FULL RECOMMENDATION
SECTION 28(1), ORGANISATION OF WORKING TIME ACT, 1997 PARTIES : HIDDEN HEARING LIMITED (REPRESENTED BY O'HARE O'CONNOR WALSHE SOLICITORS) - AND - JOHN SMART DIVISION : Chairman: Mr Duffy Employer Member: Mr Doherty Worker Member: Mr Nash |
1. Appeal against Rights Commissioner's Decision WT19614/04/TB.
BACKGROUND:
2. The appeal concerns a worker who was employed by the Company from 18th March, 2003 until 20th February, 2004 on which date he resigned from the employment. His employment was subject to a written contract of employment and his remuneration package provided for a basic salary of €10,200 plus commission. The worker claimed that the calculation of his pay in respect of annual and public holidays arising during the course of his employment was incorrect and that there was an underpayment of €1,356.00 gross before tax. He contended that the Company failed to include commission earnings in the calculation of holiday and public holiday entitlement contrary to the provisions of the Organisation of Working Time Act, 1997. The Company rejected the claim stating that the worker was not entitled to the inclusion of commission payments for annual leave and in any event it disputes the amount claimed and that if the worker was entitled to the inclusion of commission on the annual and public holidays concerned, the correct amount due to him is €935.00 and not €1,356.00 as alleged by the claimant. The dispute was referred to a Rights Commissioner for investigation . On the 15th November, 2004 the Rights Commissioner issued his decision as follows:
I uphold the complaint and award the claimant €1,000 in compensation ".
On the 15th November, 2004 the Company appealed the decision to the Labour Court. The Court heard the appeal on the 14th April, 2005.
DETERMINATION:
The complainant was employed by the respondent as a hearing aid dispenser from 18th March 2003 until 20th February 2004, when he resigned. His salary was €10,200 per annum and he received commission on all finalised business which he conducted on behalf of the respondent. These payments arose when the business was not only fully secured but was fully paid for by the client.
The complainant claimed that during the continuance of his employment with the respondent his pay in respect of annual leave and public holidays was incorrectly calculated in that account was not taken of his commission earnings. The complainant presented a complaint to a Rights Commissioner pursuant to Section 27 of the Organisation of Working Time Act 1997 (the Act). The Rights Commissioner held with the complainant and awarded him compensation in the amount of €1,000. The respondent appealed to this Court.
The Law Applicable
Section 20 of the Act provides that pay in respect of holidays shall be at the employee's "normal weekly rate". Section 20(4) of the Act provides :
(4) In this section "normal weekly rate" means the normal weekly rate of the employee concerned's pay determined in accordance with regulations made by the Minister for the purpose of this section.
Regulations pursuant to this provision were made by SI 475 of 1997 and entitled Organisation of Working Time (Determination of Pay for Holidays) Regulations 1997. The determination of the present dispute turns on the true construction of Article 3 of those Regulations. This Article provides:
3 (1) The normal weekly rate of an employee's pay for the purposes of sections 20 and 23 of the Act (hereafter in this Regulation referred to as the "relevant sections"), shall be determined in accordance with the following provisions of this Regulation.
(2) If the employee concerned's pay is calculated (wholly) by reference to a time rate or a fixed rate or salary or any other ratethat does not vary in relation to the work done by him or her, the normal weekly rate of his or her pay, for the purposes of the relevant sections, shall be the sum (including any regular bonus or allowance the amount of which does not vary in relation to the work done by the employee but excluding any pay for overtime) that is paid in respect of the normal weekly working hours last worked by the employee before the annual leave ( or the portion thereof concerned) commences or, as the case may be, the cesser of employment occurs.
(3)If the employee concerned's pay is notcalculated whollyby reference to any of the matters referred to in paragraph (2) of this Regulation, the normal weekly rate of his or her pay, for the purposes of the relevant sections, shall be the sum that is equal to the average weekly pay (excluding any pay for overtime) of the employee calculated over-
- (a) the period of 13 weeks ending immediately before the annual leave (or the portion thereof concerned) commenences or, as the case may be, the cesser of employment occurs,
or
(b) if no time was worked by the employee during that period, over the period of 13 weeks ending on the day on which time was last worked by the employee before the annual leave (or the portion thereof concerned) commences or, as the case may be, the cesser of employment occurs.
Position of the Parties
The complainant contends that since his pay varied depending on the amount of commission which he earned, his holiday pay should have been calculated in accordance with Article 3(3). That is to say, it should have been calculated by reference to his gross pay, including commission, averaged over the 13 weeks preceding the relevant holidays.
Counsel for the respondent contended that Article 3(3) could not apply because the complainant's pay was calculated by reference to one of the matters referred to in Article 3(2), namely a rate that does not vary in relation to the work done by him. He pointed out that the opening words of Article 3(3) indicate that it has no application in such circumstances.
Counsel submitted that the commission earned by the complainant was not related to the amount of work which he undertook but to the success of that work in securing concluded sales. The Court was referred to the decision of the Court of Appeal for England and Wales inEvans v Malley Organisation Ltd[2002] EWCA Civ 1834 in support of this proposition.
This was a case with strikingly similar facts to those of the instant case. It involved a sales representative who was paid a basic wage and commission which was the larger part of his remuneration. He sold services to clients on behalf of his employer. The commission was based on the number of contracts successfully concluded and arose on the payment of a percentage of the fee chargeable on the contract. A dispute arose as to whether or not the commission earnings should be reflected in the plaintiff's holiday pay. The Court of Appeal decided that it should not. Counsel submitted that theratioof this case is that the averaging provisions of the Regulations are only applicable where pay is calculated by reference to the amount of work performed, rather than to the quality or success of that work.
Counsel also argued in the alternative that the type of payments at issue in this case were not contemplated by either paragraph (2) or (3) of Article 3. On that basis, it was submitted that they were not reckonable for the purposes of holiday pay under the formula provided for by either paragraph of Article 3.
It was further submitted on behalf of the respondent that the relevant provisions of the Act and the Regulations do not have a European law dimension and must be interpreted by the normal cannons of construction applicable in domestic law. This it was submitted, requires that the words used be given their ordinary and natural meaning.
Conclusions of the Court
The Court cannot accept the contention that the statutory provisions applicable in this case lack a community law dimension. It is clear from the long tittle of the Act that its purpose, inter alia, is to implement Directive 93/104/EC. Article 7 of that Directive provides as follows:
Annual Leave
1. Member States shall take the measures necessary to ensure that every worker is entitled to paid annual leave for at least four weeks in accordance with the conditions for entitlement to, and granting of, such leave laid down by national legislation and/or practice.
2.The minimum period of paid annual leave may not be replaced by an allowance in lieu, except where the employment relationship is terminated.
Whilst statutory provision for paid holidays existed in domestic law prior to the enactment of the Act, the law currently applicable is primarily derived from Article 7 of the Directive and must be interpreted and applied in light of the wording and purpose of that Article so as to achieve the result which it envisaged. The Directive envisaged that workers would be paid in respect of holidays. What constitute pay for that purpose is clearly a matter which falls to be considered with due regard to the rules of construction derived from the law of the Community.
In a line of authorities starting with the decision of the High Court inLawler v The Minister for Agriculture[1988] ILRM 400, the Courts have consistently adopted a teleological and schematic approach to the interpretation to Community legislation. This approach was explained by Murphy J in Lawler as follows:
Attention was drawn to the appropriate canons of interpretation of E.E.C. legislation. In particular reference was made to the second edition of Charman and the comments to be found therein on the teleological and schematic approaches to interpretation. With respect, it seems to me that the principles of interpretation were most helpfully and authoritatively dealt with in the paper read by Professor Kutscher, the President of the Chamber at the Court of Justice in Luxembourg in 1976 on Methods of Interpretation as seen by a Judge at the Court of Justice. I may quote at some length a passage from page 1.36 of that paper as follows:
It would be superfluous to point out once more what importance schematic interpretation has in the case law of the Court of Justice. Its application corresponds to the special features which characterise the legal system of the community. If this legal system takes the form of a broadly conceived plan and if it confines itself essentially to setting aims and directions as well as to establishing principles and programmes for individual sectors, and if in addition there is no legislature which fills in the framework drawn up by the treaties within a reasonable time...the judge is compelled to supplement the law on his own and to find the detailed rules without which he is unable to decide the case brought before him. The judge can succeed in this task only by having recourse to the scheme the guidelines and the principles which can be seen to underly the broad plan and the programme for individual sectors. Without recourse to these guidelines and principles it is not even possible to give precise definition to the significance and scope of the general rules and concepts of which the treaties make such abundant use...It is plain that such a schematic interpretation which sees the rules of community law in their relationship with each other and with the scheme and principles of the plan, cannot escape a certain systemization and therefore on occasion demand that solutions of a problem be inferred by deduction from general principles of law.
It is interesting to note from his decision inBuchanan & Co v Babco LtdQB 208 at 213 that Lord Denning MR was equally impressed by Judge Kutscher's paper and he, Lord Denning, explained the European method of interpretation in the following terms:
They adopt a method which they call in English by strange words - at any rate they were strange to me - the schematic and teleological method of interpretation. It is not really so alarming as it sounds. All it means is that the judges do not go by the literal meaning of words or by grammatical structure of the sentence. They go by the design or purpose which lies behind it. When they come upon a situation which is to their minds within the spirit - but not the letter - of the legislation, they solve the problem by looking at the design and purpose of the legislature - at the effect which it was sought to achieve. They then interpret the legislation so as to produce the desired effect. This means that they fill in gaps, quite unashamedly, without hesitation. They simply ask: what is the sensible way of dealing with this situation so as to give effect to the presumed purpose of this legislation?.
Mr Justice Murphy went on to acknowledge that the decision of inBuchanan and Co. v Babcowas reversed on appeal by the House of Lords, which did not find any justification for incorporating the teleological method of construction in the English legal system. He nonetheless took the view that it is appropriate in our law. The learned judge went on to say:
It seems to me that in construing E.E.C. regulations I am bound to apply the canons of interpretation so clearly adumbrated by Judge Kutshcer in his paper and with regard to domestic legislation it does seem to me that similar principles must be applicable at least insofar as it concerns the application of Community regulations to this State. Moreover, it does seem to me that the teleological and schematic approach has for many years been adopted in this country - though not necessarily under the description - in the interpretation of the Constitution. The innumerable occasions in which the preamble to the Constitution has been invoked and in particular the desire therein expressed to promote the common good with due observance of prudence, justice and charity so that the dignity and freedom of the individual may be assured, through social order attained , the unity of our country restored and concord established with other nations in seeking to fill the gaps in the Constitution is itself an obvious example of the teleological approach. Indeed in somewhat more mundane circumstances arising in the interpretation of the Family Home Protection Act 1976 in Nestor v Murphy [1979] IR 326 Henchy J expressly decided that the Court must adopt what has been called a schematic or teleological approach.
Keane J (as he then was) explained the concept inMulcahy v Minister for the MarineHigh Court, Unreported, 4th November 1994 as follows:
"While the Court is not, in the absence of a constitutional challenge, entitled to do violence to the plain language of an enactment in order to avoid an unjust or anomalous consequence, that does not preclude the Court from departing from the literal construction of an enactment and adopting in its place a teleological or purposive approach, if that would more faithfully reflect the true legislative intention gathered from the Act as a whole."
The Court is satisfied that it should adopt this method of interpreting the legislative provisions applicable in this case.
Purpose of the Directive
It is clear from Article 1 of the Directive that it is a health and safety measure and that the entitlement to paid annual leave must be seen in that context. The underlying object of the requirement to provide such leave is to afford workers minimum opportunities for rest and relaxation and to reconcile the requirements of work and family responsibilities. It is difficult to envisage how these objectives could be fulfilled if a worker could be made to suffer a significant reduction in his or her income while on holidays. In the circumstances of the instant case, this would mean that the complainant would be required to live on an income less than the National Minimum Wage during his holidays. This would hardly be conducive to providing him with an opportunity for rest and relaxation.
In the Court's view the requirement to provide paid holidays must be interpreted as meaning that a worker is entitled to receive the same pay in respect of holidays as he or she would have received (less overtime) had they been working normally during the period of the leave. Since commission payments constitutes the major portion of the complainant's normal pay, the Regulations cannot be interpreted in a way which would exclude these emoluments completely in calculating the complainant's holiday pay. It follows that they must be reckonable under either Article 3(2) or 3(3) for that purposes.
In considering which paragraph is applicable in this case the Court has considered the decision of the Court of Appeal inEvans v Malley Organisation Ltd.The reasoning in this case is compelling. However, the wording of the Section 221 of the Employment Rights Act 1996, which was the statutory provision at issue in that case, is materially different to the language used in Article 3(2) of the Irish Regulations.
Section 221 of the Employment Rights Act 1996 provides:
221 General
(1) This section and sections 222 and 223 apply where there are normal working hours for the employee when employed under the contract of employment in force on the calculation date.
(2) Subject to section 222, if the employee's remuneration for employment is normal working hours (whether by the hour or week or other period) does not vary with theamountof work done in the period, the amount of a week's pay is the amount which is payable by the employer under the contract of employment in force on the calculation date if the employee works throughout his normal working hours in a week.
(3) Subject to section 222, if the employee's remuneration for employment in normal working hours ( whether by the hour or the week or other period) does vary with theamountof work done in the period, the amount of a week's pay is the amount of remuneration for the number of normal working hours in a week calculated at the average hourly rate of remuneration payable by the employer to the employee in respect of the period of twelve weeks ending -
(a) where the calculation date is the last day of a week, with that week, and
(b) otherwise, with the last complete week before the calculation date.
[Emphasis added.]
It is clear that the application of either paragraph (2) or (3) of the UK Regulations is determined by whether or not the employee's pay is determined by reference to the amount of work done. This, as was pointed out by Hale LJ (as she was then) at page 441 of the report, refers to the quantity of the work done and not its quality or its results.
Article 3(2) of our Regulations makes no mention of the "amount" of work done. It applies where a rate does not vary in "relation" to work done. This gives the sub-paragraph a broader meaning than its UK counterpart and comprehends situations where pay is determined by the quality of work produced and by the success of that work in generating revenue for the employer. Since the complainant's pay varied by reference to the quality or success of his work, as measured by the number and value of completed sales, Article 3(2) is not applicable in calculating his holiday pay. The plain wording of Article 3(3) provides that it applies in situations where Article 3(2) is not applicable. Accordingly the complainant's holiday pay should be calculated on the formula prescribed by Article 3(3) of the Regulations. In the Court's view this construction is consistent with the language used in the Regulations and effectuates the legislative intention of providing employees with a right to be paid at their normal weekly rate of pay during holidays.
There is a final point which the Court should make. The basic salary payable to the complainant under his contract of employment was less than the minimum hourly rate of pay prescribed by the National Minimum Wage Act 2000, at the material time. The respondent could only have been in compliance with that Act if the commission payable to the complainant was reckonable for the purpose of the Act. In these circumstances it would be and affront to common sense to hold that these payments were not reckonable for holiday purposes.
The appeal is disallowed and the decision of the Rights Commissioner is affirmed.
Signed on behalf of the Labour Court
Kevin Duffy
22nd April, 2005______________________
TOD/BRChairman
NOTE
Enquiries concerning this Determination should be addressed to Tom O'Dea, Court Secretary.