• The law in the UK is substantially influenced by the EU and other supra-national organisations.
  • Directives are the principal way in which EU institutions impose legislation on member states.
  • Directives tend to be set out in general terms, leaving the details of implementation to member states.
  • Recent case law on holiday pay demonstrates the problems which can arise due to the EU’s approach to legislating.

EU Directives

The answer to the question whether or not the UK is better in or out of the EU is a political, social and economic one but also one which will have a major input on legislative process and legislative outcome in the future. The quality of law making is very much a matter in which legal practitioners have an interest.

If the UK votes to remain within the EU then the UK will remain subject to the EU’s institutions and legislative processes. If, on the other hand, the UK votes to leave and the exit represents a complete severance then the UK will be outside the EU’s institutions and legislative processes. The UK will, of course, remain subject to other types of international conventions such as, for example, the European Convention on Human Rights and various UN Protocols, Treaties and Agreements will continue to apply. A UK outwith the EU would not instantly fall into a state of lawlessness. The existing law would remain including EU law already reflected in UK statutes. The UK, in deciding what legislation may be appropriate for its subjects, would be free to adopt material in European Directives if it felt that it was in British interests to do so. The critical point, however, is that it would not be obliged to do so as is currently the case.

Directives are the principal mechanism through which European Union institutions impose European Union measures upon British subjects. Directives are directly applicable in the case of organs of the State. The UK Government has an obligation to implement EU Directives into UK law and, once it has carried out that obligation, the UK legislation applies subject to the Judicial Institutions of the EU.

It is an interesting feature of the European Union legislative process that Directives which bind member states tend to set out principles and values which have to be enacted into UK legislation. They tend not to provide detail. It is then for a member state at national level to give effect to the Directive through its own legislative processes.

This process for cascading rules and regulations down to member state level has its difficulties. While there is merit in the approach of setting out the philosophical background to legislation, difficulties can be faced when that document setting out that background is in itself to be regarded as legally binding.

An illustration of the difficulties follow.

The EU Directives and Holiday Pay

The extent of the difficulties which can be experienced when implementing EU Directives is best illustrated by the current state of the law in the UK on holiday pay. How much pay an employer ought to pay an employee when that employee goes on holiday ought to be a matter which is clearly set down and beyond doubt; employers have an interest in knowing how much holiday pay to budget for and employees have an interest in knowing how much money they will have for holidays. Both parties have an interest in certainty.

Regrettably the position is far from certain.

The UK’s implementation of the Working Time Directive, the Working Time Regulations 1998, set out that a worker is entitled to be paid in respect of any period of annual leave at the rate of a week’s pay in respect of each week of leave. Until recently it was understood that this UK law met the needs of the underlying Directive that contains the following policy statement “the improvement of workers’ safety, hygiene and health at work is an objective which should not be subordinated to purely economic considerations”. It directs that “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”. So the Directive clearly states that paid leave is important for workers’ health and that member states will take the necessary measures to ensure that every worker is entitled to paid annual leave. Critically, however, it leaves to national legislation the laying down of the conditions for entitlement to that leave. This, therefore, creates a very clear impression of legislative freedom at national level in the way in which member states implement the Directive. As we have seen, the UK exercised that freedom by laying down a right to a week’s pay in respect of each week of leave.

However, following a number of cases, but most recently Lock v. British Gas, it is now clear that the payment which an employee is entitled to receive goes beyond a week’s salary and includes commission and overtime. Nowhere is such a right discernible from the Directive and therefore, given that the conditions for entitlement to and granting of such paid leave is a matter which the Commission thought best to leave to national legislation, one might expect the UK’s articulation of the right to prevail.

Not so.

Many employers now find themselves in the situation that although they have paid holiday pay lawfully, in accordance with UK legislation, they are now facing claims for back pay for commission and overtime which, we are told on a true construction of the Directive, ought to have been paid. In Lock v. British Gas, the European Court of Justice held that the Directive has to be read as precluding national legislation which provides for holiday pay based on basic salary alone. Advocate General Bot states: “In my view, an intrinsic link does therefore exist between the commission received each month by a worker such as Mr Lock and the performance of the tasks he is required to carry out under his contract of employment. That link is all the more evident because the amount of commission is, by definition, calculated as a proportion of the results obtained by that worker in terms of contracts entered into by British Gas. In my view, failure to take commission into account in the remuneration that is payable to a worker in respect of his paid annual leave is capable of deterring him from exercising his right to such leave, which is contrary to the objective of Article 7 of Directive 2003/88. Such a deterrent is all the more likely to exist in a situation such as that at issue in the main proceedings, in which commission represents on average over 60% of the remuneration received by Mr Lock.”

In other words, the Court has apparently filled in the detail which was meant to be left to member states to determine. So in every case, not just those where commission on average represents 60% of remuneration, commission has to be included in holiday pay, without any assessment on a case by case basis of whether the worker may in fact be deterred from taking holidays were he to receive only basic pay. But the Directive does not expressly say so; Article 7 merely states: “every worker is entitled to paid annual leave… in accordance with the conditions for entitlement… laid down by national legislation and/or practice”.

As a result, British employers face substantial claims for back pay because the European Court of Justice disapproved of the way in which the UK had implemented the Directive.

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