The Supreme Court has overturned the Court of Appeal’s decision and ruled that pilots when taking their statutory annual leave should be paid their “normal remuneration” and not their basic salary.

Over 2700 pilots (supported by their Union) brought a claim against their employer British Airways PLC (“BA”) over the holiday pay which BA paid them. The BA and the British Airline Pilots Association have collective agreements in place which form part of the pilots’ employment contracts. In these agreements it provides for the pilots to receive flying pay and time away from base allowances (“TAFB”) yet it fails to specify how holiday pay is calculated. As a result BA only paid basic pay in respect of holiday pay. The pilots argued that flying pay and TAFB should also form part of the holiday pay.

The ET and EAT both came to the conclusion that the pilots approach was correct. Payment for holiday under the Civil Aviation (Working Time) Regulations 2004 (“Aviation Regulations”) should be calculated in accordance with section 221 to 224 of the Employment Rights Act 1996 (“ERA”), like the Working Time Regulations 1998 (“WTR”). The Court of Appeal overturned this ruling and said if the Aviation Regulations were intended to take into account Section 221 to 224 of the ERA then this would have been apparent.

The Supreme Court before making their decision referred specific questions to the European Court of Justice (“ECJ”) for clarification. The ECJ held that pilots should be entitled to their “normal remuneration” when they are on statutory annual leave. As to what constitutes “normal remuneration”, well this is remuneration which is inherently linked to the performance of the role which the worker is contractually required to perform. Therefore basic salary on its own is not sufficient if this is not the worker’s “normal remuneration”. However remuneration that covers expenses incurred by a worker while they are performing their role is not “normal remuneration” and so is to be excluded when calculating holiday pay.

The Supreme Court having considered this ruled in favour of the pilots and held that basic pay is not sufficient as holiday pay alone. The case has been remitted to the Employment Tribunal to decide whether flying pay and TAFB constitutes “normal remuneration” for the purposes of holiday pay.

This obviously will have significant implications for the aviation industry, especially in terms of cost, however interestingly there may be implications further afield. The ECJ when responding to the Supreme Courts questions applied the same principles to the Working Time Directive as well as the Aviation Directive. This therefore calls into doubt the correctness of the interpretation of holiday pay in the WTR. Do the rules allow for normal remuneration to be paid as holiday pay? At present this is unclear. There is a possibility that those in other industries whose holiday pay is different to their “normal remuneration” may bring claims against their employers arguing that such payments are breaching the Working Time Directive. Previous case law on this issue has held that holiday pay calculations do not need to take into account overtime. Clearly the comments made by the ECJ have thrown into doubt the validity of this decision and the correctness of how domestic legislation is interpreted. How this will be interpreted by the Tribunals and Courts in the future will be watched with great interest.