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Employment Law

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16 SEP 2011

The ECJ's judgment in Williams v British Airways: light or confusion?

Julian Milford

The ECJ yesterday (15 September 2011) delivered its eagerly-awaited judgment in Williams v British Airways C-155/10 on the meaning of the phrase "paid annual leave" in the Aviation Directive (Directive 2000/79/EC) and the Working Time Directive (Directive 2003/88/EC). Christopher Jeans QC of 11KBW appeared for British Airways in the ECJ (as he had in the domestic courts). The judgment is potentially of huge importance. Unfortunately, it is also a classic example of ECJ opacity.

The particular dispute in Williams concerns how payment for annual leave should be calculated for British Airways pilots under the Civil Aviation (Working Time) Regulations 2004 SI/2004/756 ("the Aviation Regulations").  Nevertheless, the issues at stake in Williams go much wider than the calculation of leave payments for pilots. The relevant wording of the Aviation Directive, to which the Aviation Regulations give effect, is identical to that of the Working Time Directive ("WTD"). Both the Supreme Court (referring the matter to the ECJ, [2010] IRLR 541), and now the ECJ itself, have accepted that the phrase "paid annual leave" must have an identical meaning in both Directives. So the ECJ's judgment is of the widest significance for workers and employers across the piece.

The claimant pilots in Williams had 3 elements to their pay: basic pay, a flying pay supplement ("FPS") varying according to the time spent flying, and a "time away from base allowance" ("TABS"), some of which is treated as referable to expenses, and some of which is treated as remuneration and is taxable. British Airways calculated holiday pay on basic pay only. The claimants said that FPS and the taxable element of TABS should be taken into account too under the Aviation Regulations. Their pay during annual leave should, they said, correspond to their pay while at work.

This issue arose in the aviation context because the Aviation Regulations state simply that pilots should receive "paid annual leave", without stating how payment should be calculated. So British Airways said that all the Aviation Regulations and Aviation Directive required was for workers to be paid at a level which did not discourage them from taking annual leave, which had happened. Alternatively, if the Aviation Directive did require pilots' pay for annual leave to be comparable to pay during periods of work, the question of comparability was left to national states to determine. The Aviation Regulations did not define what "comparable" pay would be: so, said BA, there was no basis for the court to write in its own definition.

The Supreme Court referred to the ECJ questions about whether the Directives required pay at any particular level, and if so, at what level, and how it should be calculated.

The ECJ, giving judgment, says that the phrase "annual leave" means that a worker should receive his or her "normal remuneration" for the period of rest (applying dicta in Robinson-Steele C-131/04 [2006] ECR I-2531): see [19]. That means the worker should be put in a position as regards pay which is "comparable to periods of work".

However, the question of what "normal remuneration" means in practice for workers whose pay is composed of a number of different elements is in many respects unclear from the judgment.

The ECJ said, first of all, that pay for annual leave should include "any inconvenient aspect which is linked intrinsically to the performance of the tasks which the worker is required to carry out under his contract of employment and in respect of which a monetary amount is provided which is included in the calculation of the worker's total remuneration": see [24] of the judgment. It is not clear what the Court means by "any inconvenient aspect". Nevertheless, it would seem that payments for time spent flying (e.g. FPS) would count: [24].

The ECJ then said that by contrast, elements of remuneration need not be taken into account if they are "intended exclusively to cover occasional or ancillary costs arising at the time of the performance of the tasks which the worker is required to carry out under his contract of employment, such as costs connected with the time that pilots have to spend away from base": [25]. This paragraph appears to relate to TABS. It is, however, not clear whether it relates only to the expenses element of TABS, or to TABS as a whole.

Finally, the ECJ said that it was for the national court to assess the "intrinsic link" between the various components making up a worker's remuneration, and the tasks he was required to carry out. That assessment, said the court, must be carried out on the basis of a "reference period which is judged to be representative": [26]. But the court did not specify what such a reference period might be - 12 weeks, a year, or something else.

It is amply apparent from the judgment that a lot remains up for grabs both generally as regards the interpretation of the Directives, and in the Williams litigation. True it is, the ECJ's judgment implies that FPS (and arguably the non-expenses element of TABS) should be factored into pay for annual leave. However, British Airways may be expected to argue on remission to the Supreme Court that devising detailed rules on what paid annual leave should consist of for the purposes of the Aviation Directive is a matter for Parliament, not the courts, and that the interpretative principle in Marleasing[1] does not enable the courts to invent a scheme when so much has been left unclear by the ECJ.

For those outside the airline industry, the more urgent question is what the Williams judgment means for the calculation of annual pay under the Working Time Regulations 1998 ("WTR"), which implement the WTD in domestic law.

Regulation 16 of the WTR states that a worker is entitled to be paid in respect of any period of annual leave to which he is entitled under the WTR at the rate of "a week's pay in respect of each week of leave". Regulation 16(2) WTR applies ss.221-224 Employment Rights Act 1996 ("ERA") for the purposes of determining what "a week's pay" consists of.

Williams casts doubt on whether the application of the detailed statutory scheme in ss.221-224 ERA is consistent with the overarching requirement that a worker receive "normal remuneration" for annual leave, which is "comparable to periods of work". There are several areas where it could potentially be argued that reg.16 WTR does not meet the test of comparability. For example:

(1)   Where an employee has "normal working hours", only overtime that is compulsory and guaranteed counts in computing a week's pay for the purposes of reg.16 WTR: see Bamsey v Albon Engineering and Manufacturing plc [2004] IRLR 457. But workers who customarily work long periods of non-contractual overtime may say that this is part of their "normal remuneration" on the basis of Williams.


(2)   Where an employee is paid on the basis of commission, substantial elements of actual remuneration may not be included in the calculation of a "week's pay" for the purposes of reg.16 WTR. This will happen, for example,  when commission is not paid on the basis of the amount of work done, but on sales achieved: see e.g. E[2003] ICR 432. Query, however, whether this is consistent with Williams.

[1] I.e. the principle that courts and tribunals are required, so far as possible, to interpret national law in the light of the wording and purpose of any relevant EU directive: Marleasing SA v La Comercial Internacional de Alimentacion SA C-106/89 [1992] 1 CMLR 305.

vans v The Malley Organisation (t/a First Business Support)

 (3)   Discretionary bonuses will also be excluded from the calculation of a "week's pay". Again, it may be argued that this fails the test of comparability.

 Plainly, therefore, complex questions arise on the interplay between Williams and the domestic law on payment for annual leave, contained in reg.16 WTR. The answers to those questions, too, may differ for the private and public sector. Even if Williams is inconsistent with reg.16 WTR, private sector employers would have strong arguments that the detailed scheme in reg.16 WTR could not be interpreted consistently with the WTD on Marleasing principles. For the public sector, however, the question may arise whether Article 7 of the WTD is directly effective against emanations of the state. The parties in Williams both agreed that it was not: but the issue was not argued out. It would be surprising if it did not rear its head again. Williams is likely to be the beginning of a long-running saga with potentially very significant financial consequences: watch this space.

Peter Walington QC and Julian Milford

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