Holidays

Workers are entitled to 5.6 weeks’ paid annual leave (under Regulation 13, as amended). Unions have won a series of court victories since the regulations came into force to ensure that as many workers as possible are entitled to paid leave.

BECTU broadcasting and entertainment union challenged the restriction of paid holiday entitlement to workers who have worked for the same employer for 13 weeks continuously, which adversely affected temporary and agency workers (R v Secretary of State for Trade and Industry ex parte BECTU [2001] IRLR 559). The European Court of Justice (ECJ) ruled that the 13-week qualifying period was unlawful and the regulations were amended by the Working Time (Amendment) Regulations 2001 (SI 2001 No.3256).

Building workers, supported by construction union UCATT, won an important victory in a tribunal claim for the right to paid holidays. The workers successfully argued that, despite being classed as self-employed by their employers, there was enough of a contractual relationship between the parties to show that they were “workers”. This meant that they were protected by the WTR, and in particular were entitled to paid holidays (Byrne Bros v Baird [2002] IRLR 96).

The right to paid holidays is an important EU social right, from which there can be “no derogation” (KHS AG v Winfried Schulte Case C-214/10). In other words, national law is not allowed to cut down the statutory right to paid holidays, or make it too difficult for the worker to enforce their rights in a tribunal. The basis of the right is that workers’ health and safety must be protected through adequate rest.

Holiday entitlement

The WTR originally allowed for only four weeks of annual leave, but this was increased in stages, and since 1 April 2009, statutory holiday entitlement has been set at 5.6 weeks. A week’s leave is the same length of time as the working week. This means that someone working five days a week is entitled to 28 days’ annual leave, while someone working three days a week is entitled to 16.8 days’ annual leave. Twenty eight days is the maximum statutory entitlement (although more generous contractual holiday entitlement can be negotiated). This means that someone who works a six-day week does not accrue an entitlement to extra statutory leave beyond the maximum 28 days.

Payment for holidays

The recent Employment Appeal Tribunal (EAT) judgement in the case of Bear Scotland Ltd v Fulton [2015] IRLR 15, clarified how holiday pay should be calculated when non-guaranteed overtime is worked. The advice and conciliation service ACAS sets out that: “The judgment has clarified that:

• workers should have their normal non-guaranteed overtime taken into account when they are being paid annual leave;

• anybody making a claim must have had an underpayment for holiday pay that has taken place within three months of lodging an employment tribunal claim;

• if a claim involves a series of underpayments, any claims for the earlier underpayments will fail if there has been a break of more than three months between those underpayments; and

• only the four weeks’ annual leave entitlement under the original Working Time Directive apply to this judgment, rather than the full 5.6 weeks’ leave provided by the regulations as they operate in Great Britain.”

An important ECJ case referred to the court from Leicester employment tribunal, Lock v British Gas Trading Ltd [2014] IRLR 648, considered the definition of “normal pay”. In this case, a sales person received basic pay and commission averaging over 60% of monthly pay (under a contractual right to commission). When he was on holiday, he received his basic salary and the commission he earned from previous sales, but did not generate any new commission during the period of his annual leave. The court ruled that where a worker is paid commission calculated on the basis of the sales they make, their holiday pay must include the average commission, calculated over an appropriate reference period, that they would have received if they were working.

In another case on holiday pay, Patterson v Castlereagh Borough Council, the Court of Appeal in Northern Ireland held that employers should include voluntary overtime when calculating an employee’s holiday pay. Decisions from the Northern Ireland Court of Appeal are not legally binding on the courts and tribunals in England and Wales.

In the light of recent cases, Acas has produced new guidance on calculating holiday pay (www.acas.org.uk/holidaypay).

This says the key points are as follows:

• guaranteed and normal non-guaranteed overtime should be considered when calculating a worker’s statutory holiday pay entitlement; but there is currently no definitive case law that suggests voluntary overtime needs to be taken into account;

• commission should be factored into statutory holiday pay calculations and work-related travel may need to be factored in;

• a worker’s entitlement to holiday pay will continue to accrue during sick leave;

• there are different rules for calculating holiday pay depending on the working patterns involved; and

• workers must take their statutory paid annual leave allowance and can only be paid in lieu for this when their employment ends.

Bank holidays

There is no statutory right to take leave on bank holidays. Any entitlement to bank holidays is purely contractual. Employers are free to include bank holidays as part of the statutory minimum paid holiday entitlement (Campbell & Smith Group v Greenwood [2001] IRLR 588).

Guidance on calculating holiday entitlement is available at: www.gov.uk/holiday-entitlement-rights

Timing of holidays

Employers can make rules about the timing of holidays:

However, it has since been suggested by the Supreme Court that the entitlement to annual leave is measured in weeks, not days. This would mean that while the worker can choose to take all or part of the holiday entitlement in individual days off if they want to, the employer cannot force a worker to take holiday on individual days (Russell v Transocean International Resources Limited [2011] UKSC 57).

The issue is important because otherwise (based on the Sumsion case above) employers could undermine the health and safety objective of the Working Time Directive by designating Saturday as a working day and then forcing workers to take their holiday on consecutive Saturdays. The Supreme Court did not have to make a decision on this issue in order to decide the Transocean case and this means that their observations, while important, are not binding.

An employer has the right to ask for leave to be deferred, provided it tells the employee in advance, giving notice which is at least as long as the leave requested. Shorter notice can be given where a “relevant agreement” allows this. A clause in the contract stating that the employee can be required to take holiday during the notice period can be a “relevant agreement” for this purpose (Industry & Commerce Maintenance v Briffa UKEAT/0215/08/CEA).

In a recent decision, the European Court of Justice decided that a payment for accrued but untaken annual leave should be made despite the death of a worker (Bollacke v K & K & Kock BV & Co KG Case C-118/13 ECJ).

Workers in the first year of their employment must accrue statutory holiday on a month-by-month basis before they are entitled to take it.

Offshore oil workers

In 2006, the Working Time (Amendment) (No2) Regulations brought offshore working explicitly under the regulations, and meant that offshore workers were entitled to paid holiday.

In Russell v Transocean International Resources Limited [2011] UKSC 57, the Supreme Court held that where workers work a two-week shift offshore, followed by a two-week onshore field break, employers are entitled to require workers to take their statutory annual leave during the onshore field break.

The rail and maritime union RMT said: “The legal system has missed the point completely. The law lords used a mathematical equation to decide the case. But that was never the intention of the directive which is about addressing excessive annual hours of work that are linked to safety problems including fatigue and stress. What they should have considered is that offshore workers work a minimum 2,184 hour year — over 500 more than the average worker and that for six months a year they are away from their homes.”

Carrying unused leave forward into a subsequent leave year

Except for the special position where a worker is unable to take annual leave due to sickness, under the WTR a worker with unused annual leave has no right to carry forward any of the four weeks’ annual leave from one leave year to the next.

A “relevant agreement” can be entered into to allow any of the extra 1.6 weeks of annual leave to be carried forward into the immediately following holiday year.

If a worker is entitled under the employment contract to extra annual leave, beyond the minimum statutory entitlement of 5.6 weeks, worker and employer are free to agree anything they want about carrying forward (or even buying back) any of the unused extra contractual holiday allocation.

Pay in lieu of annual leave

Because the WTR are intended to promote the health and safety of workers, there is an absolute prohibition on payment in lieu of any part of the statutory annual leave entitlement. This is designed to avoid employers offering workers payment to forgo their minimum holiday entitlement.

Sick leave and holiday

There have been a number of important ECJ decisions interpreting the relationship between sickness absence and statutory holiday entitlement under the WTR. The first of these is Stringer v HM Revenue and Customs, (C-520/06). In this case, the ECJ decided that workers accrue holiday while on long-term sick leave and must be allowed to take it on their return to work, or be paid in lieu of untaken leave if their employment ends. Employees on long-term sick leave who are owed holiday pay can bring a claim for the unlawful deduction of wages under the Employment Rights Act 1996 (HM Revenue and Customs v Stringer and others [2009] UKHL 31).

The second important ECJ decision is Pereda v Madrid Movilidad SA [2009] IRLR 959. This case looked at what happens where an employee falls ill while on holiday. The ECJ concluded that an employer cannot force a worker to take annual leave when off work sick. Instead, workers must be allowed to carry over their holiday. In principle, this means that workers who fall ill while on holiday must be allowed to redesignate their statutory annual leave as sick leave and to carry forward the unused holiday to take when they are fit to work.

A further recent ruling has confirmed that employees who fall sick during annual leave are entitled to take corresponding paid leave at a later date. So, for example, if an employee is part way through their holiday and they become ill, assuming they can provide the necessary medical evidence to confirm their incapacity, an employer must allow the employee to take holiday at a later time.

The rationale for the decision is that, under the Working Time Directive, it states that the purpose of annual leave is to enable workers to have a period of rest and relaxation away from work, whereas the purpose of sick leave is to enable a worker to recover from illness. If an employee is on sick leave, they cannot enjoy a period of rest and relaxation so should be entitled to take that leave elsewhere in the year.

However, this right to carry forward statutory annual leave is not without limits. In KHS AG v Winfried Schulte [2011] EUECJ C-214/10, the ECJ confirmed that unused holiday must not be allowed to build up indefinitely, because otherwise the leave would lose its main purpose as a rest period, and instead become “merely a period of relaxation and leisure”. It would also cause problems for the employer, who would be storing up a liability to pay for large amounts of unused leave if the employment eventually ends due to sickness absence, and may struggle to organise work to cover the absence.

Instead, the ECJ says that collective agreements and national laws can provide for a cut-off point for any carry forward of annual leave, although that cut-off point must not be too short. As a guide, in Schultz-Hoff v Deutsche Rentenversicherung Bund [2009] EUECJ C-350/06, a carry-over period limited to six months was found to be too short, whereas the 15-month cut-off point in the Winifried Schulte case was judged acceptable.

Reasons beyond a workers’ control

In The Sash Window Workshop Ltd v King [2015] IRLR 348, the judge held that a tribunal should consider whether the claimant was “unable or unwilling because of reasons beyond his control, to take annual leave and as a consequence did not exercise his right to annual leave.”

Rolled-up holiday pay

When the right to paid holidays was introduced, many employers dealt with it by simply telling their workers that their hourly rate included an additional sum that was equivalent to holiday pay. Their holiday pay was therefore “rolled-up” into the basic hourly rate. The worker was then expected to save a proportion of the weekly wage to cover the weeks that they were on holiday. However, some employers simply said that their workers’ existing pay already included this rolled-up element, so that their workers received no extra holiday and no additional pay either.

In 2006, the European Court of Justice clarified the law (Robinson-Steele v R D Services Ltd C-131/04 and C-257/04 [2006] IRLR 386). The Court ruled that it is unlawful to pay holiday pay as part of the hourly rate of pay. It said that the practice of rolled-up holiday pay does not comply with the Working Time Directive, which requires that workers are paid for their holiday at the time that they take it.

However, confusingly, these cases also confirm that as long as a worker (typically an agency worker) is told clearly, fully and transparently which part of any pay packet is intended to represent holiday pay, the employer will be allowed to set off any sums paid as holiday pay against the worker’s claim for holiday pay. In other words, where the employer has made clearly identifiable payments on account of holiday pay, a tribunal is likely to conclude that a technical breach of the WTR has not resulted in any loss to the worker.

Department for Business, Innovation and Skills (BIS) guidance now states that rolled-up holiday pay is unlawful and that employers must always pay their workers their normal wages while they are actually taking their annual leave.