Holiday entitlement and the Working Time Directive

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The relevance of case law to 'inclusive rates'

The practice adopted by some employers in the TV industry has one key difference to all the cases above. The difference, and the reason some freelancers find it objectionable, is the fact that these employers openly deduct holiday entitlement from an accepted and agreed freelance rate, rather than adding it on top. In the Munro case, for example, the rolled up rate included an addition for holiday entitlement on top of the usual rate. Under the practice employed in TV, the freelancer's own normal rate effectively becomes the complete rolled-up rate, and the holiday rate is deducted from that to achieve a new reduced basic rate.

The case of AG Davies & others -v- MJ Wyatt (Decorators) made it clear that holiday entitlement cannot be unilaterally deducted from a worker's rate without contractual agreement; but it did say that the circumstances might be different, had a consensual agreement existed. The recent July 2003 findings make this even more explicit: the holiday rate "must amount to a true addition to the contractual rate of pay". But the key word here is 'contractual' - and once it is in writing, the contractual rate in a TV freelancer's case may be very different to what the freelancer considers to be his normal full rate. A written contract is hard to argue with, once the freelancer has signed it and thereby accepted its terms.

From a contractual point of view, the TV practice does respect the letter of the law. In the contract there is often a clear statement of how much is allotted for holiday pay, and this is over and above the weekly (albeit reduced) basic rate included in the contract. Employees can take paid holiday time and will have any untaken holiday time given in lieu at the end of the contract. So from all those points of view the practice satisfies the technical requirements of current case law.

The challenge for a freelancer would be to prove that the rate in their contract was deducted from a higher rate previously agreed, which might have some 'contractual' weight, whether verbal or otherwise - especially in the absence of any 'fixed' rate, since freelance rates are negotiable. Budgets vary from production to production, freelancers have varying levels of experience, and other factors all come into play when negotiating the rate for a job.

Consider the tortuous mathematics used to extract holiday entitlement from within a freelancer's rate. A full rate of £800 a week, as in the example given earlier, ends up reduced to £740.74 a week. Weekly TV rates tend to increase in whole increments of £25 a week. Something tells me the freelancer did not go into the interview stating their rate was £740.74 a week. This rate was arrived at by the employer.

Similarly it is not uncommon for freelancers to go straight from one contract to another on the same production; but if the number of weeks in each contract differs, this generally results in a different reduced weekly rate being worked out from the full rate, due to the way the number of holiday days is rounded up. Using the same example: a full rate of £800 a week on a 10 week contract comes out at £740.74. However, cut the contract to 8 weeks, and the reduced rate now totals £735.63 - even though the freelancer still gets £800 a week if he takes no holiday. Putting several such contracts back to back might suggest that it is the full rate that is the agreed normal rate, not the reduced one.

Further evidence that the rate is deducted from within a higher one is the fact that, even within individual production companies, it is openly admitted that rates on some productions have holiday entitlement added, and some have it deducted, depending on the broadcaster setting the budget. Even within the same production, versions for one broadcaster may be handled differently to versions for another. Everyone from the production manager to the runner knows that holiday pay is either added or deducted depending on the production you are working on. No one pretends that agreed rates are simply higher on some jobs than others.

An employer would certainly find themselves on dangerous ground where a basic rate had been agreed at interview, with no reference to holiday entitlement or deductions. In this instance, the conversation at interview, in the absence of any more binding written contract, would set a contractual rate at the figure discussed verbally. Should a freelancer then begin work, and only receive a written contract weeks later with a reduced figure on it, a freelancer might be in a position to claim that this consituted a unilateral reduction of basic rate, to cover holiday pay, without consensual agreement - for which the AG Davies & others -v- MJ Wyatt (Decorators) case provides a precedent.

We approached London law firm Laytons for advice. The Head of their National Employment team, James Davies, told us:

"Any practice which constitutes a reduction of a worker's basic pay to cover the cost of their holiday entitlement will be void, and the worker will be entitled to recover holiday pay as a separate entitlement above and beyond basic rate pay. The practice of providing a separate payment, intended to meet a worker's entitlement to holiday pay, within their basic rate, is against the spirit of the legislation and is to be discouraged."


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