SECTION 28(1); ORGANISATION OF WORKING TIME ACT; 1997
KVAERNER CEMENTATION (IRELAND) LIMITED
(REPRESENTED BY MASONS, SOLICITORS)
- AND -
Chairman: Mr Duffy
Employer Member: Mr Keogh
Worker Member: Ms Ni Mhurchu
1. Appeal against Rights Commissioner's Decision WT212/00/GF.
2. The worker concerned was employed on a six month contract as a labourer from the 13th of October, 1999. He terminated his employment with the company on the 15th of January, 2000. His rate of pay was £5.00 per hour inclusive of shift premium. This also included £0.56 per hour to cover all paid annual leave and paid public holidays.
The worker referred a claim for holiday pay to a Rights Commissioner under the Organisation of Working Time Act, 1997. The Rights Commissioner issued his findings and Decision on the 14th of April, 2000 as follows:
"I feel the Company have made a mistake in introducing the system as outlined in their submission.
I have decided that the complaint is well founded and the claimant should be paid his holiday pay strictly in accordance with the terms of the Act.
One third of a working week per calendar month where the employee works at least 117 hours.
Public Holidays for that period are October (last Monday), Christmas Day, Stephen's Day and New Year Day".
The Company appealed the Decision to the Labour Court on the 24th of May, 2000. The Labour Court heard the appeal in Thurles on the 12th of December, 2000, the earliest date suitable to the parties.
3. 1. In 1998 the Company deferred to the wish of the workforce and adopted the current system. The workers chose to be paid a higher hourly rate which included payment for annual leave and public holidays. Consequently, they benefited when overtime was worked and/or bonuses were paid for working on public holidays.
2. The Company has fully complied with the provisions of the Organisation of Working Time Act. The worker's contract of employment provided for the statutory period of annual leave, paid in advance at a rate proportionate to his normal weekly rate of pay.
4. 1. The worker was employed from the 13th of October, 1999 to the 15th of January, 2000. During that time he received no payment for statutory holidays or public holidays.
2. The worker did not understand his contract of employment and no-one explained it to him. He was paid only £5.00 per hour inclusive of shift pay and £5.00 per day bonus. Excluding shift pay and the £0.56 towards holiday pay, the worker would only have been earning approximately £3.00 per hour.
The respondent (the employee) was employed by the appellant (the employer) as a surface labourer from 13thOctober 1999 until 15thJanuary 2000. On 21stJanuary 2000, the employee made a complaint to a Rights Commissioner pursuant to Section 27 of the Organisation of Working Time Act, 1997. The substance of his complaint is that he was not paid in respect of four public holidays and had not received compensation for loss of annual leave on the termination of his employment.
The Rights Commissioner found that the complaint was well founded and directed the employer to comply with the relevant provisions of the Act. The employer appealed that decision to the Court.
The employer claims that the employee was paid his full entitlement in respect of annual leave and public holidays. It was submitted that the contract of employment entered into between the parties expressly provided that the hourly rate paid to the employee included an element intended to cover pay for annual leave and public holidays. The employer told the Court that this arrangement was agreed with the workforce in November, 1998 (before the employee commenced employment with the employer). The employer said that employees favoured this arrangement as it allowed them to obtain higher basic earnings, which were also reflected in higher overtime earnings. They also said that given the short-term nature of the work, some employees preferred to work rather than take their full holiday entitlements.
In relevant part, the contract of employment which was signed by the employee and is dated
15thOctober 1999, provides as follows:
Your hourly rate of pay is IR£ 5 .00 per hour which is inclusive of shift premium for working unsocial hours and which includes IR£ 0.56p per hour to cover all paid annual leave and public holidays for the full period of the contract as follows:
4 working weeks within each leave year (1stApril to 31stMarch) in which an employee works at least 1365 hours (unless it is a year in which the employee changed employment) or one third of a working week for each month in the leave year in which the employee worked at least 117 hours or 8% of the hours the employee works in the leave year (up to a maximum of 4 working weeks).
All statutory public holidays."
While this contract sets out the holiday entitlements to be afforded to the employee, the employer confirmed that employees were not compelled to take holidays.
The employer submitted that the arrangement reflected in the contract of employment complies fully with the requirements of the Organisation of Working Time Act, 1997. Specifically, they say that:
(1) The amount of annual leave provided is in accordance with Section 19(1) of the Act.
(2) The arrangement with regard to payment for annual leave conforms to the requirements of Section 20(2) in that it is:
(a) paid to the employee in advance of taking the leave and,
(b) that the amount incorporated in the hourly rate, when aggregated over the full leave year, is sufficient to cover the employee's normal weekly rate for the full period of annual leave to which he/she is entitled.
(3) The amount incorporated in the hourly rate for holiday pay is also sufficient to cover the employee's entitlements in respect of public holidays as set out in Section 21(1) of the Act.
The employee told the Court that he had not read the contract before signing it and its import had not been explained to him. He said that he had not received any holidays and understood that he was legally entitled to outstanding holiday pay on the termination of his employment.
The principle statutory provisions relevant to this dispute are to be found in Part III and Section 37 of the Organisation of Working Time Act, 1997 (the Act).
The purpose of the Act as set out in its long title is to transpose into Irish law the provisions of European Directive 93/104/EC on the Organisation of Working Time. The Act must, therefore, be interpreted in conformity with the Directive so as to achieve the result envisaged by the Directive.
The purpose of the Directive is set out in Article 1 thereof. This provides as follows:
(1) This Directive lays down minimum safety and health requirements for the organisation of working time.
(2) This Directive applies to:
a) minimum periods of daily rest, weekly rest and annual leave, to breaks and minimum weekly working time; and
b) certain aspects of night work, shift work and patterns of work.
Article 7 of the Directive provides as follows:
(1)Member States shall take the measures necessary to ensure that every worker is entitled to paid leave of at least four weeks in accordance with the conditions of entitlement to, and the granting of, such leave laid down by national legislation and/or practice.
(2) The minimum period of annual leave may not be replaced by an allowance in lieu, except where the employment relationship is terminated.
Part 111 of the 1997 Act was enacted to give effect to Article 7(1) of the Directive. It provides employees with an entitlement to four weeks' paid annual leave per year (and proportionately less where the employee has less than a full year's employment) and to paid leave, or additional payments, in respect of public holidays. This Part also makes consequential provisions in relation to the calculation and time of payment for such leave. It also makes provision (at Section 23) for the payment of compensation to an employee where annual leave is outstanding at the cesser of his/her employment.
In defending the arrangement at issue, the employer has placed particular emphasis on the provision at Section 20(2)(a) which requires that pay in respect of an employee's annual leave must be paid in advance of the employee taking the leave. They say that the arrangement meets that requirement.
What emerges from these statutory provisions is that:
1. The primary obligation on an employer is to ensure that employees receive the requisite period of paid leave.
2. That obligation cannot be offset by payment of an allowance in lieu of such leave.
3. The obligation is imposed for the protection of the health and safety of workers.
Section 37 of the Act provides for the voidance of certain provisions in a contract, which purport to limit the application of, or are inconsistent with the Act. It provides as follows;
- "37. Save as expressly provided otherwise in this Act, a provision in an agreement (whether a contract of employment or not and whether made before or after the commencement of the provision concerned of this Act) shall be void in so far as it purports to exclude or limit the application of, or is inconsistent with, any provision of this Act."
Conclusions of the Court
In relation to the present case a key question for consideration is whether the purported inclusion of an element in the employee's pay to cover holidays, which may or may not be taken at some point in the future, is consistent with the result envisaged by the Act. It is also necessary to consider if the element in the employee's basic pay, ostensibly to cover holiday pay, was in reality an allowance in lieu of holidays.
The expression "paid leave" is a term of common usage. It is generally understood as meaning a period during which an employee takes holidays and is paid his /her normal wages by the employer. In practical terms it means that when an employee is going on leave they are paid their normal wages to cover the period in question just as if they were at work during that period. The requirement to pay in advance simply means that the wages must be paid to the employee before he/she leaves on holidays rather than when they return. This is how the term has been understood since it first entered the language of industrial relations. In the absence of an indication to the contrary the expression as used in the legislation should be given this plain and ordinary meaning.
Further confirmation that this is the intended meaning of the term can be found in several other provisions of the Act and the Statutory Regulations governing payment for holidays.
The combined effect of Section 20(2)(a) and 20(2)(b) is that the pay must be paid to the employee in advance of his or her taking the leave and at the normal weekly rate. The normal weekly rate is defined by Regulation 3 of the Organisation of Working Time (Determination of Pay for Holidays) Regulations (S.I. 475 of 1997) as, in effect, the rate paid to the employee in respect of normal working hours in the week immediately before the leave is taken, or where it varies, by reference to the average pay in the thirteen weeks immediately before the leave is taken.
Taking these provisions in combination, it is clearly envisaged that the pay for holidays, which is to be given in advance of the leave must be calculated by reference to the period immediately before its commencement. It follows that when interpreted, in that context, the expression “in advance of his or her taking the leave” connotes an immediate proximity between the calculation and the making of the payment and the taking of the leave.
There are other practical matters which the Court should take into account in considering whether the type of arrangement at issue would be inconsistent with the result which the legislation was intended to achieve. These can be summarised as follows:
- The main purpose of providing annual leave is to allow employees to reconcile work and family responsibilities and to provide opportunities for rest and recreation. Thus, it is of significant benefit to employees and their families. This is only the case, however, if they have an income on which to live during the leave.
- There is no reality in the proposition that the average worker, particularly those on low pay, would have the frugality to faithfully put aside a designated portion of their weekly pay, to be drawn down up to 18 months later, so as to cover up to four weeks without an income. The strong probability is that workers would not take leave in such situations through economic necessity, or if forced to do so, would seek alternative work during the leave. This would defeat the central health and safety imperatives of the Act and the Directive on which it is based.
- Given the disparity in the bargaining position of those seeking employment and those offering it, a facility to designate an element of basic pay as being in respect of holidays would be inherently open to abuse. This would set at nought the protection which the legislation is intended to afford employees.
For all of the above reasons the Court is satisfied that the inclusion of an element in basic pay designed to cover holiday pay is inconsistent with the result which Article 7 of the Directive and Part III of the Act is intended to achieve. It follows that the term in the employee's contract of employment, which purports to make such a provision, is void by operation of Section 37 of the Act.
Turning to the contract itself there are a number of factors which point to the conclusion that the real intention behind it was to avoid a liability to provide paid holidays altogether. In that regard, in ascertaining the true intentions of the parties the Court has looked not just at what was reduced to writing in the contract, but also at the circumstances surrounding the conclusion of the agreement on which it is based.
Counsel for the employer told the Court that the terms and conditions of employment, including the rate of pay, were negotiated between the company and its employees collectively. He characterised the outcome of these negotiations as a collective agreement. In these negotiations the employer first offered a rate of £4.50 per hour together with full holiday entitlements. This was rejected by the workforce and a revised offer of £5 per hour was offered to include holiday pay. This offer was accepted.
It is clear that the basic rate of the employees concerned was £5 per hour as it was this rate that was used to calculate overtime. There is no provision in the agreement reached or in the contracts of the individual employees which stipulates that holidays must be taken. Indeed the employer accepted that employees rarely took their full holidays. On this point the following passage from the employer's submission to the Court is instructive:
"The nature of the work (short term and high reward) may have meant that some employees, such as Mr. Treacy preferred to work rather than take their full holiday entitlement in the short term."
If employees were not expected to take holidays no portion of their pay could be properly described as pay for holidays. At best the element described as holiday pay was in reality an allowance in lieu of holidays. Any such allowance is expressly precluded by Article 7(2) of the Directive and must also be regarded as precluded by Section 37 of the Act.
All of the evidence surrounding the conclusion of the agreement on which the claimant's contract is based indicates that what in fact occurred was that the employer agreed to a basic rate of £5 per hour, and by way of a quid pro quo sought the waiver of entitlements to paid leave. This was the true intention of the parties and any other indication in the written terms is merely colourable. It follows that any such purported waiver is void and of no effect.
For the reasons set out above the Court is satisfied that the decision of the Rights Commissioner is correct. The appeal herein is dismissed and the decision of the Rights Commissioner is affirmed. The employee's entitlement in respect of annual leave is five days' pay at a daily rate of £40. He is also entitled to a day's pay in respect of each of the five public holidays which occurred during his period of employment, at the samerate, less any premium paymentswhich he received in respect of working on any such public holiday.
Signed on behalf of the Labour Court
31st January, 2001______________________
Enquiries concerning this Determination should be addressed to Dympna Greene, Court Secretary.