Come Fly With Me Part II: Holiday Pay under EU Law

Andrew Smith

Williams & Others v British Airways plc (C-155/10)

The CJEU last week (15 September 2011) handed down another important judgment in a claim brought by commercial airline pilots, seeking to enforce their employment law rights under EU law.

This claim concerned the proper method of calculating the amount of holiday pay owed to BA pilots, whose remuneration under their contracts of employment comprised three main components:

  1. A fixed annual salary;
  2. A supplemental payment which varied according to the time spent flying BA’s aircraft (calculated at £10 per flying hour); and
  3. A supplemental payment to compensate the pilots for time spent away from base (calculated at £2.73 per hour).

The ‘flying supplement’ was treated as fully taxable remuneration.  As regards the ‘off base’ supplement, 82% was treated as having been paid on account of expenses and only 18% was treated as taxable remuneration.

The claimants’ contracts of employment provided that their holiday pay entitlement was calculated by reference to the fixed annual salary only; the supplemental payments were disregarded for this purpose.

The UK Court of Appeal ([2009] IRLR 491) had accepted BA’s argument that the fixed annual salary alone constituted remuneration; and that its method of calculating workers’ entitlement to holiday pay was therefore permissible.

The Supreme Court ([2010] IRLR 451) referred the matter to the CJEU, requesting clarification of the correct approach under EU law. The relevant provisions under consideration by the CJEU were Article 7 of Council Directive 2003/88/EC (“the Working Time Directive”) and Clause 3 of the European Agreement annexed to Council Directive 2000/79/EC (“the Aviation Directive”).

The CJEU’s Decision

The CJEU first emphasised that the objective of EU legislation in the field of annual leave (i.e. imposing on Member States an obligation to allow workers a minimum period of paid holiday each year) is to protect and promote the health and safety of workers.  Although no precise formula is provided in the Directives for calculating the level of such payments, “remuneration must be maintained and…in other words, workers must receive their normal remuneration for that period of rest” (para. 19), which is “comparable to periods of work” (para. 20).  Importantly, it followed that “an allowance, the amount of which is just sufficient to ensure that there is no serious risk that the worker will not take his leave, will not satisfy the requirements of EU law” (para. 21).

Having set out this background, the CJEU turned to the key question: what elements of the pilots’ remuneration should be taken into account when setting the level of their holiday pay entitlement? The Court’s key conclusions are at paras. 24 – 25, which are set out in full:

24     “Accordingly, 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, such as, in the case of airline pilots, the time spent flying, must necessarily be taken into account for the purposes of the amount to which the worker is entitled during his annual leave.

25     By contrast, the components of the worker’s total remuneration which are intended exclusively to cover occasional or ancillary costs arising at the time of 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, need not be taken into account in the calculation of the payment to be made during annual leave.”

In remitting the case to the Supreme Court, the CJEU stated that it was a task for the national court to “assess the intrinsic link between the various components which make up the total remuneration of the worker and the performance of the tasks which he is required to carry out under his contract of employment”.  Nevertheless, in paras. 24 – 25 the CJEU gave a very firm steer as to which elements of the pilots’ remuneration it considered should be taken into account when determining their holiday pay entitlements.

At first blush, it is difficult to understand why the pilots’ performance of flying duties should be regarded as an “inconvenient aspect” of their particular role; after all, that is what they are employed to do, and there was no suggestion that the flying allowance was only payable or related to (for example) unsociable flying hours. Nevertheless, the CJEU seemed persuaded that the flying allowances should be taken into account when determining the proper level of the pilots’ holiday pay.

The CJEU was similarly confident that the ‘away from base supplement’ need not be taken into account by BA when calculating the appropriate rate of holiday pay for its pilots.  Although this may seem a sensible conclusion, applying the CJEU’s own “intrinsically linked” test, it may be regarded as somewhat surprising.  The very nature of a pilot’s work in flying a commercial plane means that s/he will spend a significant amount of their working time away from their employment base. However, the CJEU apparently formed the view that any costs associated with this (inevitable) state of affairs were not “linked intrinsically” to the pilots’ performance of their employment duties, but instead constituted “occasional or ancillary” costs.

Once the national court has ascertained which elements of pay should properly be taken into account for the purpose of determining holiday pay entitlements, the “comparable rate” of pay should be calculated according to a “reference period which is judged to be representative” (para. 25). The CJEU did not, however, provide any guidance as to what sort of period would be acceptable under EU law.

The CJEU also stated that  “in addition to the components of the total remuneration set out in paragraph 24…all those which relate to the personal and professional status of an airline pilot must be maintained during the worker’s paid annual leave” (para. 28).  A practical example given by the Court to explain this statement was the case of Parviainen (C-471/08), which concerned an individual working for a purser for an airline company.  She had been transferred temporarily to ground work by reason of her pregnancy, and as a consequence lost the benefits which were associated with her role as a purser.  The CJEU held, unsurprisingly, that this was unlawful. However, it is not clear in what circumstances (if any) an element of a worker’s remuneration would “relate to the[ir] personal and professional status”, but not be “linked intrinsically to the performance of the tasks which the worker is required to carry out under his contract of employment…”

Discussion

The legal principles enunciated by the CJEU in this case may potentially have ramifications across many sectors of the employment sphere, not simply the airline industry.  Although the claim concerned an alleged breach of the pilots’ entitlement to “paid annual leave” pursuant to the Aviation Directive (implemented into UK law by the Civil Aviation (Working Time) Regulations 2004 (SI 2004/756), both the Supreme Court and the CJEU accepted that this phrase must be afforded the same meaning in the Working Time Directive (2003/88/EC), which is implemented into UK domestic law by the Working Time Regulations (as amended) (SI 1998/1833) (“WTRs”) and applies to the bulk of the domestic workforce.

Regulation 16 (1) of the WTRs provides that “a worker is entitled to be paid for any annual leave to which he is entitled under Regulation 13 and Regulation 13A, at the rate of a week’s pay in respect of each week of leave”. In order to calculate the amount of “a week’s pay” for the purpose of Regulation 16 (1), Regulation 16 (2) cross-refers to the detailed provisions contained in sections 221 – 224 of the Employment Rights Act 1996.  In light of the CJEU’s decision in Williams v BA, it is questionable whether the statutory provisions contained therein comply fully with the EU law obligation to ensure that workers receive “normal remuneration” during any periods of annual leave, which is “comparable to periods of work”.

For example, disputes may arise in circumstances where workers regularly undertake non-contractual overtime; or agree to undertake ‘stand by’ duties on a voluntary basis; or receive a significant proportion of their income in the form of commission payments, and who are faced with an argument by their employers that such payments fall to be disregarded under sections 221 – 224 of the ERA 1996. It is relatively commonplace for workers’ remuneration to comprise several discrete elements, both contractual and non-contractual; and employers (particularly public sector employers) will need carefully to consider the potential implications of the CJEU’s decision in Williams v BA. If and when the litigation returns to the Supreme Court, it is hoped that further practical guidance on this important issue will be forthcoming.

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