UK: Holiday Cases Continue To Keep The Tribunals Busy

Last Updated: 24 July 2015
Article by Clare Gilroy-Scott

The Employment Tribunals and Courts in both the UK and Europe continue to consider the vexed question of holiday entitlement and pay, including whether overtime and commission should be included in holiday pay, how long a worker on sick leave can carry over holiday which is untaken and how long unpaid holiday pay can be backdated. This update considers three cases currently in the UK courts.

Holiday entitlement during sick leave: How much untaken leave can be carried over?

On 8 July 2015, the Employment Appeal Tribunal (EAT) handed down an important decision regarding the length of time which an employee on sick leave can "carry over" accrued but untaken annual leave. In the case of Plumb v Duncan Print Group Ltd, it was held that the Working Time Regulations 1998 (WTR) should be read as allowing a worker to take annual leave within 18 months of the end of the leave year in which it accrued. The EAT came to this decision having considered recent European case law on the Working Time Directive (from which the WTR is derived) which has indicated that there should be, at most, 18 months of carried over leave. This carry-over applies where the leave has not been taken because the employee has been unwilling or unable to take it because of sickness. However, the EAT also held that the worker did not have to show that they were physically unable to take the leave.

Should commission be included in "remuneration" for the purposes of calculating holiday pay?

Lock v British Gas

In May 2014, the European Court held that Mr Lock's holiday pay ought to include an element of commission (his salary had been around 60% commission and 40% basic salary). This was not simply the commission that Mr Lock had earned whilst working, but the commission that Mr Lock may have earned, had he not taken annual leave. Otherwise, in the view of the European Court, this was a financial disincentive which may deter the worker from taking annual leave.

For a report on that decision from Europe please click here. The problem with the decision from Europe was that there was no finding as to how this should be dealt with and furthermore, the payment provisions in the Working Time Regulations in the UK did not anticipate commission in holiday pay.

Following the European decision, the case went back to the Employment Tribunal (ET) in the UK. The decision, published on 25th March 2015, was that the tribunal could interpret the Working Time Regulations in order to include commission payments in the calculation of holiday pay (in respect of the 4 week statutory entitlement to annual leave derived from the Working Time Directive). The Tribunal took account of the decision of the Employment Appeal Tribunal in Bear Scotland Ltd v Fulton (click here for a report on the decision) of November 2014 which found that the Working Time Regulations were capable of being interpreted to include non-guaranteed overtime in the calculation of holiday pay.

It was no surprise that the ET in Lock held that, similarly, commission should be included. As well as Bear Scotland, this decision followed the course of many holiday pay decisions coming from Europe. For an employee with normal working hours whose remuneration may vary with the amount of work done, the variable element, i.e. the commission or overtime, should be included as "remuneration". Although the provisions in the WTR and the Employment Rights Act 1998 in relation to the calculation of a "week's pay" use a 12 week reference period for employees with normal working hours but variable pay, it seems that this element of the Lock case has been reserved for a later stage in the litigation.

In May 2015, British Gas lodged an appeal with the EAT against the tribunal's finding that commission should be included in the holiday pay calculation and this is expected to be heard towards the end of 2015. Until then, the uncertainty for employers as to how to calculate holiday pay for those workers who are paid commission and/or non-guaranteed overtime continues.

Is a worker entitled to a payment in lieu of untaken holiday entitlement from previous years upon termination of employment?

King v The Sash Window Workshop

Mr King, a worker who was paid on a commission-only basis, had been unable to take paid holiday throughout his engagement with The Sash Window Workshop Limited (TSWW). This was because TSWW treated Mr King as self-employed and therefore not entitled to paid annual leave. Mr King was dismissed from TSWW when he turned 65. He was successful in his claim for age discrimination and was awarded damages for loss of earnings and injury to feelings arising from the discriminatory termination of his contract on grounds of age.

Mr King also won his claim against TSWW in the Employment Tribunal (ET) for back-dated holiday pay, the ET finding Mr King to be a "worker" and therefore entitled to paid annual leave. The ET awarded him backdated holiday pay from 1999 to the date of termination, for the days which he took during that period as unpaid leave, as well as for the holiday he did not take.

EAT Appeal

Although they accepted the finding that they had to pay Mr King for the annual leave he had taken since 1999, TSWW appealed to the EAT against the holiday pay awarded by the ET for days which Mr King did not take during that period. This was the element of leave entitlement which Mr King did not take on the basis that he could not afford to because he would not be paid.

The EAT considered the ground-breaking decision regarding holiday pay in Bear Scotland Ltd & Others v David Fulton & Others; Hertel (UK) Ltd v K Woods & Others; and Amec Group Ltd v Law & Others handed down only that morning, amongst other notable holiday pay cases in the UK and in Europe. It was held that the ET should have considered whether Mr King was prevented by reasons "beyond his control" from taking annual leave and remitted this question back to the ET to consider. The EAT also questioned the ET finding that this element of holiday pay could be claimed as unlawful deduction from wages. The view of the EAT was that Mr King did not lose pay as a result of being deterred from taking such leave, but that he lost the "health and welfare" benefits of taking the leave. The result appears to be that, if a worker chooses to work rather than take unpaid annual leave, despite this apparent disincentive to take leave which is contrary to the decisions coming from Europe (including in Lock), they will not receive holiday pay for the untaken leave.

These findings of the EAT are the subject of an appeal to the Court of Appeal which is due to be heard in February 2016. James Williams of Henderson Chambers is instructed by Goodman Derrick to appear before the Court of Appeal on behalf of Mr King.

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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