The Working Time Regulations 1998 (WTR) state that employees must be paid in lieu of accrued but untaken statutory holiday on termination of their employment.
This payment must be calculated using a formula in the WTR, or as specified in a relevant agreement. In Podlasiak v Edinburgh Woollen Mill Ltd, an Employment Tribunal considered whether an employment contract could provide for a token payment in lieu of holiday on termination.
Ms Podlasiak was employed under a zero hours contract which stated that she would be entitled to £1 in lieu of any untaken holiday on termination. When her employment terminated, she had three days' accrued but untaken holiday. If she had taken this holiday during her employment she would have been paid £176. Mrs Podlasiak argued in the Employment Tribunal that she should have been paid £176 in lieu of untaken holiday rather than the token sum of £1 as stated in her contract.
The Tribunal upheld her claim. Although in theory the WTR allow payment in lieu of statutory holiday to be set at a token level in a relevant agreement, the Tribunal held that this was not consistent with the EU Working Time Directive. Following the ECJ's decision in the Stringer and Schultz-Hoff cases, pay in lieu of untaken holiday should be calculated so that workers are put in a position comparable to the position they would have been in had they taken that holiday during employment. On this basis, since her employment contract was a relevant agreement for these purposes, Ms Podlasiak was entitled to receive £176 in lieu of her untaken holiday.
While this case is not binding on other courts and tribunals, employers are advised to consider paying employees the same rate for untaken statutory holiday on termination as they would have paid if the holiday had been taken during employment. Depending on the precise circumstances, a contractual term providing that no payment in lieu of untaken holiday will be made, or specifying a token amount such as £1, is unlikely to be upheld.
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.
