TV Freelancers: Holiday entitlement

Holiday entitlement and the Working Time Directive

What are the precedents in UK case law?

There have been a number of judgements which have shaped case law with regard to the holiday element of the Working Time Regulations. Bear in mind that I'm not a lawyer and can make no comment on the application or interpretation of these findings, which I'm naturally lifting out of the context of the original hearings, so please take this summary 'as is'. I'll provide a full list of where all these cases can be found at the end of this piece, so you can take a look for yourself. Wherever a case is referred to, the text will link to the full judgement.

One case worth mentioning at the outset is AG Davies & others -v- MJ Wyatt (Decorators). In essence, this appeal case in 2000 related to a situation where a decorating company employed its workers under contract. To meet the requirements of the WTR, the company decided unilaterally to made a weekly deduction from employee's wages into a 'holiday fund', which then covered the cost of pay while they were on holiday. The appeal judgement found that "The reduction was unilateral. That is, it was not with the consent or agreement of the employees. It was something that had been foisted upon them." The appeal court decided it was an error for the original tribunal to conclude "that under a contract of employment agreed between the parties they can without consent, and unilaterally reduce the entitlement to pay and wages in order to fund the holiday pay. Other considerations may arise if there has been a consensual arrangement, either by a variation of contract or a new contract." The appeal found the deduction in this case to be unlawful.

Several other cases have concerned the practice of 'rolling up' holiday pay. In other industries, for example in the construction trade which has a rapid turnover of workers on an hourly rate, employers have attempted to simplify the holiday administration process, by increasing that hourly rate to include an allowance for the worker's entitlement to paid holiday. The result is that holiday pay is not paid when holiday is taken, but is paid throughout the year 'rolled up' with the worker's normal hourly pay. Thus, for example, a previous rate of £9.20 an hour might have been increased to £10 an hour to include 80p of holiday pay. In theory, the worker should keep the extra cash to one side, to make sure he has enough to pay for his holiday at the time he decides to take it.

Last year two cases tested this practice. In the case of Gridquest (t/a Select Employment) & Others -v- Blackburn & Others, the Court of Appeal decided that an employer paying a rolled up rate to workers had failed in its duty to pay holiday pay under the Working Time Regulations; however, this was not because the practice itself was unlawful, but because there was no contract or other agreement informing the workers that their pay included this element of holiday entitlement. They decided that "An employer cannot unilaterally decide that the week's pay is a payment not only for the hours worked during the week, but includes an element of holiday pay." The Court did not comment on whether the rolled up rate in itself was unlawful, but it did set out the terms on which such a payment might be made, implying that in fact such a practice would be acceptable under the WTR.

However, the Scottish Court of Session (the equivalent of the English Court of Appeal) took a different view. In April of this year (2003), the Court of Session upheld a decision that the payment of a rolled up rate of pay was contrary to the WTR. The workers in this case were fully aware of the rolled up rate system, and it was explained in their contract. Despite this, the decision stated that "the only way that the provisions of the Regulations and, indeed, their spirit can be met, is for holiday pay to be paid as and when the holiday is taken, at the appropriate rate".

In reaching its decision, the Court of Session considered the wording of the original EU Working Time Directive, which specifies that member states shall take the necessary steps to ensure that every worker is entitled to a minimum of 4 weeks' paid annual leave - and that this minimum period of paid annual leave may not be replaced by payment in lieu, except when the employment is terminated and holiday time has accrued but not been taken. The Court interpreted this to mean that the right to annual leave, and the right to payment for it, are not alternative options, but one single entitlement, which is intended to safeguard the safety and health of workers. Therefore, payment for holiday time has to be made when that holiday is taken.

Crucially, the Court of Session felt that paying a rolled up rate could lead to situations in which workers were discouraged from taking their holiday when they would otherwise have chosen to take it (presumably if they had already spent the money and could therefore not afford to take time off without pay - or wanted to take a holiday early in the year, before enough rolled-up holiday pay had accrued to pay for it).

This case (MPB Structures v Munro) was heard in a Scottish court. It was therefore not binding on English and Welsh employment tribunals, the Employment Appeal Tribunal, and the Court of Appeal. However, very recently (July 2003), a group of six cases were heard in the English Employment Appeal Tribunal, which have further changed the scenery as to the interpretation of the working time regulations. It would take too long here to go into the details of all 5 cases; but the judge considered the precedents from the cases mentioned above, and also took the Scottish Munro case into account. The conclusion was reached that as well as the health and safety aspects of the original Directive, the requirement for flexibility, and the need to avoid imposing onerous administrative burdens, should also be considered - these also being factors mentioned by the Directive. From that point of view the judge decided that rolled-up holiday pay was not, in itself, unlawful, and did indeed discharge the employer's liability to pay for a holiday entitlement, even if it was not attached to a specific period of holiday time. This was especially relevant in industries with large numbers of essentially transient workers. But there must be a sum or percentage expressly and contractually allocated to holiday pay.

More importantly, the judge helpfully went on to give guidance for the future to employers, trade unions and employees. He expressly said that "any payment made to or agreed with an employee instead of taking a holiday, or with that effect, would be void." Even more crucially, the decision goes on to say that holiday entitlement "must amount to a true addition to the contractual rate of pay".

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