02 Jun 2017

In Hartley v King Edward VI College [2017] UKSC 39, the Supreme Court has held that an employer was wrong to deduct 1/260 of an employee's annual salary for one day of strike action, and the correct calculation should have been 1/365. The employer based its calculation on the number of working days in the year. However the employees were teachers employed on "annual contracts" and regularly worked outside of their contracted hours, so their salary should be treated as accruing on a day-to-day basis. Following this decision, there is some uncertainty around what constitutes an annual contract, and what the position is for those not on annual contracts.

Facts

The Claimants, who were teachers employed by the Respondent sixth-form college, participated in a full day of lawful strike action in November 2011. In January 2012 the College made deductions from their pay at the rate of 1/260 of their salary. This was based on the fact that the teachers working days as specified in their contracts were Monday to Friday, so the daily rate was based on five working days per week for 52 weeks. The claimants accepted that the employer was entitled to make a salary deduction in respect of the strike action, however they argued that the rate of that deduction should have been 1/365 of their annual pay rather than 1/260.

Background

The teachers based their argument on s2 Apportionment Act 1870, which states that all rents, annuities (including salaries and pensions), dividends and other periodical payments in the nature of income "shall be considered as accruing from day to day, and shall be apportionable in respect of time accordingly". They argued that under this statute, their salary accrued day to day at an equal daily rate, so the deduction should have been at a rate of 1/365.

S7 of the same Act allows parties to contract out of this position and provides that the Act can be excluded in "any case in which it is or shall be expressly stipulated that no apportionment should take place".

County Court decision

The teachers commenced proceedings in the County Court in April 2013. However in June 2013, between the commencement of proceedings and the trial, the High Court handed down judgment on the same issue in Amey v Peter Symonds College [2013] EWHC 2788. The High Court held that when a contract contains a definition of the working week, then the salary should be apportioned over the working days in the year. Whilst the reference in s2 Apportionment Act to "accruing from day to day" must be to each calendar day, this will be overridden if the contract "by necessary implication established a relationship between work time and pay which was inconsistent with accrual over each and every calendar day". The parties accepted that the County Court was bound by this decision of the High Court and it was therefore held that the correct rate was 1/260.

Court of Appeal decision

The teachers appealed to the Court of Appeal, arguing that pay should be treated as accruing by equal amounts on each day of the year under s2 Apportionment Act 1870, and that although s7 allows parties to contract out of that position, they had not done so.

The Court of Appeal dismissed the appeal, holding that s2 means that an employee's salary accrues day to day, but not necessarily at an equal rate. The teachers' contracts specified their working days as Monday to Friday, so the employer was right to only take the 260 working days in the year into account.

Supreme Court decision

The Supreme Court disagreed with the County Court and Court of Appeal judgments and held that the correct rate for a day's pay was 1/365 of the teachers annual salary. Lord Clarke made reference to the fact that teachers have professional obligations and additional duties which are not confined to their teaching hours, and that this must be reflected in their overall salaries. The teachers' contracts specified their teaching time or "directed time", and also contained a provision that they would work any such additional hours as may be needed to discharge their duties effectively, this being the "undirected time". Undirected time includes planning and preparing lessons, marking work, assessing and reporting on students, communicating with parents and promoting the general progress and well-being of students.

The Supreme Court heard evidence from the teachers that they regularly performed these undirected duties outside of normal term-time hours, i.e. during weekends, evenings and during annual leave. Lord Clarke therefore held that the teachers were employed on annual contracts and were not restricted to working 5 days per week, so it did not make sense under s2 Apportionment Act for them to calculate a day's pay based on 1/260 of annual salary. A calculation of 1/365 would achieve an overall approach which is broadly fair. Lord Clarke held that s7 did not come into play here, as there was no express provision in the contract which had the effect of disapplying the statutory apportionment.

Comment

It appears that the two main factors in the Supreme Court's decision were that the teachers were employed on annual contracts and the fact that they were in professional jobs and expected to work outside of their contracted hours.

The Supreme Court did not define what was meant by an "annual contract", however it is assumed that it means a permanent, rolling contract. Lord Clarke stated in his judgment that were the employees not on annual contracts, the position would be "very different".

The reference in the judgment to working outside of contracted hours suggests that the outcome may have been different if they had been employees who only worked within contracted hours. This decision could therefore affect other professionals such as doctors, lawyers etc. who are also expected to work outside normal contracted hours. It is still possible to contract out of the apportionment principle to achieve certainty on this issue, though this will require an express provision in an employment contract.

This decision may also have wider implications, and apply for example to the calculation of payment in lieu of holiday pay. There is currently a range of conflicting authorities on whether the calculation of a daily rate for holiday pay should be on the basis of 1/260th or 1/365th. The issue needs further judicial consideration, but the judgment in Hartley can be read as suggesting a move towards the 1/365 calculation.