COMMISSIONERS OF INLAND REVENUE v 1) MR K AINSWORTH 2) MRS S KILIC 3) MRS C O STRINGER 4) MR M THWAITES [2004] UKEAT 0650_03_0402

EMPLOYMENT APPEAL TRIBUNAL
BAILII case number: [2004] UKEAT 0650_03_0402Case No Appeal Nos.UKEAT/0650/03/TM UKEAT/0745/03/TM UKEAT/0798/03/TM UKEAT/0901/03Venue 58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS
Between
COMMISSIONERS OF INLAND REVENUEAPPELLANT1) MR K AINSWORTH 2) MRS S KILIC 3) MRS C O STRINGER 4) MR M THWAITESRESPONDENT
Before
Mr Justice BurtonDate 4 February 2004
[1]APPEARANCES For the Appellant MR N UNDERHILL QC (of Counsel) MR A TOLLEY (of Counsel) Instructed by: Commissioners of Inland Revenue Solicitors Office East Wing Somerset House Strand London WC2R ILB For the First, Second and Fourth Respondents For the Third Respondent MR M FORD (of Counsel) Instructed by: Messrs Thompsons Solicitors Congress House Great Russell Street London WC1B 3LW No appearances Messrs Abinson Napier & Co 20 Bold Street Warrington WA1 1HP THE HONOURABLE MR JUSTICE BURTON (PRESIDENT) Today there was listed before us an appeal by the Commissioners of Inland Revenue in a clutch of cases, four of them, of which the lead case is called "Ainsworth", because the Applicant was so named. The others are Kilic, Stringer and Thwaites.[2]The facts in the cases are not in dispute, and, indeed ought sensibly to be able to be put into a very short statement of the brief facts. We have had the benefit of an agreed chronology; there is one small error of fact suggested by those representing Mrs Stringer, who did not appear today but sent submissions in writing, which can no doubt be accommodated in any such agreement.[3]The Revenue has today been represented before us by Mr Nicholas Underhill QC, and Mr Adam Tolley, and Mr Ainsworth, Mr Kilic and Mr Thwaites have been represented by Mr Michael Ford, of Counsel. As we have indicated, Mrs Stringer did not appear, but sent written submissions.[4]The aim of the Appellants, the Commissioners of Inland Revenue, is to overturn all four Decisions which have followed the Decision of the Employment Appeal Tribunal, given very recently by the then President, Lindsay P, as Chairman of the relevant panel, reported in 2002 ICR 697 . With considerable misgivings, as is clear from the judgment itself, and with a knowledge of what were seen to be, at any rate arguably, significant consequences, not necessarily desirable from some points of view, the Employment Appeal Tribunal there construed Regulation 13 and 14 of the Working Time Regulations 1998 contrary to the submissions of the employers in the three cases which were there consolidated.[5]The circumstance before the Courts there, and repeated before us here, relate to a situation in which an employee has been off work and unpaid for a substantial period. Examples are given by Mr Underhill QC, relating to career change or long term absence of working mothers, and such like, but the particular facts relevant in both Kigass and in this case, relate to long term sickness. The ordinary principles, absent some particular contractual position, is that there is a certain period of time in which employees will be paid in full when they go off sick, they then ordinarily graduate on to some reduced pay, and there then comes a time, if they are retained in "employment" at all, when they cease to be entitled to any pay at all, and their "employment" is simply notional; but many employers are encouraged to retain the relevant employee in notional employment, for perfectly appropriate humanitarian reasons. One can consider such possible reasons; one would be in order to preserve continuity of employment, another to preserve any pension rights, but it certainly, on the face of it, is not rendering any benefit to the employer, but also not imposing on him any obligation to make payment in return for no benefit by way of any work from a long-term absent employee.[6]On the construction of the Regulations in Kigass by the Employment Appeal Tribunal, such employees, albeit not entitled to be paid any sum by way of salary for the entire year, are entitled to be paid holiday pay for four weeks during a relevant year, at a rate calculated in accordance with statute, and not on the basis of £0, which is what they are getting for the rest of the year. The cases considered in Kigass included a claim to such entitlement under Regulation 14, which we shall recite in a moment, which relates to the recovery of holiday pay after termination of employment.[7]Regulation 13 reads in material part as follows:
"(1) ……. a worker is entitled to four weeks' annual leave in each leave year…. (9) Leave, to which a worker is entitled under this regulation may be taken in instalments, but (a) it may only be taken in the leave year in respect of which it is due, and (b) it may not be replaced by a payment in lieu except where the worker's employment is terminated. … 14 Compensation related to entitlement to leave (1) This regulation applies where - (a) a worker's employment is terminated during the course of his leave year, and (b) on the date on which the termination takes effect ("the termination date") the proportion he has taken of the leave to which he is entitled in the leave year under [regulation 13] differs from the proportion of the leave year which has expired. (2) Where the proportion of leave taken by the worker is less than the proportion of the leave year which has expired, his employer shall make him a payment in lieu of leave in accordance with paragraph (3). (3) The payment due under paragraph (2) shall be ….."
And then the calculation is there set out.[8]So far as the three cases considered in Kigass are concerned, the claims by the successful employees in that case were made by employees who had served relevant notices under Regulation 15 (to which we shall refer) and the third claim, arising as it did after the termination of the contract of employment, was to a payment in lieu of holiday, in respect of the balance of the relevant year. There was no finding there that there could be any claim in respect of back entitlement under Regulation 13. That was, no doubt, for a number of reasons.(1) The time point. Under Regulation 30 of the Working Time Regulations by reference to which the claims were made, there is a time limit, within which a claim can be made for holiday pay, of three months under Regulation 30(2); and there would have been a limitation defence, had there been a claim in respect of an earlier period.(2) Whether or not it was taken for granted in the course of argument, it certainly formed the basis of Lindsay P's decision, that a claim in respect of pay during the employment could only be claimed if the leave was taken, i.e. if the entitlement to annual leave was exercised, and a relevant notice to that effect served under Regulation 15 of the Regulations. That reads as follows:
"(1) A worker may take leave to which he is entitled under [regulation 13] on such days as he may elect by giving notice to his employer in accordance with paragraph (3), subject to any requirement imposed on him by his employer under paragraph (2)."
We do not need to deal with the precise provisions in relation to notice, but suffice it to say that, subject to the rights of the employer, what the employee does by the notice indicates in advance the period which he or she proposes to take by way of leave.[9]That decision, handed down, as we have indicated, on 25 February 2002, after argument on 16 January 2002, is very recent. Mr Underhill QC, on behalf of the Revenue, because of the consequences, as it is seen, to the Revenue, quite apart to any other employers, seeks to challenge the judgment of Lindsay P, and the rationale behind it, and his construction of the Regulations. He does not put forward any case that Kigass was manifestly wrong, or per incuriam . He simply says two things:(i) that this Appeal Tribunal should reconsider the same scenario and come to a different conclusion;(ii) that he has additional arguments, not apparently run in Kigass , which might persuade this Tribunal, where different or similar arguments failed to persuade the Appeal Tribunal, two years ago.[10]One answer, which Mr Underhill QC puts forward, which clearly carries some force, and it is only one of the strings to his bow, is that an employee cannot take "leave", without being in a position to work. Taking leave from work, he submits, requires the reverse situation being open, i.e. he has to have something to take leave from, and if he is not working, then, by continuing to stay at home as long term sick, he or she is not taking leave from work. In accordance with Kigass , an employee would, in order to take leave from work, when in fact he or she was not working, would in any event need to give notice to that effect. But he or she would not be able to take leave, because it would be clear, not least by testing the position, if necessary, at the date of the notice (although if on long term sick, no doubt it would not be difficult to see) that at the date when he served the notice, he or she was in no position to work, and consequently in no position to argue that he or she was taking leave from work. Such person was thus not "taking leave" by simply continuing to stay away and not "exercising an entitlement" by serving a notice if in no position to work. By reference to Regulation 13(9)(a), to which we have referred, leave must be taken in the relevant year, and, by reference to Regulation 13(9)(b), leave may not be replaced by a payment in lieu, except where the worker's employment is terminated. Even by reference to a Regulation 14 claim, which by Regulation 14(2) would entitle, in appropriate circumstances, leave to be replaced by a payment in lieu, there cannot be a payment in lieu of an entitlement which does not exist; and if he be right, there is no entitlement to leave if the worker is not working nor in a position to work, from which to take the leave.[11]Those arguments, which may or may not be persuasive in leading a Tribunal to come to a different conclusion from Kigass - and Mr Ford has other arguments to muster, which were not necessarily run in Kigass either - have themselves plainly been, at the very least, affected by another decision of this Employment Appeal Tribunal. This was delivered by a different panel of the Employment Appeal Tribunal, presided over by Bell J, on 22 January 2002, six days after the hearing of Kigass , and a month before the promulgation of the judgment. It is reported in 2002 ICR 686 , List Design Group Ltd -v- Douglas . That case does not relate to people on long term sick leave. However, the conclusion of the Appeal Tribunal in that case was that there was no requirement that leave be actually taken; in that respect differing from Lindsay P, and also concluding, contrary to Lindsay P's conclusion, that there was no requirement, at any rate on the facts of that case, that notice be served prior to taking it, by the service of which notice, if relevant, although it was not in that case, it could be tested whether the employee was in a position to take the leave.[12]List may thus have extended the consequences of Kigass to cover unpaid entitlement, if entitlement there was, to 'back' leave in respect of the period during the contract under Rule 13, both because of its removal of the requirement, if that is what it did, to have 'taken' the leave before there could be a claim, and to have served the relevant notice; but also because in List Design Bell J concluded that there could be a claim in respect of holiday pay, not only under the Regulations themselves, to which the three months' time limit under Regulation 30(2) applies, but also, by virtue of section 27(1)(a) of the Employment Rights Act 1996 , by an employee making a claim in respect of the same sums, but characterising the entitlement as one of unlawful deduction of wages, in breach of section 13(1). As to this claim there would not a limitation defence if such claim could, as on first glance it plainly could, be seen as a claim in respect of the making of a series of such deductions, and so it was interpreted in List Design .[13]In those circumstances, any limitation in recovery, in a Kigass type of case, to post termination or three months back would appear to be removed, and consequently the effect of Kigass extended if List Design is to be applied in addition, albeit that List Design did not have in mind the particular circumstances of long term sickness and no pay. List Design is not only a recent decision of this panel which, once again, is not suggested by Mr Underhill QC to be manifestly wrong or per incuriam , but it has further been followed, after careful deliberation, by another panel of this Tribunal, presided over by H H Judge Clark (to which one of the lay members sitting on this case was party), after a hearing on 18 November 2003, in a judgment delivered on 13 January 2004 in Canada Life -v- Gray and Farrar (EAT/0657/03).[14]Once again, Canada Life was not a case which related to people who are on long term sick and receiving no pay. It related to people in respect of whom the employer, having denied that the relevant employees were workers within the Regulations, would plainly not have been prepared to pay holiday pay, and the Tribunal upheld a conclusion that, in those circumstances, it would have been pointless for the employees to serve a notice, and was not open to them to take the leave, at any rate, without confrontation. Consequently once again, as in List , it was a case in which an employee in such circumstances could claim, and claim not only under the Regulations but also under the Act, in respect of holiday pay backdated as far as necessary, prior to the termination of the contract, and insofar as there was inconsistency between List and Kigass , so far as concerned the requirement that leave be taken and that notice be served, that was resolved by Canada Life in favour of List , and one can, on the facts of Canada Life well understand why.[15]The result of this, and again I add that Canada Life itself is also not suggested by Mr Underhill QC to be manifestly wrong or per incuriam , is that we are faced today with three recent decisions of the Employment Appeal Tribunal, which are not materially inconsistent for the purposes of the question before us, and not suggested to be manifestly wrong, all of which stand in the way of Mr Underhill's submissions. Kigass is the most significant decision so far as the issues before us are concerned, but, as we have indicated, it has been arguably pushed further in its consequences by both List and Canada Life , neither of which in any way cast doubt on the central decision in Kigass and in which, at any rate, one of Mr Underhill's substantial arguments that Kigass was wrong, may well have been foreclosed, at any rate at this level.[16]It appears to us quite plain that it would be quite inappropriate for there to be, in the light of what we have indicated, further consideration by an Employment Appeal Tribunal of this case at this level. Even if we might be persuaded that there are arguments, and we plainly are persuaded, on both sides, this would be a re-argument, contrary to our practice, of a persuasive recent decision of the Employment Appeal Tribunal, and possibly of three such recent decisions. If Kigass is to be changed, it must, in our judgment, be done by the Court of Appeal, who will take into account also whether there needs to be reconsideration of overruling, or at any rate, distinguishing List and Canada Life , while doing so, if they are to overrule Kigass , or at any rate to limit its consequences.[17]Of course, it may be that this whole question can only be resolved by legislation. Mr Underhill may not be able to persuade the Court of Appeal that, on the construction of the present Regulations, his argument can succeed. But it appears to us for the purposes of giving permission to appeal to the Court of Appeal, which we do, that he must have at the least an arguable case that Kigass (and in that context List and Canada Life ) should be reconsidered in a Court which has the undoubted jurisdiction to do so. That is the course we take.[18]We should mention one matter which arises only in the case of Mrs Stringer. In the course of its decision in that case, in paragraph 6, the Employment Tribunal said that it was, in its view, a generally accepted industrial practice that leave entitlement accrues, whatever an employee is doing during the leave year, sick or otherwise.[19]Mr Underhill suggests that that was a misunderstanding, and simply a reference to the fact that there are indeed many circumstances in which, no doubt, such entitlement may arise as a result of the particular contract entered into between an employer and employee. It is certainly not, so far as the lay members of this Tribunal are concerned, a statement that can be made, they believe, by way of assertion of generally accepted industrial practice, certainly not such that it could be relied upon, absent evidence, in any case, as a given. Neither party represented today before us, supports that proposition, or at any rate, for the purposes of argument in this case, wishes to rely upon it, and in particular Mr Ford rested his case entirely on the construction of the Regulations, which has already found favour with the Employment Appeal Tribunal in Kigass , and which he seeks to support also on additional grounds, as we have indicated.[20]Mrs Stringer has not appeared before us today, in whose case this statement was made by the Tribunal, which appears to us, as we have indicated, to be at best obiter . In the written submissions which were put forward on her behalf, with knowledge, as is clear from the contents of those submissions, of what was to be submitted by the other parties, there is no mention of any support for that proposition or reliance upon it in pursuing any resistance to the Appellant's appeal; and we firmly conclude that having given permission, as we do, for this matter to go to the Court of Appeal, we do not permit, or consider it appropriate, that this argument, if argument it could be, by reference to this obiter statement, should itself go before the Court of Appeal, but that this appeal is limited to the important question of construction of Regulations 13 and 14.[21]The cases before us are all Regulation 14 cases, as we have indicated. It is in our view essential that the Court of Appeal will consider Regulation 13 also, in that context. It appears to us impossible, subject to any view of the Court of Appeal itself, to resolve questions on Regulation 14 without also considering and deciding the same issue in respect of Regulation 13, not least by virtue of the need to consider the potential extension of Kigass which would follow by virtue of a straightforward application of List and Canada Life , if they are right. Nevertheless, strictly there is no Regulation 13 case among the clutch of cases now being considered.[22]We have been told by Mr Underhill that there are or may be Regulation 13 cases at the Tribunal level, and we have indicated that if any reach the Employment Appeal Tribunal in the foreseeable future, before this case has been decided by the Court of Appeal, we propose, subject to any circumstances which indicate the contrary in any particular case, to either dismiss or allow the relevant appeal in short form, and grant permission to appeal to the Court of Appeal, on the terms that those cases would be considered at the same time as these cases for which we now give permission. DISCUSSION WITH COUNSEL Mr Underhill QC May I just- four points please Sir, for the record 1 Picking up that last one, we will indeed endeavour to get a Regulation 13 case before this Tribunal so that then we can proceed to the Court of Appeal. The position may be that there is a de fact - I do not think there is a Practice Direction or anything like that - but a de facto stay imposed by some Regional Chairman, knowing that this case is going forward and the distinction between Regulation 13 and 14 cases is not going to be raised. It would be helpful just to have an indication that that stay should not be used as a reason for not allowing the case to go forward, which it is desirable should go forward. It may be necessary, as it were, to take a sample case and push that forward. It would be helpful just to have, Sir, your indication that that would be the appropriate course, subject of course to any view that it would be inappropriate. That was the first point. Secondly, really just I think the point Mr Ford made before you, Sir, gave judgment, which I would certainly support, that the appeal should be allowed to proceed on the basis that all points sought to be raised in both Skeletons are going forward, as implicit in what you have just said, and that would include the point about the List Design issue raised formally in the Ainsworth case. None of these cases are cases which actually have a time point in them so to that extent it does not matter whether the claim was brought under the Regulations or the Wages Act, but in fact the decision the Tribunal in Ainsworth was made as a matter of form under the Wages Act, and we wish to use it as a vehicle to make sure List Design is before the Appeal Court - that is understood. Thirdly, I have certainly conceded and I do not resile from that, I could not say that any of these issues are per incuriam, whether I would say that they were not manifestly wrong perhaps depends on the meaning one gives to that case, but I would not want it to be thought that I did not say that all three decisions, perhaps in slightly different ways, Kigass , perhaps less than the other two, were seriously wrong, but manifestly wrong is perhaps a term of art in this field, and not very different from per incuriam, and in that sense I am perfectly willing to make that concession. Lastly, yes, just the first thing that you said Sir, that there was said to be in one of the cases, I think it was Mrs Stringer's case, there was said to be a factual error, I have not had a chance to check whether that is so, if it is then of course we will agree. I think the point at issue frankly is not material either way, but I just did not want it to be thought that I had accepted that it was in error. Mr Ford Sir, we of course have no objection to the Regulation 13 case. As regards all the points being raised in both Skeletons, before the Court of Appeal I will wish to say the List Design point in Ainsworth is academic. I am not suggesting Mr Underhill cannot run the argument, but we will wish to say that there is no factual matrix against which to test it. Mr Underhill QC I am perfectly content with the position on that, but as far as you are concerned the List Design point is allowed to go forward, but if Mr Ford wants to argue it at the Court of Appeal that is academic…… President Yes, I think what you have just said ought to be incorporated in the transcript, so that the Court of Appeal see the discussion between Counsel and the Tribunal. So far as the question of stay and emergence of other Regulation 13 cases is concerned, if this judgment is publicised on the website, which it will be because clearly we propose to have a transcript for the assistance of the Court of Appeal, if nothing else, then Regional Chairmen will see this case on the transcript, so I do not think any further publication is necessary, but of course I welcome any steps that you yourselves, though your solicitors, may wish to take. As far as whether List is academic, of course I would not wish to say anything to foreclose any argument, but the intention of this Tribunal was to ensure that List was considered by the Court of Appeal, because it does appear to us to be relevant, not least as we have indicated in the course of our judgment, in the context of one of your arguments, Mr Underhill QC, and so I do not think that the Court of Appeal can properly deal with this matter without considering List . Of course, in any event, even the technical argument about it being academic will be rendered impossible if Regulation 13 cases come up, because the likelihood is, as I understand it, that any Regulation 13 case is likely to be out of time, anyway many of them are likely to be out of time under Regulation 30 and need to be brought within the Employment Rights Act , and notices may not have been served, but we will have to see. Thank you both very much indeed.