Calculation of holiday pay and the “week’s pay” rules

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The decision of the Court of Justice of the European Union in the context of calculating the holiday pay of airline pilots calls into question the “week’s pay” rules.

On 15 September 2011, the Court of Justice of the European Union (CJEU) issued its ruling in the case Williams and others v British Airways plc. The case concerns the calculation of the holiday pay of airline pilots when they take annual leave.

For most workers in the UK, entitlement to paid annual leave is defined in the Working Time Regulations 1998 (WTR).  These regulations require holiday pay of UK workers to be based on the “week’s pay” rules set out in sections 220 to 229, and 234, of the Employment Rights Act 1996.  These rules, which were originally introduced about 45 years ago, are often difficult to apply in the context of modern employment practices.  In principle, they require workers to be paid their normal rate of pay when taking holiday (and when enjoying a variety of other employment rights that involve payments) but, where the normal pay varies as a result of bonus, commission and shift premium payments, a 12-week average rate must be used.

Entitlement to paid annual leave for airline pilots is defined in the Civil Aviation (Working Time) Regulations 2004, not in the WTR.  Curiously, unlike the WTR rules, there is no specific provision in the Civil Aviation Regulations that specifies how holiday pay should be calculated.

The pay of airline pilots is made up of three payments, a fixed annual salary, a supplement for each planned flying hour, and a supplement for time spent away from base (which principally covers travel and subsistence expenses).  Under the terms of the Memorandum of Agreement between British Airways and the British Air Line Pilots Association, payment of annual leave is based solely on the fixed annual salary.  Mr Williams and other pilots successfully claimed before an employment tribunal and the Employment Appeal Tribunal that payment for annual leave should be based on their entire remuneration, including the supplementary payments.

However, in April 2009, the Court of Appeal overturned those decisions on the basis that the Civil Aviation Regulations do not include the WTR requirement for holiday pay to be calculated according to the statutory “week’s pay” rules.  As a result, British Airways had no statutory obligation to do any more than pay holiday pay as provided for in the pilots’ service agreements.

The British Air Line Pilots Association subsequently appealed the decision to the UK Supreme Court.  In March 2010, the Supreme Court referred a number of questions to the CJEU, principally to explore what European laws apply to the calculation of payments for annual leave.

In a preliminary ruling in June 2011, Advocate General Verica Trstenjak recommended to the CJEU that holiday pay should correspond to a worker’s normal remuneration but should not be set at a level that would deter workers from taking annual leave.  Where remuneration varies, she proposed that holiday pay should be based on average earnings, calculated over a representative reference period, and should include any relevant supplements.

In its final decision, the CJEU agreed in principle with the recommendations of the Advocate General but indicated that only supplements that are “linked intrinsically to the performance of the tasks which the worker is required to carry out under his contract of employment”, such as the flying time supplement, should be taken into account.  Supplements that “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 the supplement for time spent away from base, need not be taken into account.

The CJEU also made reference to its July 2010 decision in Parviainen, where the employee was entitled, on being transferred by reason of pregnancy to a temporary job, to both her basic salary and to any pay components or supplementary allowances relating to her professional status as an employee.  Accordingly, airline pilots are also entitled to have any components of their remuneration that relate to their personal and professional status maintained during paid annual leave.

The final ruling of the CJEU states that the European Working Time Directive and the related agreement on the application of the Directive to mobile workers in civil aviation must be interpreted as meaning that:

“an airline pilot is entitled, during his annual leave, not only to the maintenance of his basic salary, but also,

• first, to all the components intrinsically linked to the performance of the tasks which he is required to carry out under his contract of employment and in respect of which a monetary amount, included in the calculation of his total remuneration, is provided and,
• second, to all the elements relating to his personal and professional status as an airline pilot.

It is for the national court to assess whether the various components comprising that worker’s total remuneration meet those criteria.”

Does this ruling impact on the use of theUK’s “week’s pay” rules, to the extent that they apply to the calculation of paid annual leave?  Although the CJEU’s decision is given in the context of workers in civil aviation, it applies in principle to all workers to whom the Working Time Regulations apply and calls into question the legitimacy of the “week’s pay” rules and their approach to setting an appropriate level of pay during annual leave.  This decision affects allUKemployers.  Any resulting review of the complex and outdated “week’s pay” rules would not only be welcome but is now essential.

Further information:

Williams and others v British Airways plc

Williams and others v British Airways plc

Parviainen

Newsletter item “Working Time Regulations – Supreme Court refers pilots’ claim for higher holiday pay the European Court of Justice”

Newsletter item “Maternity Suspension and Temporary Transfers – Calculation of salary entitlements” 

Tags: Holiday pay, Recent Payroll News, Week's pay

This entry was posted on Friday, September 30th, 2011 at 11:30 and is filed under Holiday. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.