DWT071

Position of the parties.

The Claimants' case.

It was submitted on behalf of the Claimants that under the terms of the contract with Irish Rail the Respondent was paid by the client in respect of the annual leave at issue. This, it was submitted, is normal practice in the sector. The Court was told that in these circumstances the transfer of contracts in the industry gives rise to uncertainty and difficulties with regard to the responsibility for accrued holidays. SIPTU contended that best practice in the industry was that the transferor and the transferee would make arrangements as between themselves on how the holiday entitlements of the transferred employees were to be provided for. It was submitted that in the instant case no such arrangements had been made.

The Union also contended that the Claimants resigned from their employment with the Respondent prior to the transfer and commenced with the transferee as new employees. In these circumstances the Court was urged to find that the Claimants became entitled to compensation in respect of the outstanding holidays on the cessor of their employment.

SIPTU told the Court that it was in part motivated in bringing the within appeal to obtain clarity on where responsibility lies for outstanding holidays where there is a transfer of an undertaking. In that regard the Union referred to the Determination of this Court inSIPTU and Grosvenor Cleaning Services Ltd(Determination 0440) in which it was held that a transferor employer remained responsible for outstanding holidays. SIPTU also told the Court that it was seeking clarity on what constitutes a “leave year” for the purposes of the Act. In that regard it was pointed out that employers in the sector operate different leave years and where workers transfer this can give rise to difficulty.

Respondent’s case.

The Respondent submitted that the transfer of the contract from it to the transferee came within the ambit of the Regulations and, as a matter of law, the responsibility for the holidays at issue passed from the Respondent to the transferee. It was the Respondent’s case that at all material times the transferee knew or ought to have known that if it was awarded the contract it would assume liability for the outstanding holiday entitlements of the Claimants. In support of its contention the Respondent opened to the Court a letter from the transferee to the Respondent dated 18th July 2005 (at which point the tendering process was underway) seeking,inter alia, information on the outstanding accrued holiday entitlements of the Claimants.

The Respondent submitted that the instant case could be distinguished from the decision inGrosvenor Cleaning Serviceson its facts. It was pointed out that inGrosvenorthe transferor had contravened the Act in not providing its employees with annual leave and Public Holidays over an extended period. It was further agreed between all parties in that case that the transferee would not be liable for outstanding holidays.

The Respondent denied that any of the Claimants had resigned prior to the date of transfer.

Findings

Did the Claimants resign?

The Claimants contend that they resigned prior to the relevant transfer. This is denied by the Respondent. A resignation is a unilateral act by an employee which is intended to bring his or her contract of employment to an end. In this case the Claimant continued in the employment of the Respondent up to the date of transfer and resumed employment with the transferee immediately thereafter. That was wholly inconsistent with an intention on the part of the Claimants to bring their employment to an end. In these circumstances the Court is satisfied that the Claimants did not resign prior to the date of transfer and accordingly their employment transferred to the transferee in accordance with Regulation 4 of the Regulations.

Issues for Consideration

The Court has not been asked to decide if the transfer of the contract from the Respondent to the transferee constituted the transfer of an undertaking or part of an undertaking within the meaning of the Regulations. It is agreed between the parties to these proceedings that it was such a transfer. Consequently, and in that context, the only question for consideration by the Court is whether the Respondent is liable to the Claimants for outstanding holidays prior to the date of transfer.

Law applicable

Before addressing the question before the Court it is necessary to review the relevant legal principles including the provisions of domestic and Community law.

Regulation 4 of the Regulations provides that the transferor's rights and obligations arising from a contract of employment existing on the date of a transfer, by reason of such transfer, be transferred to the transferee. A fundamental obligation of an employer under a contract of employment is to employ the employee. Hence, on a transfer taking place, the obligation to employ the relevant employees of the transferor is transferred by operation of law to the transferee. There is thus no termination of the employment although the identity of the employer changes from the transferor to the transferee.

Section 19 of the Act provides employees with an entitlement to annual leave. The entitlement is confined to employees and, while the obligation is derived from statute, it arises from the existence of a contract of employment and therefore from the contract itself. It follows that under the Regulations, where an obligation resides in a transferor to provide annual leave to an employee at the date of transfer, that obligation transfers to the transferee by virtue of Regulation 4 of the Regulations.

Section 19 of the Act sets out the entitlement of an employee to paid annual leave as follows: -

• ( a ) 4 working weeks in a leave year in which he or she works at least 1,365 hours (unless it is a leave year in which he or she changes employment),
  
  ( b ) one-third of a working week for each month in the leave year in which he or she works at least 117 hours, or
  
  ( c ) 8 per cent. of the hours he or she works in a leave year (but subject to a maximum of 4 working weeks).
  

• The times at which annual leave is granted to an employee shall be determined by his or her employer having regard to work requirements and subject—
  • ( a ) to the employer taking into account—
    
    • (i) the need for the employee to reconcile work and any family responsibilities,
      (ii) the opportunities for rest and recreation available to the employee,
      

• ( b ) to the employer having consulted the employee or the trade union (if any) of which he or she is a member, not later than 1 month before the day on which the annual leave or, as the case may be, the portion thereof concerned is due to commence, and
  
  ( c ) to the leave being granted within the leave year to which it relates or, with the consent of the employee, within the 6 months thereafter.
  

Conclusion

General

It is clear from the foregoing that the right of workers to paid annual leave is a fundamental social right in the law of the Community. It has its origins as such in the Charter of the Fundamental Social Rights of Workers, adopted on 9th December 1989 (see Case C-484/04Commission v United Kingdom of Great Britain,and Northern Irelandpar 35). The imperative pursued by the Directive, and consequently by domestic law, is that workers receive holidays as periods of rest with pay. To that end any arrangement which results in workers being denied the opportunity to take holidays, or which discourages them from so doing, including making payment in lieu, is prohibited.

It is also clear from the scheme of the Act that the responsibility rests with the employer to ensure that workers not only have the opportunity to take leave but that it is given at a time which is suitable to their needs balanced with the needs of the business. It is also clear from the provisions of the Act that leave must be granted within the leave year unless there is express agreement to extend the period during which it can be given up to a maximum of six months from the close of the leave year. A leave year is a year commencing on 1st April and ending on 31st March. This cannot be varied by agreement or otherwise. It is also clear from the jurisprudence of the ECJ, and from the practice of this Court, that where there is a failure to provide annual leave in accordance with the law, the contravention will be viewed with the utmost seriousness. In such cases the quantum of compensation awarded will normally go beyond the economic value of the holidays lost and will include a significant dissuasive element.

The present case

In the instant case the transfer took effect on 12th December 2005. The leave outstanding at that time related to the leave year commencing 1st April 2005 and ending on 31st March 2006. It is clear that where the full leave entitlement is not given a contravention of the Act crystallises at the end of the leave year. At the date of the transfer the leave year had not expired and so the Respondent could not have contravened the Act by failing to provide the outstanding leave. In accordance with the Regulations (and it is agreed for the purposes of this case that the Regulations did apply) the responsibility to grant outstanding leave within the leave year transferred to the transferee. If the Court were to take the view that a transferor could discharge its liability to employees in respect of outstanding holidays at the date of transfer by paying the economic value of the outstanding leave, this would amount to sanctioning payment in lieu of holidays where the employment relationship is continuing. Alternatively, it would contravene the principle, at the heart of the Directive, that the employment relationship continues uninterrupted where an undertaking is transferred. As a matter of domestic and Community law, neither option is open to the Court.

Grosvenor Cleaning Services Case

SIPTU advanced the argument that the Decision of the Rights Commissioner under appeal is inconsistent with the Determination of this Court inSIPTU and Grosvenor Cleaning Services Ltd.(Determination 0440). The Determination in that case cannot be considered in isolation from the factual matrix within which it was given.

That case concerned a claim by the Union for redress arising from the Respondent’s failure to provide the Claimants with their statutory entitlements to annual leave and public holidays. It appears from the Determination of the Court that the cleaning contract on which the Claimants had been employed was transferred to another contractor with effect from 31st March 2003. It was held that this was a transfer of an undertaking within the meaning of the Regulations.

Over the continuance of their employment with the Respondent the Claimants had not received their statutory entitlement to annual leave and by the date of transfer they had a significant annual leave entitlement outstanding. Proceedings were taken against the transferor under the Act of 1997. The transferor denied that it had any liability to the Claimants and contended that any cause of action which they had was against the transferee.

In its consideration of the case the Court first noted that all of the leave years to which the leave at issue related had expired. Thus the cause of action which accrued to the Claimants was in respect of the Respondent’s failure to discharge its statutory duty to provide them with the annual leave to which they were entitled. The Court held that what it was being asked to do was to allow the transferor to use the Regulations as a shield to escape liability for the contraventions of the Act which it had committed and to make the transferee, which was wholly innocent of any wrongdoing, liable in its stead. The Court went on to hold that in the circumstances of that case it would be unconscionable to allow the Respondent to avoid responsibility (and thus profit) for its own wrongful actions by relying on a statute which was intended to be in ease of employees.

The facts of the instant case are substantially different. In law the Respondent in this case was not in substantive or technical breach of the Act on the date of transfer and no cause of action had accrued to the Claimants on that date. Thus, the essential rationale on which the Determination inGrosvenorwas grounded (that it would be unconscionable to allow the Respondent to benefit from its own wrongdoing) is not present in this case.

For these reasons the Court is satisfied that the instant case can be distinguished from theGrosvenorcase.

Summary

For the sake of completeness and in response to the Union’s request for clear guidance in the matter, the conclusions of the Court can be summarised as follows: -

1. Every employee is entitled to paid annual leave in accordance with s19 of the Act.

2. The requirement to provide the requisite annual leave is a health and safety imperative.

3. The right to paid time off for annual leave is a fundamental social right of workers derived from the law of the European Community. It cannot be derogated from by agreement or otherwise.

4. Except where the employment has terminated, the entitlement to paid time off for annual leave cannot be replaced by a payment in lieu.

5. Where there is a transfer of an undertaking, business or part of an undertaking within the meaning of the Regulations, the transferee automatically stands in the shoes of the transferor as the employer of affected employees and there is no termination of employment.

6. The responsibility to provide transferred employees with outstanding paid time off for annual leave transfers from the transferor to the transferee.

7. Except where there is express agreement to extend the time, the annual leave must be given within the leave year.

8. A leave year is the period commencing on 1st April each year and concluding on 31st March of the year next following.

9. The times during the leave year at which the leave is to be given is determinable by the employer having regard to the criteria prescribed at s 20 of the Act (set out above)

10. Where there is a failure to provide the full amount of annual leave to which a worker is entitled, except where the employment terminates, a cause of action accrues at the end of the leave year to which the leave relates or, where there is express agreement to extend the period, six months thereafter.

11. Where there is a failure to provide annual leave in accordance with the Act an aggrieved employee’s cause of action is not for the recovery of money due but for the infringement of a social right. This is the equivalent of an action both for breach of contract and breach of statutory duty.

12. Where a complaint alleging a failure to provide annual leave in accordance with the Act is upheld the redress awarded must go beyond mere compensation and must include a dissuasive component.

13. Where there is a failure to provide annual leave and a transfer of undertakings occurs after the relevant leave year has expired (or where there is express agreement to extend the period by up to six months, that period has expired) the Determination of this Court inGrosvenorindicates that the transferor may not escape liability for its wrongdoing.

Determination

For the reasons set out in this Determination the Court has concluded that the complaint herein is not well founded. The Decision of the Rights Commissioner is affirmed and the appeal is disallowed.

Rider

This case has raised serious issues relating to the holiday entitlements of workers in the Private Security Industry where a transfer of undertakings occurs by operation of the Regulations. The Court considers it appropriate to set out its opinion on these issues and how they should be addressed. What follows does not form part of the Court’s Determination and is intended for the assistance and guidance of the parties.

A disturbing feature of this case is that the Respondent accepted that it received payment from its former client to cover the holidays of the Claimants. This, it would appear, is common practice in the sector. The monies thus received by the Respondent were not fully used for the purpose intended since the Claimants had significant outstanding holidays due to them at the date of transfer and no arrangements were made to indemnify or otherwise compensate the transferee for the costs of providing the outstanding holidays.

It is also apparent that the Claimants have not received the holidays at issue from their current employer. This is a most unsatisfactory state of affairs which must be addressed. While it may be that further proceedings will be taken, the Court is strongly of the view that, without prejudice to any such proceedings, all parties, including the Union, the Respondent in this case and the transferee employer, have a responsibility to resolve this situation. The Court would strongly urge all three parties to meet with a view to agreeing arrangements whereby the Claimants in this case will receive fair compensation for the loss of the annual leave which they suffered in the leave year 2005- 2006. In the interests of fairness, equity and in line with good industrial relations practice the Respondent should make an appropriate contribution to the costs of any such settlement. If agreement cannot be reached on the amount of compensation due to the Claimants, the matter should be referred back to the Court for final adjudication. In that event the Court further recommends that the parties refer the matter pursuant to s20(2) of the Industrial Relations Act 1969.

The Court further understands, on the basis of the submissions made to it in this case, that there is a divergence of practice between firms in the sector in dealing with the carryover of holiday entitlements where a transfer of undertakings occurs. It is for the industry itself to set out reasonable and fair arrangements to deal with this issue in a consistent fashion which complies with the purpose and scheme of both the Act and the Working Time Directive. The Court suggests that the Union and the employers in the Industry should seek to agree on such arrangements, having regard to the guidance provided herein, which should be incorporated in a code of good practice for the sector. The parties should consider requesting the services of the Advisory Service of the LRC in that task.



Signed on behalf of the Labour Court



Kevin Duffy
17th_January, 2006______________________
JBChairman



NOTE

Enquiries concerning this Determination should be addressed to Jackie Byrne, Court Secretary.