UK: European Court of Justice Ruling Indicates that ‘Rolled-Up’ Holiday Pay is Unlawful

Last Updated: 22 March 2006
Article by Christopher Booth

Originally published 16th March, 2006*

A ruling today* by the European Court of Justice (ECJ) in the case Caulfield v Hanson Clay Products Ltd (formerly Marshalls Clay Products Ltd) indicates ‘rolled-up’ holiday pay is unlawful even if it is clear in the contract of employment what proportion or amount of the rolled-up pay is holiday pay. Pinsent Masons is acting for the employer in this case.

What is rolled-up holiday pay?

‘Rolled-up’ holiday pay refers to the practice of an employer agreeing with workers that their pay for annual leave is included in their hourly remuneration and paid as part of remuneration for working time but not paid in respect of a specific period of leave actually taken. It is a practice used by many employers in the UK, particularly in the construction, manufacturing and education sectors.

Although there are many variations, essentially the issue arises when employers pay workers by the hour and agree to add to their hourly rate of pay a specified percentage for holiday pay. The worker therefore receives holiday pay on an ongoing basis throughout the year but does not receive a separate payment as and when leave is taken - indeed the worker may not formally take any particular period of leave, but is treated as being on holiday when he or she is not working. Payment of holiday pay through this rolled up hourly pay system is administratively convenient for employers as they do not have to specifically calculate holiday pay every time a worker takes leave, which is especially beneficial for the employer in circumstances where hours of work (and therefore amounts of pay) fluctuate throughout the year. However the system has been criticised as discouraging workers from taking holiday, particularly as the more work the individual carries out the more pay they earn during the year.

Today's* ECJ decision

The ECJ has decided that the practice of rolling up holiday pay is not lawful under the Working Time Directive. Holiday pay must be paid in respect of a specific period during which the worker actually takes leave. This is a harder line than was taken by the Advocate General in her Opinion last year. The Advocate General's Opinion suggested that rolled-up holiday pay could be lawful subject to the employer putting in place safeguards to ensure that workers can take the leave to which they are entitled under the Directive. In most cases the ECJ follows the Advocate General's Opinion but it does not have to. The ECJ's Judgment is likely to mean that the practice of paying holiday pay as part of a rolled-up rate will have to stop.

Credit for holiday pay in existing rolled-up rate

Many employers will be wondering what the effect of this decision is likely to be on sums already paid to workers in respect of holiday through a system of rolled-up holiday pay. Helpfully, the ECJ Judgment says that holiday payments made as part of a rolled-up rate in a transparent and comprehensible way may be set off against payment for specific leave.

Existing law

The ECJ Judgment is particularly significant because of the conflicting case law in the UK - in the Marshalls case the EAT and the Court of Appeal were inclined to allow employers to use rolled up hourly rates of pay, but there is a Scottish Court of Session case (MPB Structures Limited v Munro) which ruled that these practices were unlawful.

Because the rolled up holiday pay system has been found to be unlawful by the ECJ, employers are likely to face administrative inconvenience. They could also, potentially, have faced the problem of not being given credit for the holiday element of the rolled-up rate so as to set this off against the entitlement to holiday pay under the Directive.

The Munro case established that, if the employer has not been paying for holiday pay validly under the Working Time Regulations, any payments made to the employee do not count. It is good news for employers that the ECJ Judgment allows for off-setting where the rolled-up holiday pay system has been operated in a transparent and comprehensible manner.

It had been thought that there would also be the potential for large claims for backdated holiday pay going back as far as 1 October 1998 when the Working Time Directive was implemented in to domestic law by the Working Time Regulations. However, in 2005 the Court of Appeal held in Inland Revenue v Ainsworth that claims to enforce entitlement to holiday pay can only be brought under the Working Time Regulations and not as a claim for unauthorised deductions from wages. The effect of this is to limit a claim for backdated holiday entitlement to the most recent holiday year.

Practical implications

In practical terms, it would seem that the practice of paying rolled-up holiday pay is going to have to stop because the ECJ has decided that it can lead to workers not taking their 4 weeks annual leave entitlement under the Working Time Regulations. Employers who use systems of rolled-up holiday pay would be best advised to change to a system which ensures that workers are paid in respect of specific periods of leave.

Employers who have already paid sums to workers in respect of holiday pay in a transparent and comprehensible way as part of a rolled-up rate, will be entitled to credit for such sums against payment due for a specific period of leave. This means that there is only likely to be a financial exposure as a result of the ECJ's Judgment for those employers who have paid rolled-up holiday pay in a way which lacks transparency.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions