Appeal No. UKEAT/0377/07/MAA

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
On 22 and 23 November 2007
	Judgment handed down on 28 February 2008

Before
THE HONOURABLE MR JUSTICE KEITH
MR C EDWARDS
MR I EZEKIEL

BRITISH AIRWAYS PLC	APPELLANT

MS S WILLIAMS & OTHERS	RESPONDENTS

Transcript of Proceedings

JUDGMENT

	APPEARANCES

For the Appellant	MR C JEANS QC
(One of Her Majesty’s Counsel)
MR ANDREW SHORT
(of Counsel)
Instructed by:
British Airways Plc Legal Department
Waterside (HBA3)
West Drayton
PO Box 355
Harmondsworth
Middlesex
UB7 OGB

	
For the Respondents	MS J McNEILL QC
(One of Her Majesty’s Counsel)
MR KEITH BRYANT
(of Counsel)
Instructed by:
Messrs Simpson Millar Solicitors
2nd floor
33-41 Dallington Street
London 
EC1V OBB	

SUMMARY
Working Time Regulations:  Holiday Pay
Civil Aviation (Working Time) Regulations – whether the annual leave pay of airline pilots should be calculated by reference to their basic salary or their basic salary plus supplements (such as flying pay and the taxable element of the allowance which is paid to them when they are away from their base) so that they do not receive less when they are on annual leave than when they are working normally.

THE HONOURABLE MR JUSTICE KEITH
1.	Pilots employed by British Airways receive supplements over and above their basic pay.   These supplements include flying pay and an allowance payable when they are away from their base.   But when they are on annual leave, they are paid only their basic pay.   The result is that when they are on annual leave they are paid less than when they are working normally.   This case raises the question whether new regulations implementing a European Directive relating to, among others, airline pilots now require their pay while on annual leave to reflect the supplements which they receive when they are working normally.

2.	British Airways’ stance is that the new regulations do not require it to pay its pilots anything other than their basic pay while they are on annual leave.  The pilots disagree, and they presented a complaint to the Employment Tribunal seeking compensation for that part of their annual leave pay which they claim is being denied to them.   The Employment Tribunal decided an important preliminary issue in their favour.  We shall explain a little later the course which the proceedings have taken, but first we propose to identify the legislative framework within which the issue between the parties arises, and to set out the facts which are relevant to the current exercise.   We know that the decision in this case could well affect cabin crew, not just flight crew, as well as the crews of other airlines in the United Kingdom, so we are keenly aware of its importance.

The legislative framework

3.	The Working Time Directive.  On 23 November 1993, the Council of the European Union adopted Directive 93/104/EC.   It is known as the Working Time Directive.   Article 7 of the Directive gave workers the right to annual leave, though it did not seek to lay down how workers’ pay while they were on annual leave was to be calculated.   That was to be left to national legislation or practice.   It provided:
“1.  Member States shall take the measures necessary to ensure that every worker is entitled to paid annual leave of 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.”

However, under the heading “More specific Community provisions”, Article 14 provided:
“The provisions of this Directive shall not apply where other Community instruments contain more specific requirements concerning certain occupations or occupational activities.”

There was at that time no other Community instrument which applied to those who worked in civil aviation, but workers in the industry were nevertheless not covered by the Directive, since Article 1(3) provided that the Directive was not to apply to those who worked, among other sectors, in the air transport industry.   

4.	The Working Time Regulations.  The Working Time Directive was implemented into the domestic law of the United Kingdom by the Working Time Regulations 1998 (SI 1998/1833).   The Regulations came into force on 1 October 1998.   Workers’ entitlement to annual leave (which was to be four weeks once the transitional period for the introduction of the Regulations had come to an end) was contained in reg. 13, and nothing turns on its terms.   Reg. 16 dealt with their entitlement to be paid when they took their annual leave, but unlike the Working Time Directive it also dealt with how that pay was to be calculated.   Reg. 16 therefore represented the “national legislation” on the topic envisaged by Article 7.   Reg. 16 provided (so far as is material):
“(1)  A worker is entitled to be paid in respect of any period of annual leave to which he is entitled under regulation 13, at the rate of a week’s pay in respect of each week of leave.   
(2)  Sections 221 to 224 of the [Employment Rights Act 1996] shall apply for the purpose of determining the amount of a week’s pay for the purposes of this regulation …”

The non-application of the Working Time Directive to those who worked in the air transport industry and other particular sectors was mirrored in the Working Time Regulations.  Reg. 18 of the Working Time Regulations provided that a number of the regulations in the Working Time Regulations were not to apply to those who worked in such sectors.  The regulations which did not apply to them included regs. 13 and 16.   

5.	Pilots employed by British Airways do not have normal working hours.  Accordingly, the provision in sections 221-224 of the Employment Rights Act 1996 which would have applied to them if regs. 13 and 16 of the Working Time Regulations had applied to those who worked in the air transport industry was section 224, which provided (as modified by the Working Time Regulations):

“(1)	This section applies where there are no normal working hours for the worker working under the contract in force on the calculation date.
  (2)	The amount of a week’s pay is the amount of the worker’s average weekly remuneration in the period of twelve weeks ending –
	(a)	where the calculation date is the first day of the period of leave in question, with that period, and
	(b)	otherwise, with the last complete week before the first day of the period of leave in question.”

6.	Amendments to the Working Time Directive.  In due course, the Council of the European Union concluded that the Working Time Directive should be extended to cover all workers.   Accordingly, Article 1(3) was replaced on 22 June 2000 (by Directive 2000/34/EC) by a new Article 1(3) which provided that the Working Time Directive was to apply to workers in all sectors of activity (with the exception of seafarers).  The reason for the exclusion of seafarers was that an agreement between the European Community Shipowners’ Association and the Federation of Transport Workers’ Unions in the European Union (“the Seafarers’ Agreement”) concluded on 30 September 1998 about seafarers’ working time had already been implemented into Community law by Directive 99/63/EC which the Council of the European Union had adopted on 21 June 1999.  In addition, the opportunity was taken to tighten up the language of Article 14.   It was replaced by a new Article 14 so that it then provided:

“This Directive shall not apply where other Community instruments contain more specific requirements relating to the organisation of working time for certain occupations or occupational activities.”

7.	The Aviation Agreement.  In the meantime, a similar agreement to the Seafarers’ Agreement had been concluded in respect of workers in the air transport industry.  That agreement is the genesis of the provisions relating to paid annual leave for airline pilots.  The agreement was the European Agreement on the Organisation of Working Time of Mobile Staff in Civil Aviation (“the Aviation Agreement”).  It was concluded on 22 March 2000 between the Association of European Airlines and a number of workers’ federations.  The Agreement applied to crew members on board a civil aircraft, i.e. it applied to both flight crew and cabin crew.  The core clause in the Agreement for our purposes was clause 3, which provided:

“1.  Mobile staff in civil aviation are entitled to paid annual leave of 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.”

It will be seen that this reproduced the language of Article 7 of the Working Time Directive.  The Aviation Agreement therefore did not seek to lay down how workers’ pay while they were on annual leave was to be calculated, leaving that once again to “national legislation and/or practice”.  The Tribunal was to find that this issue had not been “high on the agenda” of the European Cockpit Association (which was a European-wide federation for airline pilots and included the British Airline Pilots’ Association (“BALPA”), and which had been one of the parties to the Agreement).  

8.	The Aviation Directive.  The Aviation Agreement was implemented into Community law by a directive adopted by the Council of the European Union on 27 November 2000 (Directive 2000/79/EC) (“the Aviation Directive”).   It applied to mobile staff in civil aviation.   With regard to terms used in the Aviation Agreement which were not specifically defined, the preamble to the Aviation Directive stated in recital (12):

“… this Directive leaves Member States free to define those terms in accordance with national law and practice, as is the case for other social policy Directives using similar terms, providing that the said definitions are compatible with the [Aviation] Agreement.”

Having stated in Article 1 that the purpose of the Aviation Directive was to implement the Aviation Agreement, the Aviation Directive went on to provide in Article 3 – the core provision of the Aviation Directive – as follows:

“Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with this Directive not later than 1 December 2003 or shall ensure that, by that date at the latest, management and labour have introduced the necessary measures by agreement.   The Member States shall take any necessary measure to enable them at any time to be in a position to guarantee the results imposed by this Directive.   They shall forthwith inform the Commission thereof.   
When Member States adopt these measures, they shall contain a reference to this Directive or be accompanied by such a reference on the occasion of their official publication.  The methods of making such a reference shall be laid down by the Member States.”

9.	The Aviation Directive was one of the Community instruments – envisaged by Article 14 of the Working Time Directive – which contained more specific requirements relating to the organisation of working time for a particular group of workers, namely those who worked as mobile staff in civil aviation.  Accordingly, the Working Time Directive no longer applied to them.   However, it is to be noted that like the Working Time Directive, the Aviation Directive did not seek to lay down how workers’ pay while they were on annual leave was to be calculated.  That was to be left to “laws, regulations and administrative provisions” (which was the phrase used in Article 3 of the Aviation Directive to cover the reference to “national legislation” in clause 3 of the Aviation Agreement) or to collective agreements between representatives of management and labour (which was how the phrase “national … practice” in clause 3 of the Aviation Agreement was implemented in Article 3 of the Aviation Directive).   As we shall see, neither the legislation which was introduced to implement the Aviation Directive nor the collective agreements covering British Airways’ pilots addressed how their pay while they were on annual leave should be calculated.  Indeed, no steps were taken to make the introduction of collective agreements covering the annual leave pay of workers to whom the Aviation Directive applied mandatory.   

10.	Amendments to the Working Time Regulations.  Following the amendment of the Working Time Directive to provide that it covered workers in all sectors of activity (with the exception of seafarers), there had to be consequential amendments to the Working Time Regulations.   Those amendments were effected by the Working Time (Amendment) Regulations 2003 (SI 2003/1684).   Reg. 18 was replaced by a new reg. 18.   The new regulation had three consequences which are relevant for present purposes:

(i)  The Working Time Regulations as a whole were not to apply to seafarers, to workers on board a sea-going fishing vessel, or to workers on board a ship or hovercraft which carried passengers or goods by inland waterway or lake transport (reg. 18(1)).   
(ii)  Some of the regulations in the Working Time Regulations were not to apply to workers to whom the Aviation Agreement related.  Among the regulations which were not to apply to such workers were regs. 13 and 16 (reg. 18(2)(b)).   
(iii)  Some of the regulations in the Working Time Regulations were not to apply to persons performing mobile road transport activities.  Regs. 13 and 16 were not among the regulations which were not to apply to such workers (reg. 18(4)).   

11.	The Civil Aviation (Working Time) Regulations.  The Aviation Agreement, and the Aviation Directive which implemented it into Community law, were implemented into the domestic law of the United Kingdom by the Civil Aviation (Working Time) Regulations 2004 (SI 2004/756) (“the Aviation Regulations”).  The Aviation Regulations came into force on 13 April 2004.   By reg. 2, they apply to persons employed to act as “crew members” on board a civil aircraft flying for the purposes of public transport.  By reg. 3, “crew members” includes both flight and cabin crew, and flight crew includes pilots.  The core provision of the Aviation Regulations for present purposes is reg. 4.  Under the heading “Entitlement to annual leave”, reg. 4 provides:

“(1)  A crew member is entitled to paid annual leave of at least four weeks, or a proportion of four weeks in respect of a period of employment of less than one year.
 (2)  Leave to which a crew member is entitled under this regulation – 
	(a)  may be taken in instalments;
(b) may not be replaced by a payment in lieu, except where the crew member’s     employment is terminated.”

There is no provision in the Aviation Regulations comparable to reg. 16(2) of the Working Time Regulations.  In other words, unlike the Working Time Regulations, the Aviation Regulations are silent as to how the pay to which a crew member is entitled during any period of annual leave is to be calculated.  Indeed, during the formal consultation process prior to the promulgation of the Aviation Regulations, there was no discussion about how it was to be calculated.   That difference between the Working Time Regulations and the Aviation Regulations lies at the heart of this appeal.   

12.	The remedies for crew members who claim that they have not received the annual leave pay to which they are entitled are set out in reg. 18 of the Aviation Regulations.  Reg. 18(1) gives jurisdiction over such a claim to employment tribunals.  It provides:

“A crew member may present a complaint to an employment tribunal that his employer has refused to permit him to exercise any right he has under regulation 4 [and other regulations].”

Reg. 18(3) sets out the awards an employment tribunal can make.  It provides:
“Where an employment tribunal finds a complaint under regulation 4 [and other regulations] well founded, the tribunal – 
	(a) shall make a declaration to that effect; and
	(b)	may make an award of compensation to be paid by the employer to the crew member.”
It was pursuant to reg. 18(1) that the pilots’ complaint was presented to the Employment Tribunal.   

The relevant facts

13.	Most of the relevant facts were agreed.  The Claimants are all pilots employed by British Airways.  Their employment is covered by collective agreements between British Airways and BALPA, the relevant sections of which have been incorporated into their individual contracts of employment.  Under their contracts of employment, British Airways’ pilots are entitled to receive, in addition to their basic salary, two forms of supplementary payments:

(i)  Flying pay.   Flying pay is paid at the rate of £10.00 for each planned flying hour, which very broadly speaking means the number of hours which a flight is scheduled to last.  The whole of the flying pay is taxable. 
(ii)  Time away from base allowance.  This allowance is paid for each hour a pilot is away from his or her base.  It includes both flying time and time on the ground.  It is paid at the rate of £2.73 per hour.  Only 18% of this allowance is treated as part of their pay for income tax purposes and is therefore taxable, reflecting the fact that the Revenue accepts that 82% of this allowance is attributable to reimbursement of the pilots’ out-of-pocket expenses.   

14.	Although British Airways’ pilots are entitled to annual leave, the collective agreements incorporating their terms of employment do not deal at all with how their pay while they are on annual leave is to be calculated.  At present, they are only paid their basic salary while on annual leave.  They do not receive either flying pay or the time away from base allowance.   The predecessors of flying pay and the time away from base allowance were likewise not paid to the pilots while they were on annual leave.  But these arrangements have not been the subject of any collective agreement.  They merely represent current and previous practice to which BALPA has not objected in the past.  However, after the Aviation Regulations came into force BALPA raised the issue.  It contended that following the promulgation of the Aviation Regulations, flying pay and the taxable element of the time away from base allowance should be taken into account in calculating pilots’ pay while they are on annual leave.  British Airways’ position is that flying pay should not be payable because the pilots are not flying when they are on annual leave, and that the taxable element of the time away from base allowance should not be payable because the pilots are not away from base on duty while they are on annual leave.  Eventually, BALPA submitted a collective grievance on the topic which British Airways has considered both at a hearing and on appeal.  British Airways rejected the grievance.   

15.	There are some other agreed facts which are relevant to the issues which arise on this appeal.  First, it was common ground in the Tribunal that British Airways includes flying pay and the taxable element of the time away from base allowance when calculating the pay for female pilots who are required for reasons of safety to perform ground-based duties while they are pregnant.  Secondly, the contractual annual leave of pilots employed by British Airways is longer than the minimum of four weeks required by the Aviation Regulations.  For pilots based at Heathrow Airport, it is 30 days, together with two “duty free weeks”.  For pilots based at Gatwick Airport, it is 42 days.  But whatever their contractual annual leave, all pilots are required to take the whole of it.  That is not apparent from the Tribunal’s judgment, but para. 9 of an agreed statement of the evidence before the Tribunal shows that that was common ground between the parties.  The Tribunal merely noted that there was no evidence that British Airways’ pilots are not taking any part of their leave, and the consensus was that they are.  As for duty free weeks, pilots may, but are not required to, take time off during such weeks.   

16.	There was some evidence before the Tribunal about the practice of other airlines in the United Kingdom.  The Tribunal found that pilots’ pay is structured differently from airline to airline – which is not surprising as there is no industry-wide collective agreement.  Indeed, not all airlines in the United Kingdom recognise trade unions for the purpose of collective bargaining.  The Tribunal found that, of the 50-60 civil aviation employers in the United Kingdom, only 28 recognise trade unions representing pilots for the purpose of collective bargaining.  However, the Tribunal said that “it would appear” that where flying pay and remuneration based on an allowance for time away from base are treated as supplements to a pilot’s basic pay, those supplements are not included in the computation of annual leave pay at any airline in the United Kingdom.  The position has recently changed in respect of cabin crew.   Following representations by the Transport and General Workers’ Union and Amicus (now known as Unite the Union), a few, but by no means all, airlines in the United Kingdom include various supplements in the calculation of the annual leave pay of cabin crew.   

The current proceedings

17.	The pilots’ claim was first issued on 5 April 2006.  It was assigned case no. 3311270/2006.  About 2,750 pilots employed by British Airways were included in the claim, Sally Williams being the lead Claimant.  However, it was thought prudent to present a further claim in respect of the annual leave pay which the pilots claimed had been denied to them since their first claim had been presented.  That claim was presented on 5 July 2006 and assigned case no. 3314875/2006.  Similar claims have been presented every three months since then.   The Tribunal’s decision was expressed to be given only in case no. 3314875/2006, but it has been treated by the parties as having been given in both claims.

18.	The claims raise a number of issues.  They were identified by the parties and approved by the Tribunal.   They are:

“1.  Whether, as a matter of Domestic and Community Law, paid leave for the purposes of Regulation 4 of the Civil Aviation (Working Time) Regulations 2004 is to be calculated in accordance with Regulation 16 of the Working Time Regulations 1998 and, if not, how it is to be calculated.

2.  Applying the method of calculation determined under the first issue above, whether ‘Flying Pay Supplement’ and the taxable element of the ‘Time Away From Base Allowance’ which the Claimants are paid pursuant to their contracts of employment, properly form part of their remuneration for the purposes of calculating their statutory entitlement to paid leave under the Civil Aviation (Working Time) Regulations 2004.

3.  Applying the findings upon issues 1 and 2 above, how much, if any, is to be awarded by way of compensation to each Claimant.”

It was decided that the first of these issues should be determined as a preliminary issue by the Tribunal.  Accordingly, whether flying pay and the taxable element of the time away from base allowance should be included in the calculation of the pilots’ “paid annual leave” is the second issue which the claims raise and which the Tribunal has not yet addressed.  But in deciding the first issue, the Tribunal rejected British Airways’ argument that the pilots’ “paid annual leave” should be calculated by reference only to their basic salary.  It is the rejection by the Tribunal of that argument which is in effect the subject of British Airways’ current appeal.

19.	Having rejected British Airways’ contention that the pilots’ “paid annual leave” should be calculated by reference only to their basic salary, the Tribunal had to decide how their “paid annual leave” was to be calculated.  The pilots’ case was that it should be calculated by reference to a formula which included all the contractual remuneration paid to the pilots, so that they were in a comparable position in terms of remuneration when they were on annual leave as they were when they were working normally.  The non-application of reg. 16 of the Working Time Regulations to mobile staff in civil aviation did not necessarily result in the mechanism for calculating “a week’s pay” in sections 221-224 of the Employment Rights Act 1996 being completely inapplicable.  Rather, the appropriate formula to be used to reflect the requirement for annual leave pay to equate with what the pilots receive when they are working normally should at least be consistent with the meaning of “pay” and “remuneration” in other areas of domestic law, and that includes sections 221-224.  In fact, the Tribunal’s decision was that the pilots’ “paid annual leave” for the purpose of reg. 4(1) of the Aviation Regulations was to be calculated “in accordance with” sections 221-224 of the Employment Rights Act 1996.  To the extent that that constitutes a departure from the pilots’ contention that their “paid annual leave” should be no less than what they are paid when at work, or to the extent that it is inconsistent with the non-application of reg. 16 of the Working Time Regulations to mobile staff in civil aviation, the pilots cross-appeal against this part of the decision.   

British Airways’ case

20.	The critical issue which arises on this appeal relates to the proper construction of the words “paid annual leave” in reg. 4(1) of the Aviation Regulations.  Should the pilots’ pay while they are on annual leave be calculated by reference to their basic salary, or to their basic salary plus the supplements, or in some other way?  British Airways make two core points on this issue.  First, however the pilots’ pay while on annual leave is to be calculated, it cannot be calculated according to the formula in reg. 16 of the Working Time Regulations.  Reg. 16 cannot be among the “laws, regulations and administrative provisions” contemplated by the Aviation Directive as the ways for laying down how pilots’ pay while on annual leave is to be calculated, because reg. 16 was expressly disapplied to them by the amended reg. 18(2)(b) of the Working Time Regulations.  There is nothing ambiguous in the language of reg. 18(2)(b).  It reads:

“Regulation … 16 [does] not apply … to workers to whom the [Aviation] Agreement … and implemented by [the Aviation Directive] applies …”

Indeed, reg. 18(2)(b) is one provision in a set of provisions which carefully identify which regulations in the Working Time Regulations are to apply to particular workers.  As we have seen in [10] above, the Working Time Regulations do not apply at all to workers in some sectors (reg. 18(1)), some of the regulations in the Working Time Regulations (including reg. 16) only apply to workers in one particular sector (reg. 18(4)), and some of the regulations in the Working Time Regulations (not including reg. 16) only apply to workers to whom the Aviation Agreement relates.  Accordingly, the non-application of reg. 16 to mobile staff in civil aviation can hardly have been accidental.   

21.	Secondly, if the pilots’ paid annual leave for the purposes of reg. 4(1) of the Aviation Regulations is not to be calculated according to the formula in reg. 16 of the Working Time Regulations, how is it to be calculated?  British Airways points to the need here to remember the provenance of the Aviation Regulations.  They implemented into our domestic law the Aviation Directive, which itself implemented into Community law the Aviation Agreement, clause 3 of which reproduced the language of Article 7 of the Working Time Directive.  Reg. 4(1) of the Aviation Regulations should accordingly be interpreted in a manner which is consistent with clause 3 of the Aviation Agreement and therefore with Article 7 of the Working Time Directive.   

22.	The effect of Article 7 of the Working Time Directive was considered by the Court of Appeal in Bamsey v Albion Engineering & Manufacturing Plc [2004] IRLR 457 at [37]:

“… Article 7 is silent as to the level of payment for annual leave to which a worker is entitled.   It does not, for example, provide that payment during such leave should equate with a normal week’s pay when the worker was at work, or that it should be calculated by reference to ‘working time’ as defined in Article 2.1.   Thus, the European Union has laid down the principle of an entitlement of four weeks’ paid annual leave, but has left the conditions of entitlement for implementation by Member states.”

There is no reason to think that clause 3 of the Aviation Agreement was intending anything different.   So when the Aviation Directive implemented the Aviation Agreement into Community law, Article 3 of the Aviation Directive must be regarded as identifying the mechanisms by which Member States should lay down how the pay which a worker was entitled to while on annual leave would be calculated.  Although the Aviation Agreement referred to “national legislation and/or practice”, the mechanisms identified by Article 3 of the Aviation Directive were the bringing into force of “laws, regulations and administrative provisions” or the introduction by “management and labour” of “the necessary measures by agreement”.   

23.	In the event, no “laws, regulations [or] administrative provisions” have been laid down about how paid annual leave for those workers to whom the Aviation Directive relates is to be calculated, since the Aviation Regulations do not address the topic.  As we have pointed out in [11] above, unlike the Working Time Regulations, the Aviation Regulations are silent about that.  Why did Parliament elect not to include in the Aviation Regulations a provision analogous to reg. 16 of the Working Time Regulations?  The answer, British Airways says, is that Parliament did not intend to lay down either a formula for determining the level of annual leave pay for mobile staff in civil aviation or a minimum level of their annual leave pay, but instead intended to leave it, as envisaged by Article 3 of the Aviation Directive, to the process of collective bargaining in a sector which was already highly unionised.  Accordingly, in the absence of a statutory formula, the pilots’ pay while they are on annual leave is to be calculated by reference to any collective agreements whose terms have been incorporated into their contracts of employment.  Although the collective agreement between British Airways and BALPA does not expressly deal with how their pay while they are on annual leave is to be calculated, British Airways contends that its contractual effect is to exclude the supplements in their pay from the calculation of the pay to which they are entitled when on annual leave for the reasons explained in [14] above: flying pay is not payable because the pilots are not flying when they are on annual leave, and the taxable element of the time away from base allowance is not payable because the pilots are not away from base on duty while they are on annual leave.   Indeed, that argument about the pilots’ contractual entitlement reflected what had always happened in practice: pilots were paid only their basic salary while they were on annual leave.   

24.	As it is, although British Airways’ pilots are paid their basic salary while on annual leave, British Airways questions whether its pilots are entitled even to that.  British Airways acknowledges that it is not free to set the level of pay as low as it wishes, since an inordinately low level of annual leave pay can hardly have been envisaged by the Aviation Directive.  But the Court of Appeal in Bamsey referred at [35] to the underlying purpose of the Working Time Directive being “to encourage a climate of protection for the working environment and health of workers”, and British Airways accordingly acknowledges that annual leave pay has to be set at a level which will not discourage workers to whom the Aviation Directive applies from taking annual leave altogether.  British Airways says that that reflects what the European Court of Justice had to say about Article 7 of the Working Time Directive in Robinson-Steele v RD Retail Service Ltd [2006] ICR 932 at [49], namely that the “holiday pay required by article 7(1) of the Directive is intended to enable the worker actually to take the leave to which he is entitled”.  Although the level can properly be set at somewhere less than basic salary, British Airways has always been prepared to treat the pilots’ basic salary as the appropriate level in their case.  Indeed, British Airways points out that paying them only their basic salary when they are on annual leave has never deterred them from taking their annual leave.

The pilots’ case

25.	The Tribunal rejected these arguments in favour of the case advanced on behalf of the pilots.  The core argument advanced on their behalf was that the words “paid annual leave” in reg. 4(1) of the Aviation Regulations should be interpreted as requiring their pay while on annual leave to be calculated by reference to a formula which includes all the remuneration paid to them, so that they are in a comparable position in terms of remuneration when they are on annual leave as they are when they are working normally.  Like British Airways, they rely on the provenance of the Aviation Regulations, and agree that reg. 4(1) should be interpreted in a manner which is consistent with Article 7 of the Working Time Directive.  In Robinson-Steele, the European Court of Justice said at [50] that the phrase “paid annual leave” in Article 7 

“… means that, for the duration of annual leave within the meaning of the Directive, remuneration must be maintained.  In other words, workers must receive their normal remuneration for that period of rest.”   

At [58], the European Court went on to explain what it meant by the words “normal remuneration”.   It said:

“The [Working Time] Directive treats entitlement to annual leave and to a payment on that account as being two aspects of a single right.   The purpose of the requirement of payment for that leave is to put the worker, during such leave, in a position which is, as regards remuneration, comparable to periods of work.”

The only real way in which workers can be remunerated while they are on annual leave in a way which is comparable to the way they are remunerated while they are working is for the annual leave pay to be calculated by reference to all the elements of the pay they receive when they are working normally.

26.	How do the pilots meet the argument that no “laws, regulations [or] administrative provisions” have been laid down about how the pay for those workers to whom the Aviation Directive applies while they are on annual leave is to be calculated, since the Aviation Regulations do not address the topic?  The answer, they say, is that under our domestic law paid annual leave is to be calculated in accordance with the formulae in sections 221-224 of the Employment Rights Act 1996.  That is the effect of reg. 16 of the Working Time Regulations.  Although reg. 16 was disapplied by reg. 18(2)(b) of the Working Time Regulations to workers to whom the Aviation Agreement relates, the fact remains that the domestic laws which govern how paid annual leave is to be calculated across the whole of the national workforce is the statutory scheme in the Employment Rights Act 1996, and accordingly the pay which the pilots should receive while they are on annual leave should be calculated in a manner which accords with section 224.   

Discussion

27.	In our view, the starting point of the analysis as to the proper construction of the words “paid annual leave” in reg. 4(1) of the Aviation Regulations has to be clause 3 of the Aviation Agreement, since that was the genesis of the provision relating to paid annual leave for mobile staff in civil aviation.  The conditions on which they are to be granted paid annual leave, which must be regarded as including how their pay while on annual leave is to be calculated, was to be laid down by “national legislation and/or practice”.  We shall return to “national legislation” in a moment.  For the present, we concentrate on the words “national … practice”, prefacing what we have to say on the topic by saying that the word “national” applies to “practice” just as much as it applies to “legislation”.  If local as opposed to national practice had been intended, that would have been spelled out.   

28.	If the words “national … practice” refer to what the prevailing national practice in the relevant sector of the industry is – i.e. airline pilots – we can see how the prevailing practice might at first blush justify the pilots receiving only their basic salary while on annual leave.  Although the Tribunal did not make a definitive finding on the topic – prefacing its understanding of the position with the words “it would appear” – the Tribunal’s assessment of the evidence it had received on the topic was that supplements which reflected pilots’ flying time and the time they were away from their base were not included in the calculation of their annual leave pay at any airline in the United Kingdom.  But whether the words “national … practice” relate to the national practice about how the annual leave pay of airline pilots is to be calculated or to the national practice for all mobile staff in civil aviation, any national practice about how annual leave pay is actually calculated will have little bearing on how it ought to be calculated if the national practice is inconsistent with what Article 7 of the Working Time Directive contemplated, since clause 3 of the Aviation Agreement simply reproduced Article 7 of the Working Time Directive.   

29.	In any event, the words “national … practice” have been given a particular meaning under Community law when it relates to the dual right to annual leave and annual leave pay of mobile staff in civil aviation.  “National … practice” on these topics was required by Article 3 of the Aviation Directive to be identified by what collective agreements between management and labour had to say about them.  But those collective agreements had to “have introduced the necessary measures”, and those measures had to comply with the Aviation Directive.  Since Article 3 of the Aviation Directive was implementing clause 3 of the Aviation Agreement, and since the provenance of clause 3 of the Aviation Agreement was Article 7 of the Working Time Directive, the collective agreements had to comply with what Article 7 required.  The collective agreement which relates to British Airways’ pilots did not do that, since it did not deal with how their annual leave pay was to be calculated.

30.	There is a further point here.  The obligation on member states under Article 3 of the Aviation Directive was to “ensure” that collective agreements complying with Article 3 of the Aviation Directive (and therefore with clause 3 of the Aviation Agreement and Article 7 of the Working Time Directive) were entered into.  As the Tribunal noted, no steps were taken in the United Kingdom to make the introduction of collective agreements complying with Article 7 of the Working Time Directive mandatory.  It may be that Parliament hoped that collective bargaining would result in the introduction of collective agreements complying with Article 7, thereby making it unnecessary for state intervention in the process.  But if collective agreements complying with Article 7 were not introduced, Parliament would have to make collective agreements complying with Article 7 mandatory, unless Article 7 was to be implemented in some other way.  Since Parliament did not make such collective agreements mandatory – let alone make recognition of trade unions representing mobile staff in civil aviation mandatory (which would have had to be done to ensure that collective agreements were negotiated) – Parliament must be treated as having decided to implement Article 7 in some other way.

31.	The other way in which member states could implement Article 7 so that it applied to mobile staff in civil aviation was to “bring into force the laws, regulations and administrative provisions necessary to comply” with Article 7 – the “national legislation” referred to in clause 3 of the Aviation Agreement reproducing Article 7 of the Working Time Directive.  In the context of the United Kingdom, that meant enacting the appropriate primary legislation or enacting legislation which required the minister to lay down the appropriate regulations.  In the event, steps were taken to enact the necessary subordinate legislation.  The subordinate legislation was the Aviation Regulations.  The fact that Parliament decided to implement the application of Article 7 to mobile staff in civil aviation by enacting national legislation in the form of the Aviation Regulations, rather than by ensuring that appropriate collective agreements were concluded, is also borne out by the Explanatory Note to the Aviation Regulations.  In compliance with the requirement in Article 3 of the Aviation Directive that the steps taken by member states to implement the Aviation Directive should be accompanied at least by a reference to the Aviation Directive on the occasion of their official publication, the Explanatory Note to the Aviation Regulations said that they were implementing the provisions of the Aviation Directive.   

32.	The absence of any formula in the Aviation Regulations for calculating how the pay of a crew member while on annual leave is to be calculated means that, in the event of a dispute which has not been resolved by negotiation and agreement, and if litigation ensues, it is for the court or tribunal to determine how the word “paid” in reg. 4(1) of the Aviation Regulations is to be construed.  For the reasons we have given, that construction must be in accordance with the pay which Article 7 of the Working Time Directive requires workers to receive while they are on annual leave.  That is not because Article 7 is directly enforceable in the courts and tribunals of the United Kingdom.  It plainly is not: see Gibson v East Riding of Yorkshire Council [2000] ICR 890.  But reg. 4(1) of the Aviation Regulations has to be construed in the light of Community law, and that includes the Community law on the proper construction of Article 7 of the Working Time Directive.   

33.	We readily accept that the reason why Article 7 requires workers to be paid while they are on annual leave is to ensure that they take the leave to which they are entitled.  Otherwise, their health, productivity and motivation might be adversely affected.  But that does not mean that the level of their pay while they are on annual leave should be what is necessary to discourage them from not taking their annual leave altogether.  Such an approach would be impossible to apply as the Tribunal itself explained in para. 70 of its judgment.  How does one ascertain what that level is?  You cannot look at the case of each crew member individually, because that would result in different rates of pay for each crew member depending on how much of what they receive while working normally they would individually be prepared to give up in return for their annual leave if they could choose not to take their annual leave.  And even if you look at crew members as a whole – or flight crew and cabin crew in separate groups – how do you assess the level of pay which would make them think that it is worthwhile taking their annual leave rather than continuing working and thereby receiving the remuneration to which they are entitled while working normally?  In any event, such an exercise is completely unnecessary in a sector in which the workforce is in fact required – as British Airways’ pilots are – to take their annual leave.   

34.	As it is, Community law is clear on the level of the annual leave pay required by Article 7.  That is plain from Robinson-Steele.  The case concerned “rolled-up holiday pay”, i.e. it was a case in which the employees’ hourly or daily rate of pay was expressed to include or incorporate an amount for annual leave pay.  The European Court of Justice held that Article 7 of the Working Time Directive prevented part of the employees’ remuneration from being attributable to annual leave pay without the employees receiving a separate sum representing their annual leave pay.  The justification for that was that workers must be put “during such leave, in the position which is, as regards remuneration, comparable to periods of work”.  The only way in which British Airways’ pilots can be remunerated while they are on annual leave in a way which is comparable to the way they are remunerated while they are working is for their annual leave pay to be calculated by reference to the supplements they receive in addition to their basic salary.   

35.	We should add that the treatment of female pilots who perform ground-based duties while they are pregnant but nevertheless receive supplements on the basis that they are still flying shows that within British Airways the supplements are treated as an important component in pilots’ overall pay, so that their basic salary is likely to be higher if for one reason or another the supplements in their pay cannot be taken into account.  The breakdown of their pay into basic salary and the supplements is therefore simply a reflection of how their overall remuneration package is structured.

36.	We should also add that we have not found two particular authorities which were relied on by Ms Jane McNeill QC on behalf of the pilots persuasive.  The first of those authorities was S & U Stores Ltd. v Wilkes [1974] IRLR 283.  The issue was whether a weekly sum which the employee was paid to cover the expenses he incurred in carrying out his duties should be included in the calculation of his “weekly rate of remuneration” in a predecessor of sections 221-224 of the Employment Rights Act 1996 for the purpose of calculating his redundancy payment.  The National Industrial Relations Court (Sir John Donaldson presiding) held at [20] that it depended on whether the sum “represents a profit or surplus in the hands of the employee”, and to the extent that it did it formed part of his remuneration.  Indeed, the court went further and said that any sum “which is paid as a wage or salary without qualification is part of the employee’s remuneration”.  However, the issue which the appeal against the Tribunal’s finding on the first preliminary issue raises is not whether supplements which are paid in addition to basic salary amount to “remuneration”, but whether such supplements are remuneration of a kind which should be reflected in the calculation of annual leave pay.   

37.	The second of these authorities was British Airways Plc v Noble [2006] IRLR 533.  In that case, the employees worked a variety of shifts.  They complained that the calculation of their annual leave infringed reg. 16(1) of the Working Time Regulations.  The Court of Appeal rejected that complaint.  It was common ground that the agreed method of calculating shift pay meant that they were paid the same when they were on annual leave as when they were working normally.  When the employees’ contentions were analysed, it was apparent that their real complaint lay, not in the calculation of their annual leave pay, but in the calculation of their shift pay.  The case is said to be helpful to the resolution of the present dispute, because the Court of Appeal rejected the complaint that reg. 16(1) had been infringed on the basis that the employees had been “no worse off” when they were on leave than when they were working normally.  However, the fact that that was why reg. 16(1) had not been infringed does not necessarily mean that the level of annual leave pay must be no less than what an employee is paid when working normally.  It may be that that is what reg. 4(1) of the Aviation Regulations requires, but that is because of what the European Court of Justice said in Robinson-Steele rather than because of what the Court of Appeal said in Noble.   

38.	Having said that, we do not believe that our view is in any way inconsistent with the non-application of reg. 16 of the Working Time Regulations to workers to whom the Aviation Directive applies by the amended reg. 18(2)(b) of the Working Time Regulations.  We agree with British Airways that, for that reason, the pilots’ paid annual leave for the purpose of reg. 4(1) of the Aviation Regulations does not have to be calculated according to the formula in reg. 16 of the Working Time Regulations, and that therefore section 224 of the Employment Rights Act 1996 cannot have been contemplated as automatically applying to them.  But the non-application to British Airways’ pilots of a particular statutory formula which applies to other workers does not in any way undermine the need for their annual leave pay to be calculated by a formula which reflects the comparability required by Community law between annual leave pay and the pay workers receive when they are working normally, and we have not discerned any compelling reason why a formula which operates similarly to that laid down in section 224 could not fairly be applied to them.  For example, we know that there are limits on the number of flying hours pilots can do in a particular period, and that will result in them not being entitled to any supplements during the rest of the period, but section 224 caters for that by averaging pay over a period of 12 weeks.  

39.	Nor have we overlooked the beguiling point made by Mr Christopher Jeans QC for British Airways that the requirement in reg. 4(1) of the Aviation Regulations is merely that crew members get “paid annual leave”.  It is said that that simply requires that while they are on annual leave they are to be paid.  They do: they get their basic salary.  We disagree.  The phrase “paid annual leave” does not simply mean that while crew members are on annual leave they must be paid.  The phrase “paid annual leave” means that while they are on annual leave they must not merely be paid, but that they must be paid at a level which meets the requirements of Community law for annual leave pay.   

40.	We are also aware of the point underlying British Airways’ argument about the contractual effect of the collective agreement on its pilots’ terms of employment.  Why should they be paid, while they are on annual leave, flying pay and the taxable element of an allowance based on their time away from base if they are not flying and are not away from base as a result of being on duty?  But by the same token you might as well ask: why should they be paid anything at all while they are on annual leave since they are not working at all?  If it is illogical to pay flying pay and the taxable element of the time away from base allowance while the pilots are on annual leave, it could be said to be just as illogical to pay them their basic salary while they are on annual leave, and yet British Airways pays them their basic salary.  The fact of the matter is that annual leave pay is required to be paid, and Community law requires it to be paid at a level which is comparable to what is payable when workers are working normally.   

The aids to construction

41.	We now consider whether the conclusion we have reached can stand beside two sets of other provisions in the Working Time Regulations and the Aviation Regulations which British Airways says undermines this approach.  Those provisions are (a) the provisions in the Working Time Regulations which exclude the application of some of its provisions to workers in particular sectors, and (b) the provisions in the Aviation Regulations which provide remedies for crew members who claim that their rights under the Aviation Regulations have been infringed.  We shall consider each set of provisions in turn.   

42.	Workers in other sectors.   Workers in the air transport industry were not the only group of workers who were not covered by the Working Time Directive.  Among the groups of workers not covered by it – in addition to seafarers and those who worked in the air transport industry – were those who worked on inland waterways and in sea fishing.  As with the seafarers and those who worked in the air transport industry, the Working Time Regulations when they were originally promulgated did not apply to those who worked on inland waterways and in sea fishing.   

43.	The conclusion of European-wide agreements relating to seafarers and mobile staff in civil aviation resulted in the adoption of directives in relation to those sectors.  But there were no European-wide agreements relating to those who worked on inland waterways and in sea fishing.  So when the Working Time Directive was amended to cover those workers, the application of the Directive to those workers had to be implemented into the domestic law of the United Kingdom.  That was done by the enactment of the Merchant Shipping (Working Time: Inland Waterways) Regulations 2003 (SI 2003/3049) and the Fishing Vessels (Working Time: Sea-fishermen) Regulations 2004 (SI 2004/1713).  Each of those Regulations reproduced, in broadly similar language, regs. 13 and 16 of the Working Time Regulations: see regs. 11(1) and 11(4) of each of those Regulations.  In other words, the annual leave pay of the workers to whom those Regulations applied was to be calculated by reference to sections 221-224 of the Employment Rights Act 1996.   

44.	That is to be contrasted with (a) the Aviation Regulations and (b) the Regulations by which the Seafarers’ Agreement (which contained in clause 16 a clause in identical terms to clause 3 of the Aviation Agreement) and the Seafarers’ Directive were implemented into our domestic law, namely the Merchant Shipping (Hours of Work) Regulations 2002 (SI 2002/2125).   The relevant regulation in these Regulations – reg. 12(1) – is expressed in the same language as reg. 4(1) of the Aviation Regulations.  In other words, the annual leave pay of workers in respect of whom a European-wide collective agreement has been concluded is treated in our domestic law in a different way from that of workers in respect of whom there is no such collective agreement.  The argument advanced on behalf of British Airways is that that can only have been because the Regulations implementing those agreements into our domestic law contemplated that the method of calculating the annual leave pay of the workers to whom the agreements related was to be left to collective bargaining in the workplace. 

45.	This ingenious argument was not relied upon before the Tribunal or in British Airways’ grounds of appeal or in the skeleton argument used on the appeal.  It was developed for the first time by Mr Jeans orally.  We do not think that it takes British Airways’ case any further at all.   At best, it is an additional reason for British Airways’ contention – summarised in [23] above – that Parliament left the setting of the level of annual leave pay for mobile staff in civil aviation to the process of collective bargaining in a sector which was already highly unionised.  It may be that that is what Parliament hoped would happen, but by deciding not to make the conclusion of such agreements mandatory, and by implementing the Aviation Directive through the Aviation Regulations, Parliament must be treated as having decided that the level of annual leave pay should be governed by the Aviation Regulations.  Again, it may be that Parliament’s unwillingness to include in the Aviation Regulations a formula for determining the level of annual leave pay demonstrated a continuing hope that the level would be determined by collective bargaining, but in the absence of agreement, and in the event of litigation, it has to be for the appropriate court or tribunal to decide what the phrase “paid annual leave” requires in terms of the level of annual leave pay.   

46.	The crew members’ remedies.  The right to “paid annual leave” established by the Working Time Regulations was a composite right for workers (a) to have annual leave and (b) to be paid while on annual leave.  The separate elements of this composite right were reflected in the Working Time Regulations: reg. 13 dealt with the right to annual leave, while reg. 16 related to the right to be paid while on annual leave.  The separate elements of the composite right were also reflected in the remedies which the Working Time Regulations laid down in the event that either of these rights were infringed.  The remedies for workers whose employer was found to have refused to permit them to exercise their right to annual leave under reg. 13 were provided for by reg. 30(3) of the Working Time Regulations: an employment tribunal has to make a declaration to that effect, and may award the worker compensation.  However, the remedy for workers whose employer was found to have failed to pay them their annual leave pay under reg. 16 was provided for by reg. 30(5) of the Working Time Regulations: an employment tribunal has to order the employer to pay them the amount which it finds to be due to them.   

47.	That is to be contrasted with the remedies provided for by the Aviation Regulations.   We set them out in [12] above.  The remedies for crew members whose employer has refused to permit them to exercise such rights as they have under the Aviation Regulations were provided for by reg. 18(3): an employment tribunal has to make a declaration to that effect, and may award the crew member compensation.  Reg. 18(3) of the Aviation Regulations is therefore the analogue of reg. 30(3) of the Working Time Regulations.  There is no equivalent of reg. 30(5) of the Working Time Regulations in the Aviation Regulations.  British Airways contends that that shows that the Aviation Regulations were intended to provide crew members with a right to annual leave during which they would be paid, but not a right to a particular level of annual leave pay.   

48.	This contention is said to be reinforced by reg. 18(2) of the Aviation Regulations, which lays down the time limit for bringing a complaint under reg. 18(1).  The time limit stipulated in reg. 18(2)(a)(i) only covers cases in which the complaint is that crew members were not allowed to take annual leave.  It is true that the time limit stipulated in reg. 18(2)(a)(ii) covers cases in which the complaint is that crew members have not been paid what they should have been paid.  However, it relates not to their annual leave pay per se, but to the pay they were entitled to in lieu of their annual leave in the event of their employment being terminated before they could take their annual leave.  Accordingly, there is said to be no time limit for the presentation of a complaint that crew members have not been paid the annual leave pay to which they are entitled.  This is said to be an additional reason why the Aviation Regulations were intended to provide crew members with a right to annual leave during which they would be paid, but not a right to a particular level of annual leave pay.   

49.	This contention is said to be further strengthened by reg. 16(5) of the Working Time Regulations, which provides:

“Any contractual remuneration paid to a worker in respect of a period of leave goes towards discharging any liability of the employer to make payments under this regulation in respect of that period; and, conversely, any payment of remuneration under this regulation in respect of a period goes towards discharging any liability of the employer to pay contractual remuneration in respect of that period.”
This is to be contrasted with the Aviation Regulations, in which there is no equivalent in reg. 4 of the mutual set-off provision in reg. 16(5) of the Working Time Regulations.   

50.	We were very impressed by the ingenuity of these contentions, but we have not been persuaded by them.  We suspect that the drafting of reg. 18 of the Aviation Regulations (as well as the absence of a provision in the Aviation Regulations equivalent to reg. 16(5) of the Working Time Regulations) is no more than a consequence of the crucial difference between the Working Time Regulations and the Aviation Regulations: the former lays down a formula for calculating the pay to which workers are entitled when they are on annual leave, but the latter does not.  The fact that the latter does not does not mean that the Aviation Regulations were not intending to legislate for a particular level of annual leave pay.  It just left the final determination of that level to the court or tribunal applying any relevant domestic or Community law.   

Conclusion

51.	For these reasons, we have concluded that the pay to which British Airways’ pilots are entitled for the purpose of reg. 4(1) of the Aviation Regulations while they are on annual leave is not to be calculated by reference to their basic salary.  It is to be calculated by reference to a formula which includes all the contractual remuneration paid to them, so that they are in a comparable position in terms of remuneration when they are on leave as they are when they are working normally.  By that, we mean that the annual leave pay should not be less than what they are paid when at work.  As for how their remuneration when they are working normally is to be calculated when their remuneration fluctuates weekly depending on the amount of time they are flying and away from their base, we have concluded that the formula set out in section 224 is the applicable formula.  That is not because the formula is directly applicable.  It obviously is not in the light of reg. 18(2)(b) of the Working Time Regulations.  It is nevertheless applicable because it is a formula used throughout industry in the United Kingdom (even if it does not directly apply to mobile staff in civil aviation), and represents a convenient and well-recognised method of calculating annual leave pay in a way which does not infringe the principle of Community law which requires annual leave pay to be comparable, in terms of remuneration, with what such staff are paid when they are working normally.  Accordingly, British Airways’ appeal must be dismissed – as indeed must the pilots’ cross-appeal, because the effect of our view of how their annual leave pay should be calculated is that it should be calculated in accordance with sections 221-224 of the Employment Rights Act 1996.