The vexed issues of holiday entitlement and holiday pay under the Working Time Regulations 1998 continue to keep tribunals busy. We round-up some recent cases with potentially far reaching consequences for employers.
Sick workers: carry over of annual leave entitlement to subsequent leave year
The decision of the European Court of Justice (ECJ) in Stringer was that workers continue to accrue entitlement to annual leave whilst off sick and, if they are unable to take that leave due to sickness, they must be allowed to carry it over to a subsequent leave year.
Under the Working Time Directive (the "Directive") the minimum amount of paid annual leave to which a full-time worker is entitled is four weeks (20 days). The Working Time Regulations 1998 (the "Regulations") are more generous, providing for an additional 1.6 weeks of annual leave. This means that a full-time worker in the UK is entitled to a total of 28 days paid annual leave. Of course, this is the minimum statutory requirement and many employers grant their workers additional contractual holiday entitlement.
Although regulation 13(9)(a) of the Regulations expressly states that annual leave must be taken in the leave year in which it is due, the Court of Appeal took the view in NHS Leeds v Larner that it was possible to interpret the Regulations in line with the Directive so as to allow carry over of holiday for sick employees.
The Employment Appeal Tribunal recently ruled in Sood Enterprises Ltd v Healy EAT/0015/12 that employers do not need to allow sick employees to carry over any of their additional annual leave under the Regulations. In other words, the European case law applies only to the minimum leave period of 20 days under the Directive.
While employers may consider amending their holiday policies and contractual clauses accordingly, they need to be alive to the risks of indirect discrimination if they do so (as those on long-term sick leave are likely to be regarded as disabled).
Payment in lieu of untaken holiday on termination of employment
The Regulations provide that on termination of employment a worker is entitled to be paid in lieu of accrued but untaken holiday at their normal rate of pay. However, in the alternative, regulation 14(3) of the Regulations appears to allow employers to specify the amount of such payments in a "relevant agreement".
The recent employment tribunal case of Podlasiak v Edinburgh Woollen Mill Ltd ET/2701291/13 did not involve a worker who was off sick, but one who was engaged under a zero hours contract. This provided that only a token payment of £1 would be paid in lieu of accrued but untaken holiday on termination.
The tribunal found that regulation 14(3) must be construed in accordance with EU law and this required payment in lieu of untaken holiday to put the worker in a comparable position to the one they would have been in had they taken the holiday during their employment. In Ms Podlasiak's case this meant she was entitled to £176 which she would have received if she had taken her holidays while working.
As this is only a first instance decision it is not binding on other tribunals but it seems likely that other tribunals would adopt a similar interpretation.
It is not uncommon to see a clause in an employment contract providing for a token payment in lieu of accrued but untaken holiday in the event of termination for gross misconduct - there was previously some support in domestic case law for this approach. Employers may still wish to retain such clauses in the hope that the present case would be distinguished as it did not involve a dismissal for gross misconduct.
Calculation of holiday pay for existing workers
Until recently, the accepted position was that non-contractual overtime payments were not taken into account when calculating holiday pay. Only payments due under the contract for normal working hours were taken into account. A recent employment tribunal decision, Neal v Freightliner Ltd ET/1315342/12, has put that position in doubt.
Relying on the Supreme Court's decision in Williams and Ors v British Airways that holiday pay should take account of pay that is, "intrinsically linked" to the performance of tasks required to be carried out under the contract, the tribunal ruled that Mr Neal's holiday pay should take account of the premium he was paid for the overtime he regularly worked. The facts of the case are particularly relevant in that although the claimant's contract required only 35 hours work, in reality he almost always worked overtime, albeit on a voluntary basis.
Permission to appeal this decision to the EAT has been applied for so it is to be hoped we will have a definitive answer to this issue in the not too distant future. In the meantime, organisations should consider whether they may have been calculating holiday pay on an erroneous basis and make contingencies accordingly. As John Lewis recently found to its cost, when it made ex-gratia payments totalling £40 million to workers who had been underpaid holiday pay, the potential liability could be very large indeed.