UK: Holiday Pay Cases: Where Are We Now?

Last Updated: 27 April 2016
Article by Clare Gilroy-Scott

The Employment tribunals continue to consider a number of cases concerning the inclusion of overtime and commission payments in holiday pay, as well as the entitlement to carried over leave as a result of long-term sickness or where a worker has otherwise been unable to take it. Are we any closer to a resolution? Unfortunately the position remains unhelpfully unclear for employers who do not want to fall foul of the requirements or face large backdated claims.

In this article we review the latest tribunal decisions and consider what employers could be doing in the meantime.

Overtime pay and back-dated claims – Bear Scotland cases

By way of reminder, the Bear Scotland consolidated cases considered the question of whether holiday pay should include overtime pay (in respect of the minimum four weeks' statutory annual leave required by the Working Time Directive (WTD), rather than the additional 1.6 weeks' leave granted by the amended Working Time Regulations(WTR)). The EAT decision in November 2014 was ground-breaking, the practical effect being that overtime should be paid if it is normally received by the worker and is a payment directly linked to the work.

To qualify as "normal" the payment must have been made for a sufficient period. This may be easily identified where there is a settled pattern of work but where there is no settled pattern of work, the amount should be determined using an average over a reference period (as determined by national legislation). Unfortunately there has been no guidance from the tribunal as to how long a period of payment would be "sufficient", nor whether the 12 week reference period which is currently set out in the Employment Rights Act to determine a "week's pay" in certain circumstances is the appropriate period.

There must also be an intrinsic or direct link between the payment and the work that the worker is required to carry out. Guaranteed overtime is therefore caught, as is non-guaranteed where the worker is obliged to work overtime if requested. What remains unclear is the position on voluntary overtime.

In August 2015 the Bear Scotland cases returned to the employment tribunal to consider the claimants' individual circumstances. The tribunal dismissed the claims. The claimants have sought permission to appeal and the hearing was listed in the Scottish EAT on 13 April 2016.

Commission and holiday pay – Lock v British Gas

The Lock case considered the question of whether commission payments should be included in the calculation of holiday pay. The ECJ had previously considered Lock and held that it should, again being a payment intrinsically linked to the worker's performance.

The worker in this case, Mr Lock, received commission earned on previous sales if paid during periods of absence. He claimed that he was disadvantaged when on leave as he could not earn commission during those periods. Again we have mention of calculation over a reference period, but no indication as to the appropriate length of that reference period, other than that it should be representative.

In February 2016 the EAT dismissed British Gas's appeal. The WTR should be interpreted so as to conform with the requirements of EU law and include results-based commission (in statutory holiday pay derived from the WTD), in accordance with Bear Scotland. The Supreme Court will hear a further appeal in Lock by 17 February 2017.

The Lock case will then go back to the tribunal to decide the correct reference period for calculating the commission element of holiday pay.

Holiday pay and employment status: King v The Sash Window Workshop Ltd

The King case is a reminder that workers and not just employees benefit from the entitlement to paid holiday under the Working Time Regulations.

On 9th February, the Court of Appeal considered the question of whether a worker who is denied payment for his leave whilst working is entitled to a payment in lieu on termination for untaken leave during the course of the engagement, in this case going back to 1999.

Background: Mr King treated as self-employed

Mr King worked full-time for The Sash Window Workshop Ltd (SWWL) as a salesman, paid entirely on commission, for 13 years. He took varying amounts of holiday each year but was not paid whilst on holiday. This was because SWWL considered him to be self-employed and not entitled to paid holiday.

Mr King's contract was terminated upon his reaching 65 in October 2012. In 2013 Mr King won claims for age discrimination and holiday pay in the Employment Tribunal (ET), the latter claim on the basis that he was a "worker" and not, in fact, self-employed.

Mr King submitted that the fact he was not paid for holiday meant he was deterred from taking his full entitlement throughout his 13 years of working for SWWL. He was successful in full with all three categories of holiday pay claimed and received the following awards:

  • Holiday Pay 1 – payment representing the amount of holiday accrued but untaken at the date of termination for the final (incomplete) leave year;
  • Holiday Pay 2 – payment for unpaid leave requested and taken in previous years, claimed as a series of unlawful deductions from wages; and
  • Holiday Pay 3 – payment in lieu of the accrued but untaken leave throughout the whole period of Mr King's engagement in respect of which no request for leave was made. The ET saw no difference between a worker being "unable" to take paid leave due to sickness and a worker being denied paid leave.

Mr King's claim stretches back to 1999, because the right to bring a claim for a payment in lieu can only arise on termination. Mr King presented his claim within 3 months of the termination.

Employment Appeal Tribunal: Appeal by SWWL

SWWL made no challenge to the ET awards for Holiday Pay 1 and 2 but appealed in respect of Holiday Pay 3. This was the untaken leave which SWWL argued Mr King was not entitled to carry over each year. The EAT held that it may be possible for a worker to claim that holiday is carried over into the next year of annual leave and/or for a payment on termination of their employment in lieu of that untaken leave entitlement, in circumstances where they are unable to take their holiday for reasons beyond their control which are unrelated to sickness (widening the scope of previous cases which had allowed such carry over where there had been long-term sickness).

The remitted Mr King's claim back to the ET for reconsideration as to whether there could be a specific finding of fact that he was prevented "for reasons beyond his control" from taking leave.

Court of Appeal: Appeal by Mr King

The Court of Appeal allowed Mr King's appeal against the EAT decision and heard the case in February 2016. Judgment has been reserved.

Mr King is represented by James Williams of Henderson Chambers, instructed by Clare Gilroy-Scott of Goodman Derrick LLP.

Despite the uncertainty, what can employers do now?

  • Review your workforce. Do you have workers who are not receiving paid leave?
  • Review the annual leave provisions in your contractual terms with employee and workers.

    • Are your contractual terms relating to carry-over sufficiently clear in circumstances where the leave has not been taken due to sickness or other reasons beyond the control of the worker?
    • Are your contractual terms relating to pay for leave sufficiently clear?
  • Assess the number of workers who receive overtime pay and commission pay.

    • Do you currently factor in overtime and commission in holiday pay for employees and workers?
    • Are the provisions in your contractual terms with those employee and workers sufficiently clear in terms of payment for leave?
    • Consider other payments, their frequency and whether they are intrinsically linked to the work.

Do you want to find out more about holiday pay?

How to deal with holiday pay in the wake of these decisions will be covered by Clare Gilroy-Scott at two legal breakfast briefings in May:

11 May 2016: Employment Law Case Update click here for details.

19 May 2016: Recruitment Sector Legal Breakfast Briefing click here for details.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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