MRS Y BENSON & OTHERS v SECRETARY OF STATE FOR TRADE AND INDUSTRY [2003] UKEAT 633_02_0402

EMPLOYMENT APPEAL TRIBUNAL

BAILII case number: [2003] UKEAT 633_02_0402

Case No Appeal No. EAT/633/02

Venue 58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

Between

MRS Y BENSON & OTHERSAPPELLANT

SECRETARY OF STATE FOR TRADE AND INDUSTRYRESPONDENT

Before

Mr Justice Burton

Date 4 February 2003

[1]APPEARANCES For the Appellant MR WILLIAM LUMSDEN (Representative) KFAT 55 New Walk Leicester LE1 7EA For the Respondent MR ANDREW HENSHAW (of Counsel) Instructed By: The Treasury Solicitor (Employment Team) Queen Anne's Chambers 28 Broadway London SW1H 9JS MR JUSTICE BURTON (PRESIDENT) : This is an appeal brought, very ably by Mr Lumsden, on behalf of the identified members of the National Union of Knitwear, Footwear and Apparel Trades (KFAT), of which Mr Lumsden is a full-time Officer, against the decision of the Employment Tribunal sitting at Leicester, after a hearing on 24 April 2002 before Mr Price as Chairman sitting alone, handed down on 30 April 2002.

[2]The Tribunal had to deal with a question of law and construction of the Employment Rights Act in a sad situation in which the Respondent company, Cameo Knitwear Ltd, against whom the Tribunal had made findings entitling the named Applicants to payments in respect of redundancy by a decision dated 21 June 2001, had subsequently gone into liquidation and become insolvent.

[3]The Secretary of State for Trade and Industry is, in those circumstances, the party liable to make such payments as fall within the relevant sections of the Employment Rights Act to employees entitled to redundancy payments, whose employer no longer has the necessary funds, and, consequently, the Secretary of State took up the baton of Respondent, as he was entitled to do, for the purpose of the particular challenge which had to be decided by the Tribunal.

[4]The issue related to the contractual entitlement of Mrs Benson and the other Trade Union members, employees of the Respondent company, under a Collective Agreement, that is, the Agreement on Wages, and Conditions of Employment, agreed between the Knitting Industries Federation Ltd, and KFAT, which was the recognised Union for all employees within the knitting industry. By Clause 11 of that Collective Agreement, headed up "Guarantee of Employment", the following is provided:

"(a) All experienced employees shall be guaranteed employment for their full contracted hours apart from the first four hours of lay-off in any week. (b) The guarantee shall apply on all days when work is provided within the relevant week and the employee is available and willing to work the contracted hours and perform, in the normal way, work in his/her normal occupation, or, if such work is not available, any other work which he/she could reasonably be required to perform in the circumstances noting Clause 9 Temporary Interchange of Employment. ... (c) Payment under this guarantee shall be as follows:- (i) For hours worked .................................... normal earnings (ii) For hours necessary to complete the guarantee:- Two and Three shift workers .................................. £2.60p per hour Other experienced operatives ................................. £2.01p per hour (d) The guarantee in a relevant week shall be reduced by the amount of any authorised holidays and/or unauthorised absence by the employee, and working time lost in consequence of any industrial dispute, and working time lost in consequence of emergency circumstances outside the company's control, such as fire, the disruption of water, steam, transport, fuel, power or other services or the failure of supplies essential to production."

[5]The analysis of that Clause, as to which we have been greatly helped by Mr Lumsden's explanation, is, that if, as we understand to be the case, employees in the industry have a 39-hour contractual week, then if they are laid off for four hours, they do not get paid in respect of those four hours, but if they are laid off for longer than four hours they get paid in respect of the hours laid off the guarantee payments calculated on the basis set out in Clause 11(c)(ii). In those circumstances in a given week, if an employee works 30 hours, he will be paid what is described in Clause 11(c) as normal earnings, and will receive nothing for four hours of the lay-off, and then the appropriate sum of £2 odd per hour in respect of the 5 hours thereafter.

[6]The new Respondent, the Secretary of State, denied that that sum, payable unquestionably under the contract, because it is common ground that the Collective Agreement is incorporated into the individual contracts of employment, was part of the responsibility of the Secretary of State under Part XII of the Employment Rights Act 1996 . However, the Secretary of State has accepted responsibility to pay, and has paid, what, in any event, quite irrespective of the contractual entitlement of these employees is concerned, was the relevant sum by way of a statutory guarantee payment in respect of the same periods. The guarantee payments under statute arise by virtue of Part III of the Employment Rights Act 1996 . Section 28 reads, in material part, as follows:

"(1) Where throughout a day during any part of which an employee would normally be required to work in accordance with his contract of employment the employee is not provided with work by his employer by reason of - (a) a diminution in the requirements of the employer's business for work of the kind which the employee is employed to do, or (b) any other occurrence affecting the normal working of the employer's business in relation to work of the kind which the employee is employed to do, the employee is entitled to be paid by his employer an amount in respect of that day."

[7]The quantification of that statutory guarantee payment, which we shall hereafter simply call "a guarantee payment" because, by virtue of Section 235 of the Employment Rights Act 1996, "guarantee payment" wherever referred to in the 1996 Act has the meaning given by Section 28, ie it is to be regarded as referring to such statutory guarantee payment. It is calculated according to the provisions of Sections 29, 30 and 31 of the Act, setting down limits on the amount of such guarantee payment, and indeed, a method of calculation of it. By Section 32 of the 1996 Act, there is specific provision in relation to what is there called "contractual remuneration" ie just what we have here, namely a situation in which there are sums guaranteed to be paid to an employee under his contract . Section 32 reads as follows:

"(1) A right to a guarantee payment does not affect any right of an employee in relation to remuneration under his contract of employment ('contractual remuneration') (2) Any contractual remuneration paid to an employee in respect of a workless day goes towards discharging any liability of the employer to pay a guarantee payment in respect of that day; and, conversely, any guarantee payment paid in respect of a day goes towards discharging any liability of the employer to pay contractual remuneration in respect of that day. (3) For the purposes of subsection (2), contractual remuneration shall be treated as paid in respect of a workless day – (a) where it is expressed to be calculated or payable by reference to that day or any part of that day, to the extent that it is so expressed, and (b) in any other case, to the extent that it represents guaranteed remuneration, rather than remuneration for work actually done, and is referable to that day when apportioned rateably between that day and any other workless period falling within the period in respect of which the remuneration is paid."

[8]It can be seen therefore that two matters are clear.(1) There is a distinction between guarantee payment, as defined by the Act, and contractual remuneration, and the Act provides for what happens in respect of the presumably overwhelmingly normal situation where contractual remuneration exceeds the statutory basic guarantee payment.

(2) In the course of making provision in respect of what happens with regard to that excess, and making clear that the guarantee payment is to be treated as on account of any contractual entitlement payable by the employer outside the insolvency situation, the contractual remuneration so referred to is described as being something different from remuneration for work "actually done".

[9]The conclusion of the Employment Tribunal Chairman was that the contractual remuneration paid in respect of what he called "the period of lay-off" was not within Part VI of the Act, and, of course, the guarantee payment, which the Respondent willingly paid, was all therefore that the employees were entitled to.

[10]We turn then to the issue in this case before us, which involves the proper construction of Section 184 of the Employment Rights Act 1996 . Section 182 provides as follows:

"182 If, on an application made to him in writing by an employee, the Secretary of State is satisfied that – (a) the employee's employer has become insolvent, (b) the employee's employment has been terminated, and (c) on the appropriate date the employee was entitled to be paid the whole or part of any debt to which this Part applies, the Secretary of State shall, subject to section 186, pay the employee out of the National Insurance Fund the amount of which, in the opinion of the Secretary of State, the employee is entitled in respect of the debt."

[11]Section 186 is a limitation on the total amount payable. What insolvency amounts to is defined in Section 183. Which debts fall within Section 182 are then defined in Section 184, which reads as follows:

"184(1) This Part applies to the following debts - (a) any arrears of pay in respect of one or more (but not more than eight) weeks, (b) any amount which the employer is liable to pay the employee for the period of notice required by section 86(1) or (2) or for any failure of the employer to give the period of notice required by section 86(1), (c) any holiday pay – (i) in respect of a period or periods of holiday not exceeding six weeks in all, and (ii) to which the employee became entitled during the twelve months ending with the appropriate date, (d) any basic award of compensation for unfair dismissal [or so much of an award under a designated dismissal procedures agreement as does not exceed any basic award of compensation for unfair dismissal to which the employee would be entitled but for the agreement], and (e) any reasonable sum by way of reimbursement of the whole or part of any fee or premium paid by an apprentice or articled clerk. [The parts in square brackets were added by subsequent amendment in 1998]. (2) For the purposes of subsection (1)(a) the following amounts shall be treated as arrears of pay – (a) a guarantee payment."

We interpose to say that it is common ground, not least by reference to Section 235, to which we have referred, that this refers to the statutory guarantee payment under Section 28. "(b) any payment for time off under Part VI of this Act or section 169 of the Trade Union and Labour Relations (Consolidation) Act 1992 (payment for time off for carrying out trade union duties etc), (c) remuneration on suspension on medical grounds under section 64 of this Act and remuneration on suspension on maternity grounds under section 68 of this Act, and (d) remuneration under a protective award under section 189 of the Trade Union and Labour Relations (Consolidation) Act 1992. (3) In subsection (1)(c) 'holiday pay', in relation to an employee, means – (a) pay in respect of a holiday actually taken by the employee, or (b) any accrued holiday pay which, under the employee's contract of employment, would in the ordinary course have become payable to him in respect of the period of a holiday if his employment with the employer had continued until he became entitled to a holiday."

[12]Before we turn to the nub of the question of construction, we should set out one or two points by way of analogy, to which our attention has been drawn, in the helpful submissions of Mr Andrew Henshaw, Counsel for the Secretary of State.

[13]He has pointed out to us first that, in effect, Section 184 is supplemented by other provisions. The Statutory Sick Pay General Regulations 1982 provide, by Regulation 9B, that, on the insolvency of an employer, the obligation to pay the statutory sick pay in respect of a day of incapacity for work in relation to an employee's contract of service with his employer shall be that of the Secretary of State, and not that of the employer, where the employer is insolvent on the relevant day. Effectively, therefore, that Regulation, which antedated the 1996 Act, should be added to the statutory provisions referred to in Section 184(2). The same applies for the provisions of the Statutory Maternity Pay (General) Regulations 1986 , which places the same obligation on the Secretary of State to pay statutory maternity pay in the case of insolvency of the employer by Regulation 7. Under the Social Security Contributions and Benefits Act 1992, Sections 12 and 13 respectively make similar provisions in relation to off-setting what is there referred to as "contractual remuneration paid", that is by way of obligation of an employer under a contract, in respect of sick pay and maternity pay, to those set out in Section 32 of the 1996 Act, thus making clear what is, in any event, obvious, namely that there are going to be situations in which there will be a contractual remuneration, specified under a contract, in respect of those who are off work through illness, or through maternity, more generous than the statutory basis. But those Regulations to which we have referred place no obligation on the Secretary of State in respect of the excess due under the contact, but simply the obligation to make the statutory payment.

[14]Mr Henshaw has then drawn our attention to the provisions applicable where an employer is insolvent, and employees make claims, not in the event of redundancy against the National Insurance Fund directly against the Secretary of State, but by way of proof in the liquidation or administration of the employer company. In those circumstances, Section 386 of the Insolvency Act 1986 and Schedule 6 to that Act provide that employees are preferential creditors, and, consequently, together with the other preferential creditors, at least under the legislation which is presently in force (although we understand it is about to be replaced by a different system) they receive, alongside other preferential creditors, a payment - pro rata of course because there is not always, if ever, a sufficiency of assets of the insolvent employer - of their outstanding debts as provided for under the Act. There are, by Schedule 6, six categories of preferential creditors who are to be paid out before ordinary creditors, insofar as there are any assets available. The Government comes in as three of those categories: Inland Revenue, Customs and Excise and Social Security. The fifth category is employees. By paragraph 13 and following of Schedule 6, there is definition of what the debts are in respect of which employees are to be treated as preferred. Paragraph 13 reads as follows:

"13(1) For the purposes of paragraphs 9 to 12, a sum is payable by the debtor to a person by way of remuneration in respect of any period if - (a) it is paid as wages or salary (whether payable for time or for piece work or earned wholly or partly by way of commission) in respect of services rendered to the debtor in that period, or (b) it is an amount falling within the following sub-paragraph and is payable by the debtor in respect of that period."

The following subparagraph, which is very similar to the provisions of Section 184(2), if not identical, includes the statutory guarantee payment defined as follows:

"13(2) (a) a guarantee payment under Part III of the Employment Rights Act 1996 (employee without work to do)."

So by virtue of paragraph 13(2)(a), such a statutory guarantee payment is to be treated as a debt, by virtue of the provisions of paragraph 13(1)(b). Unlike Section 184 of the 1996 Act, it is not "treated as" anything, certainly not treated as falling within paragraph 13(1)(a) wages or salary; it is recited as another amount falling within the following sub-paragraph. By paragraph 15, the following is provided:

"15 Without prejudice to paragraphs 13 and 14 - (a) any remuneration payable by the debtor to a person in respect of a period of holiday or of absence from work through sickness or other good cause is deemed to be wages or (as the case may be) salary in respect of services rendered to the debtor in that period."

[15]Mr Henshaw submits firmly that, by reference to paragraph 13 and to Schedule 6 as a whole, contractual remuneration, such as we are here dealing with, namely payment in respect of a period of lay-off under Clause 11 of the Collective Agreement, does not fall within paragraph 13. He submits that it is not paid as wages, or salary, in respect of services rendered to the debtor in that period. Mr Lumsden, if this was the section that were actually being construed, would seek to argue that by holding himself, or herself, available to work during the period of lay-off, an employee is rendering a service to the debtor company. Mr Henshaw puts forward, only to discount, another argument that might be put against his construction, namely that it might be said that a person laid off, and thus not doing work, was "absent from work" through "other good cause"; such that the money paid during lay-off might fall within paragraph 15(a). He submits however that such an employee is not absent from work but is laid off, and that paragraph 15(a), on a proper construction, would not allow recovery in respect of the sum here claimed by Mr Lumsden as a preferential debt.

[16]We do not have to decide this question, because it is not this paragraph which is before us. Mr Henshaw submits that, if he is right, as he submits he is, about the proper construction of the provision for preferential debts, then, just as, on his case, this kind of contractual remuneration is not recoverable direct from the Secretary of State under Section 184, so it is not recoverable pro rata as a preferential debt against the insolvent company itself in a liquidation. However, submits Mr Henshaw, even if he were wrong as to the insolvency provisions, there is no necessary reason, just because, in those circumstances, an employee might be able to recover, pro rata, some parts of the remuneration, alongside the Secretary of State as a preferential creditor against the insolvent company, which would justify a construction which entitled him to the whole of that sum directly against the Secretary of State. We can see that the situation is analogous, but we certainly do not propose to construe, or give any kind of obiter answer to the question of the construction of Schedule 6 to the Insolvency Act.

[17]Mr Henshaw's third analogy is by reference to the Council Directive 80/987/EEC. He contrasts the position under Article 141 (formerly 119) of the EC Treaty which deals with equal treatment. Where, by virtue of Article 141, equal treatment is under the microscope, then there have been cases which have indicated that the word "pay" should be given a wide meaning, but he refers to the Council Directive, and contrasts it with Article 141, by virtue of pointing out the following:(i) There is no such presumption of restrictive definition where equal treatment is not in issue;

(ii) By virtue of Article 2 of the Directive, national law is left to construe the definition of the term "pay" within the confines of this Directive relating to the protection of employees in the event of the insolvency of their employer.

(iii) The Directive itself quite plainly, as Mr Henshaw submits, rightly in our judgment, gives a broad discretion, by way of a balancing act, to the national state in introducing provisions to protect employees in that situation and, certainly, entitles the national state to set a ceiling to liability (see Article 4) or to define which claims do, and do not, fall within the relevant protection (see Article 1).

[18]Mr Henshaw helpfully drew our attention to other circumstances in which there either is, or is not, definition of similar terms to those under consideration in Section 184(1)(a). He has taken us to Section 27(1)(a) of the 1996 Act, which provides a definition of the word "wages" for the purpose of Part II of the Act, what used to be called "The Wages Act provisions", and by Section 27 there is the following provision:

"27(1) In this Part 'wages', in relation to a worker, means any sums payable to the worker in connection with his employment, including - (a) any fee, bonus, commission, holiday pay or other emolument referable to his employment, whether payable under his contract or otherwise."

It is quite plain, not only from the context in which the definition is set, namely one which is specifically for that part of the Act only, but from the very broadness of the definition for that purpose, that the section we are dealing with under Section 184(2) is very substantially more restrictive and intentionally so.

[19]He has drawn our attention to a decision of Blackburne J in Kent and Medway Towns Fire Authority v Pensions Ombusdman (Ch.D.2.10.01 Unreported), in which, for the purposes of the Fire Fighters Pension Scheme, the word "pay" was restrictively defined, but we do not find that directly of assistance in relation to our task of statutory construction. No more do we, although it was quite proper of Mr Henshaw to have drawn our attention to it, find ourselves assisted by the fact that a "week's pay", for the purpose of calculating working time, is more broadly defined than under Section 184, to which we now turn, against the background of these helpful general submissions.

[20]So far as Section 184 is concerned, it is plainly intended to define, and thus limit, the debts which are going to be the subject-matter of express protection, and payment, by the Secretary of State. Not all debts owed by a debtor company to his employee are thus covered; for example, there is no provision for the payment of outstanding expenses owed by the debtor company to an employee, save specifically under Section 184(1)(e), where it is reimbursement of a fee or premium paid by an apprentice. There is no provision made in respect of any payment of any liability plainly due under the contract in respect of pension entitlement. There is no express provision in respect of the matters, to which we referred earlier, namely any contractual remuneration or payment promised, or owed, by the employer in respect of more generous arrangements for maternity pay or sickness benefit. The words, therefore, "arrears of pay" have to cover those sums, if those sums are to be recoverable from the Secretary of State, and it appears to us on any basis that, for example, loss of pension rights could not fall within the definition of arrears of pay. But what Mr Lumsden submits is both in relation to contractual maternity or sickness payments, to which we have referred, and, in particular, in relation to the contractual remuneration, the subject-matter of the application and appeal before us, is that they are within the definition of arrears of pay. Pay, he submits, means sums payable under the contract. As we have already indicated, he submits that the fact that the employee is not working and, indeed, according to the definition of the Collective Agreement, is laid off, must be set against the fact that he must make himself available for work, if called upon, and is thus to that extent rendering a service to the employer.

[21]That is plainly a powerful argument. However, we are persuaded that Section 184(1)(a) cannot be so construed. The answer lies rather in looking at the rest of Section 184. The statutory provisions are all separately dealt with under Section 184(2); and all those amounts are to be, by express statutory definition, treated as arrears of pay, but that is simply because they are expressly so treated. We thus set aside Section 184(2) and concentrate on Section 184(1). By sub-section (b) a payment due to an employee in respect of a period he has not worked, but which was in fact his contractual notice period, is expressly brought into the legislation and defined as a relevant debt. It is not defined as arrears of pay under sub-section (a), but it is to be a recoverable debt. Mr Lumsden says that that is correct, because it is not arrears of pay, and would thus not come within sub-paragraph (a), but would be effectively a damages claim, and the fact that it is payment to an employee for not working does not make it analogous with a payment for not working under Clause 11 when the employee is laid off. But he has a more difficult task in explaining the presence in Section 184(1) of sub-paragraph (c). That is a provision whereby a payment to an employee for not working, because he is on holiday, is expressly provided to be a debt; and, although we suggested to Mr Lumsden that he might seek to argue that Section 184(1)(c) is simply declaratory of what is already included in sub-section 184(1)(a), so rendering the definition or the inclusion of holiday pay superfluous and redundant, but not thus affecting the definition in Section 184(1)(a), it appears to us that that is not an argument that can stand up here. It is clear that the sub-paragraphs in Section 184(1) are not intended to be declaratory or explanatory of Section 184(1)(a); they are intended to be items which would not have been included but for their express inclusion. "Arrears of pay" is, therefore, not intended to include holiday pay. Mr Lumsden sought to say that in some circumstances holiday pay might be forward looking, and thus might need to be expressly provided for in those circumstances, because it would not fall within the definition of the word "arrears", but that is, I am afraid, not supportable in this case, because it is only arrears of holiday pay which is claimable by the employee in any event, by virtue of Section 184(1)(c) and Section 184(3) taken together, including, of course, arrears of accrued entitlement to holiday pay.

[22]It appears to us that the separate provision for holiday pay is a very strong pointer indeed against the proposition that payment in respect of a period of lay-off, or, indeed, payment in respect of a period of absence through sickness or maternity, which is otherwise due under the contract, is recoverable under Section 184(1)(a) as arrears of pay.

[23]If one adds to that two further points, the answer, it seems to us, is quite clear: first, the definition of the contractual remuneration which is actually in issue before us in Section 32(3) of the Act, to which we have referred, which contrasts it with remuneration for work actually done; and, secondly, the provision in Section 157 of the Act, which Mr Henshaw has drawn to our attention, whereby in relation to the very qualification for a redundancy payment itself, where there is a more generous redundancy pay provision under the contract, the structure of the statute is that the employee is not entitled to recover the contractual redundancy payment, insofar as it exceeds the amount of a statutory redundancy payment. That, it appears to us, is what was intended by the structure of Part VI of the 1996 Act. It was intended, within the ambit given to the Government by the Directive, to place a cushion for employees who were unable to recover sums from their insolvent employer; but not to give them complete recovery in respect of those provisions of the contract which were, in some cases, more generous than their statutory entitlement.

[24]In those circumstances it is comfort for this Tribunal, and, of course, to an extent therefore to the Appellants, that they do not get nothing in respect of Clause 11, but at least get their statutory right under Section 28. But we are afraid that we are unable to say that anything over and above the statutory entitlement under Section 28, which is expressly brought in within Section 184(2), is recoverable from the Secretary of State under Section 184(1), and we must therefore dismiss this appeal.