Interest Adds Up: Main v SpaDental Ltd [2024] EAT 200

Facts

The Appellant, a dentist, worked for the Respondent company, SpaDental Ltd, for several years. He claimed unpaid holiday pay on the basis that he was a ‘worker’ under section 230(3) Employment Rights Act 1996 (“ERA”).

After litigating the issue from 2019 to 2022, it was established that he was indeed a worker for the purposes of section 230(3). A remedy hearing was listed. This case note is on the 2024 EAT hearing, which was an appeal concerning issues on remedy only.

The claim largely concerned holiday pay. The claim was made as one for unlawful deductions from wages under section 23 of the ERA.

Relevant Law

The main legal framework engaged was the Working Time Regulations 1998 (“WTR”).

Regulation 13 of the WTR sets out a worker’s entitlement to annual leave. This includes payment in lieu of untaken leave where the worker’s employment is terminated.

Regulation 16 deals with payment in respect of periods of leave.

Regulation 30 outlines remedy in the form of compensation. It gives an employment tribunal discretion to award an amount which is just and equitable – regulation 30(4).

Article 6 of the Equal Treatment Directive 76/207/EEC was also relevant. It does not impose a limit to the reimbursement of loss and damage sustained by a person, nor is there an exclusion of an award of interest to compensate for the loss sustained.

Issues

There were two issues to be considered:

1. Did the claim vest in the trustee in bankruptcy?
2. Was the Appellant entitled to interest on the holiday pay owed by the Respondent?

The remaining issues were agreed. It was also agreed that EU law applied as the facts of the case occurred before the UK left the EU.  

Focus is on the second ground of interest.

Submissions

On the second ground, the Appellant argued that interest was an essential component of compensation and the principles of effectiveness and equivalence applied. It was also submitted that policy reasons were a crucial consideration:

“Were it not so, employers would have a financial incentive for non-compliance with the WTR even if they might eventually be ordered to pay the holiday pay, and could gain a competitive advantage from non-compliance.”  at [75].

The Respondent argued that the principle of equivalence was irrelevant because the domestic provisions on interest in civil court cases are discretionary. The respondent accepted that the employment judge was entitled to consider the parties’ interactions, the passage of time and regulation 30.

Outcome

The EAT held that:

1. The first issue was correctly decided at first instance – the Claimant’s claim brought against the Respondent to provide him with paid leave was a proprietary claim which vested in his trustee in bankruptcy.
2. The employment tribunal at first instance erred in its refusal to award any “interest-like” compensation.

The interest in this case involved substantial figures. It added £42,082 on top of the original award of £83,573, calculated at 8% running from the mid-point of each leave year. The rate of interest was accepted as post-judgment interest.

EU law was not necessary to be considered and the principle of equivalence “does not add anything of significance to the present case” at [87].

Analysis on Interest Issue

This case is important for two main reasons:

1. It clarifies (or perhaps expands) the discretion of the employment tribunal to award interest on compensation under the WTR.
2. It sets out clear factors that the employment tribunal should consider.

Firstly, the employment tribunal does not have an express power to award interest accruing before judgment on compensation or other sums under the Working Time Regulations or Employment Rights Act. It is accepted that interest is granted for sex discrimination and equal pay awards following Marshall v Southampton and SW Hampshire AHA (No 2) [1994]. Here, the ECJ held that to not award interest would be contrary to Article 6 Equal Treatment Directive. Interest is now pursuant to the Industrial Tribunals (Interest on Awards in Discrimination Cases) Regulations 1996. The 1996 Regulations apply to awards under the Equal Pay Act 1970, as well as awards resulting from successful sex, race and disability discrimination claims.

The judgment is significant because it may open the door to awards of interest on compensatory awards for other claims, like unfair dismissal. It was decided that the wording of Regulation 30 of the Working Time Regulations was wide enough to grant a compensatory award that includes interest or an “interest-like” payment. Therefore, it is possible that other tribunals will decide they have discretion to award interest in other cases too. Where the award is substantial or the time passed is significant, the interest can amount to a generous sum. It is therefore a crucial consideration in remedy hearings.

Secondly, Bourne J outlined 5 distinct factors at paragraph 62 to be considered when awarding interest in a Working Time Regulation case:

1. Regulation 30(4)
2. What is just and equitable
3. The nature of the company’s default
4. Any loss sustained by the Claimant
5. Significance of the sums involved

Interest will not be awarded automatically following this case. It was not clear whether these are five strict criteria to be followed each and every time. It was also not established if all 5 factors are required for interest to be awarded.  Therefore, both parties should assess whether some, if any, factors are satisfied and assess this on a reasonable basis.

Marshall was the clear influence in this appeal. The Court in Marshall explained that “full compensation” for “loss and damage” includes the factor of reduction in value by effluxion of time. Bourne J in Main indicated at paragraph 86 that this “factor must be brought into account”. This is useful in practice in support of an argument that the 5 factors above are not exhaustive. In practice, parties should bear in mind the passage of time and how this will impact the final sum awarded. A common-sense approach is implicitly endorsed.

This case reminds practitioners to bear in mind interest on compensation in remedy hearings. Whether representing claimant or respondent, it may amount to a significant sum. The Tribunal is yet to establish any hard and fast rules, so this discretion and flexibility may be a useful advantage where relevant.

The full judgment can be found here.