniversary of the date employment commenced and the date of termination.

(d) From the accumulation of the above will be deducted any holiday which has been taken in the current year."

There was a long succession of documents executed in compliance with Section 1 of the Employment Protection (Consolidation) Act 1978, setting out the terms of Mr Seeney's employment. They really fall into three categories. The first category starts as at the 1st June 1976, it was signed in fact on the 23rd September 1976 by Mr Seeney under a statement:

"I acknowledge receipt of a copy of this Statement of Contract of Employment"

and so far as holidays were concerned it said:

"4. Holidays

Your entitlements to annual and public holidays and holiday pay are in accordance with the Agreement between the Company and the National Union of Railwaymen as set out in the schedule of Conditions of Service available for reference at your depot office. Any future change in the agreed entitlement will be recorded in that copy."

Identical documents, so far as those provisions are concerned, were signed by Mr Seeley on the 21st July 1977, 3rd August 1978 and the 2nd October 1982. They were all before the NCOI Agreement had ceased to be operative nationally and they were all pre-deregulation. It is not necessary to repeat their terms.

The second category is those that were signed by Mr Seeney, post deregulation but before privatisation. They were signed at a time when Devon General was the employer and they all state that Mr Seeney's employment with the Company began on the 1st January 1983 but they give as a period of continuous employment the period starting with the date, when he joined Western National. These were all signed at a time when Mr Dennis, who it will be recalled had been entrusted with the task of consolidating the relevant agreements had done his work. The first one was dated the 10th March 1983 which is some three months thereafter. They all contain the same turn of phrase with regard to holidays as the first category and I need not read it again. Again, the statements all have at the end the phrase:

"I acknowledge receipt of a copy of this statement of Contract of Employment."

and those were signed by Mr Seeney on the 10th March 1983, 16th August 1983 and the 2nd December 1985. That takes us to the third category of the documents recording the terms of employment where one finds some quite significant differences. They were all post privatisation as well as post deregulation. The first one contains a definition clause which reads as follows:

"In this Statement the `Appropriate Trade Union' shall mean NUR and the `Union Agreement' shall mean the agreement between the Company and the Appropriate Trade Union governing terms and conditions of employment current from time to time a copy of which is available for reference at your Depot Office."

The provision with regard to holidays read as follows:

" 7. Holidays

Your entitlement to annual and public holidays and holiday pay (including accrued holiday pay on termination of employment) are set out in the Union Agreement."

Clearly, the Union Agreement, in that context, refers one back to the initial definition and the Industrial Tribunal found as a fact, although the matter was a subject of argument before them, that the Union Agreement as thus defined was the agreement prepared by Mr Dennis which I have mentioned. The signature by Mr Seeney of this type of agreement was preceded by this:

"I acknowledge receipt of a copy of this Statement of Terms and Conditions of Employment and accept its terms:"

He signed two of those one on the 11th December 1986 and another on the 13th April 1989, there is no significant reference between the terms of those two documents and they continued to regulate the position between the parties when his employment came to an end. The only other thing that needs to be mentioned is that the covering letter which sent the version that he signed on the 11th December 1986, was in evidence before the Industrial Tribunal. It contained so far as material this:

"December 1986

Dear Colleague

CONTRACTS OF EMPLOYMENT

I attach in duplicate your Contract of Employment with the Company. Please sign both copies retain the top copy for yourself and return the second copy to your local depot for retention on your personal record folder.

The Contract of Employment has been updated to reflect recent changes in legislation and Company Pension arrangements but has not changed established conditions of service as agreed with the appropriate Trade Union."

and then there were various points made by way of clarification of several clauses none of which included the clause relating to holiday or holiday pay.

The Industrial Tribunal found, and it is not disputed, that the conditions of employment of Mr Seeney incorporated that Clause 56 of Mr Dennis' Agreement so that it had contractual force as between the parties before us. Finally, so far as the facts are concerned in relation to the relationship between the parties the Industrial Tribunal somewhat elaborated a passage, which I have already read about the practice that prevailed, in paragraph 12 of their Decision where they said this:

"In the respondent's and their predecessor's case, [that is to say of course, in Devon General's and Western National as the predecessor of Devon General's case] since the holiday entitlements were increased, `the lost year' at the beginning of employment has been compensated for at the end by reference to the holiday entitlement at that time. The practice has been to pay to each employee the proportion of a year for which he was not entitled to take holiday, for which he worked at the beginning of his employment up to the relevant 1st February. That proportion has then been multiplied by the holiday entitlement for the year when employment ceases, at the rate of pay applicable at that time. That is the arrangement which the respondents and their employees worked to for some 18 years - that is from 1971 when the holiday entitlement was first increased, until the matter was looked into and Clause 56 studied carefully by a Mr Kitchingham in 1989."

It is clear that that last date is slightly wrong because Mr Kitchingham, on the evidence before the Industrial Tribunal, which was not challenged took over early in 1990, but nothing turns on this. It is quite clear that Mr Kitchingham's investigation of the matter led to his forming the conclusion that the entitlement had been inaccurately calculated in the past and that the year that mattered was the year at the beginning of service and not the year at the end of service and from then on there was an issue between Devon General and its retiring employees which was now come to a head and been decided as mentioned by the Industrial Tribunal.

It is to be noted that Mr Millar, for Devon General in a skilful argument, has drawn our attention to the fact that so far as the evidence goes there is a possibility that other parts of the Western National Region not covered by Devon General might have had different practices. There is no finding in terms in relation to any such parts' practices. But that is merely a blank and not a finding that there was a difference between what Devon General area did and what the other areas did.

The question therefore arose, before the Industrial Tribunal and arises before us, as to how Clause 56(iii) is to be construed? And in particular the words:

"one full years entitlement"

There are, in principle, three possibilities. First, that it means that year's entitlement, that is to say, the first year's entitlement and it was pointed out that if the expression had been not "one full years entitlement" but " that full years entitlement" there would have been no problem. Secondly, it is possible that on its true construction the Clause means the current year's entitlement, that is to say, the last year's entitlement. The third possibility is that the Clause is intrinsically ambiguous and is not clear on the subject of which year is the right year. The Industrial Tribunal held that the first of those three was the correct solution, but they gave no reasons for espousing that analysis which was advanced towards the end of the hearing before the Industrial Tribunal by Mr Millar. Basically the analysis was that Clause 56 provided for holiday payments in three separate slices:(a) that dealt with what has been called "the lost year";

(b) that dealt with the second and subsequent down to and including the penultimate year of employment by cancelling out any subsisting holiday entitlement there might be and assuming that the employee had, as in fact Mr Seeney appears to have done, taken his holidays as they fell due.

The third slice deals with the last part-year or whole year of employment and gives a pro rata entitlement, which in this particular case works out at a day for one month. The reasoning that is adopted by the Industrial Tribunal is in paragraph 9:

"Under (a) the Clause requires the actual period of employment of the employee to be taken and for the first actual year during which he works there will have been no holiday taken, and this can be called the "lost year". The entitlement to holiday will be the length of time allowed for holidays in that year [and not at termination of employment]. The rate of pay, however, will be that applicable at the date of termination."

That, with all due respect is a statement of a conclusion rather than of any reasons for reaching that conclusion and we turn, therefore, to look at what the arguments are in favour of any of the three possible solutions.

The points that were principally made in favour of the first solution, that is to say, that espoused by Devon General that it was the first year that is on the true construction of Clause 56(iii)(a) referred to, were these. First of all the references to entitlement in paragraph (c) and by implication, in paragraph (b) were references to contemporaneous entitlement and that by parity of reasoning when the words "one full years entitlement" are used in paragraph (a) they should also be attributed to contemporaneous entitlement, i.e. the first year's entitlement. We are not impressed by that argument for the simple reason that so far as paragraphs (b) and (c) are concerned there is no other possible solution. It is inevitable that those paragraphs should refer to contemporaneous entitlement. That is not true in paragraph (a) where the expression "one full years entitlement" does not identify, as a matter of language, which year is referred to. So that it does not seem legitimate to apply that particular line of argument. Secondly, it was submitted to us that whereas the agreement was silent on rates of pay and hours worked per diem or per week, it was not silent on the number of days, because when one finds the words "one full years entitlement" that refers necessarily to the number of days of holiday entitlement in the year in question. This argument enabled the acceptance, which Devon General makes of taking both rates of pay and hours worked from the last year of employment, because on this submission there is undoubtedly a gap, because the agreement is silent on the subject, in relation to both rates of pay and hours worked and that has to be filled, it is accepted, and cheerfully accepted, by what current practice is, notably because the research involved in finding out what original practice had been, might not be a matter of any great simplicity although we doubt whether that would in fact have been a very compelling consideration.

In our view the flaw in that argument is that it begs the question. Because the question is, which year do you take and not whether it is a number of days that is aimed at. Undoubtedly the end result of the process of construction is to produce a number of days but the problem arises on which year one takes and it seems to us that an ambiguous utterance is not different in principle from silence. In either case more help is needed to solve the conundrum of what the Clause actually means. We are therefore, not convinced by those two principal arguments that the Clause bears the construction contended for by Devon General, purely as a matter of understanding the English used, which is in any event highly ungrammatical.

On the other side the points that were principally relied in favour of the second construction, namely that it was the last year of employment that is looked at, were that there was nothing to indicate any agreement to change the terms of employment at any stage. In particular we were shown evidence that was to be found in the Notes of Evidence that the Unions were involved and consulted in the process of Mr Dennis's compilation of the agreement in January 1983. Therefore, it was said, it was singularly unlikely that the Unions would have agreed to abandon their existing settled practice which was beneficial to their members. The position prior to January 1983 when Mr Dennis made his compilation was that there was no written agreement that dealt, in terms, with holiday entitlement on termination of employment and it was submitted that on that basis, that gap had to be filled and was filled by the current practice adopted by the parties. There was no change in that practice. It continued until Mr Kitchingham challenged it and in those circumstances it was submitted that there was throughout a contractual entitlement in line with the practice and that the agreement should be construed so as to conform with that situation. However, Mr Millar for Devon General contended that it was not established what the earlier position was outside the Devon General area and therefore that it was not safe to assume that there were not relevant written agreements that governed the position, such as typically, the agreement with the NUR that was referred to in the passages which I have quoted from the earlier "Terms of Employment" documents but which was not established in evidence or produced before the Industrial Tribunal and it was therefore not safe, he submitted, to assume that there was a gap to be filled by practice so as to constitute a contractual right on the lines of that practice.

We also had submissions based on the meaning of the word "current" in paragraphs (c) and (d) which are marginally different and submissions were made on either side as to the effect of the omission of the word "current" from paragraph (a). We find no help from those which are narrow linguistic arguments which we do not find of any great weight.

Our conclusion is as follows. We find the wording of Clause 56(iii)(a) intrinsically ambiguous, and capable of either meaning, as a matter of English, the first full year's entitlement or the last full year's entitlement, and in those circumstances the practice in our view is relevant in showing what the parties thought the contractual position as between them was pre-January 1983. It is, we feel, intrinsically, highly unlikely that the parties intended that in operating that practice a presents of extra pay over that which was due were being given by the employer to the employee. There are really three possibilities, first of all that the parties intended the last year's entitlement to be a contractual right because that was the settled practice. Secondly, that the parties intended the first year entitlement to be the contractual right but carried on, at least in Devon General area, a consistent practice of voluntary excess payments on termination over and above what was lawfully due. Thirdly, that the parties had no relevant intention at all on the subject and were continuing a course of dealing more or less by accident. In our view, the first of those three is by far and away the most probable on analysis on the facts found by the Industrial Tribunal. The existence of the settled practice before January 1983 is, we feel, an indication that the contractual rights were in accordance with the practice and the wording of Clause 56(iii)(a) is not incompatible with it. If it had been then of course the agreement would have overridden the practice, but we do not consider that it is and therefore the agreement being verbally equivocal should be construed to accord with the relevant settled practice.

On that basis the cross-appeal succeeds and the appeal no doubt needs to be dismissed.