Case - Hartley and others v King Edward VI College

B2/2014/2346, Court of Appeal - Jane McNeill QC, Katharine Newton, Oliver Segal QC, Ben Cooper QC
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The Court of Appeal today handed down judgment in this case which considered the amount which an employer is entitled to withhold from the salary of sixth form college teachers in respect of a day’s strike action and the effect of the Apportionment Act 1870 (‘the Act’) on contracts of employment. Elias LJ, giving the judgment on behalf of the Court, held that:

(i) The Act is readily to be applied to all employment contracts where the common law principles pertaining to entire contracts and substantial performance would operate;

(ii) The effect of Section 2 of the Act is that pay accrues daily but not that it necessarily accrues at an even rate on each day (the ‘equal daily accrual’ principle);

(iii) The correct approach in determining the rate of accrual is to interpret the contract in accordance with the usual contractual principles, with the modification that pay accrues at a daily rate; and

(iv) In this case, the Respondent employer’s interpretation of the contract such that pay accrued at a rate of 1/260 on working days and days of paid holiday rather than 1/365 as contended by the Appellant teachers was correct.

Elias LJ held that if his primary analysis as summarised above were wrong, Section 7 of the Act could be construed so as to permit contracting out from equal daily accrual, which he considered Parliament must surely have intended, though he said that he could find no satisfactory way of doing so and that it seemed to him that such a construction presented insurmountable difficulties. The requirement in Section 7 for an ‘express stipulation’ to that effect in the contract would only require the terms of the contract to make clear, expressly or by necessary implication, that the principle of equal daily accrual was not intended to apply. In this case, they did.

Oliver Segal QC and Katharine Newton, instructed by Rachel Halliday of Thompsons LLP, represented the Appellants.

Jane McNeill QC and Ben Cooper, instructed by Susie Dryden of Blake Morgan, represented the successful Respondent.

The Facts

The Appellants are employed by the Respondent (‘the College’) as teachers. On 30 November 2011, they took strike action. The College deducted from their monthly salary what it considered to be the appropriate amount in respect of the service which the teachers had failed to provide that day – 1/260 of their annual salary. The Appellants contended that the proper amount was 1/365. Elias LJ noted that the consequences of the litigation for the individual Appellants were small, but for the sector as a whole a finding in the Appellants’ favour would cost around £300,000 per strike day.

The Appellants’ contracts of employment incorporate terms from the relevant collective agreement – ‘Conditions of Service Handbook for Teaching Staff at Sixth Form Colleges’ (known as the Red Book) – which distinguishes between directed time and undirected time. The former is time when teachers are required to be at school carrying out directed activities (principally, teaching) and amounts to 1265 hours a year, spread over 195 days. The latter is time when teachers prepare lessons, mark papers, write reports and carry out other duties.

The pay of part-time college teachers is calculated by reference to directed time: if they are required to work half the amount of directed time (632.5 hours per year), they are paid 50% of the full-time annual salary. If college teachers are requested to work additional days they are paid a daily rate of 1/195 of their annual pay.

Statutory Provisions

Section 2 of the Act provides that:

All rents, annuities, dividends, and other periodical payments in the nature of income… shall, like interest on money lent, be considered as accruing from day to day, and shall be apportionable in respect of time accordingly.

Section 5 defines annuities and dividends:

The word “annuities” includes salaries and pensions.

The word “dividends” includes (besides dividends strictly so called) all payments made by the name of dividend, bonus, or otherwise out of the revenue of trading or other public companies, divisible between all or any of the members of such respective companies, whether such payments shall be usually made or declared at any fixed times or otherwise; and all such divisible revenue shall, for the purposes of this Act, be deemed to have accrued by equal daily increment during and within the period for or in respect of which the payment of the same revenue shall be declared or expressed to be made...

Section 7 provides for contracting out from the Act:

The provisions of this Act shall not extend to any case in which it is or shall be expressly stipulated that no apportionment shall take place.

The Appeal

The appeal was from a judgment entered into in the College’s favour by consent in the County Court. The parties agreed that the judgment of Jay J in Amey v Peter Symonds College [2013] EWHC 2788, [2014] IRLR 206 that 1/260 was the appropriate fraction (on very similar facts) was binding on the County Court.

The Appellants’ case was that the Act applied with the result that salary accrued at the rate of 1/365 daily. They did not deny that Section 7 allowed parties to provide for a different basis of accrual in their contract, but denied that this was such a case.

The Respondent denied that the Act applied at all. It relied in the alternative on the argument that the terms of the employment contracts could not be reconciled with the principle of equal daily accrual and amounted to an express stipulation within the meaning of section 7 that the principle should not apply.  Pay was tied to the measurable part of a teacher’s work.

Held

Elias LJ (with whom Tomlinson and Sales LJJ agreed) held that the Act applies to employment relationships where the common law principles pertaining to entire contracts and substantial performance operate. This was such a case. His finding was in accordance with Item Software (UK) Ltd v Fassihi [2004] EWCA Civ 1244, [2005] ICR 450. The Act does not apply to employment which is infinitely divisible, such as where pay is fixed at an hourly rate.

Section 2 did not necessarily imply the principle of equal daily accrual. In support of this, Elias LJ highlighted the reference to ‘equal daily increment’ in the definition of ‘dividend’ in Section 5: if Section 2 automatically envisaged that payments caught by the Act would accrue by equal daily increments, those words would be otiose. He also found that on its literal meaning Section 7 permits contracting out of apportionment but not contracting out of equal daily accrual. Elias LJ concluded that it was more probable that this was because Section 2 did not stipulate equal daily accrual than because Parliament had intended the principle of equal daily accrual to be mandatory whenever the Act applied.

The correct approach was therefore to look at the terms of the contract between the parties and the mandatory requirement imposed by Section 2 that payment obligations should be treated as allowing for apportionment at an appropriate (though not necessarily equal) daily rate.

The Respondent’s interpretation of the contract in this case was correct. There is, in the Red Book, a close link between directed hours and pay. Undirected hours are ancillary to the directed work: there is little value to colleges of teachers preparing for lessons which are not given. Elias LJ also relied on the fact that additional days are paid at the 1/195 rate. He accepted that some of the undirected work (such as writing references and preparing materials) was not directly and inextricably linked to the directed time.

Elias LJ held that if, contrary to his primary analysis, Section 2 of the Act implied equal daily accrual,  Section 7 of the Act could be construed so as to permit contracting out from equal daily accrual, which he considered Parliament must surely have intended, though he said that he could find no satisfactory way of doing so and that it seemed to him that such a construction presented insurmountable difficulties. The requirement in Section 7 for an ‘express stipulation’ to that effect in the contract would be satisfied if there were a clear intention derived from the contract that the principle should not apply, even if the contract did not resolve precisely how pay is related to the work performed. He rejected the Appellants’ submission that ‘necessary implication’ in that context was an unwarranted gloss on the language of Section 7.

Adam Ross (pupil barrister)

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