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Payment for holidays
[ch 9: pages 171-173]There have been important case law developments on the calculation of holiday pay as a result of union-backed litigation in the European and national courts. These rulings only affect the four weeks of holiday under the Working Time Directive — not the extra 1.6 weeks available under UK law.
Following litigation supported by pilots’ union BALPA, it is now established under EU law that a worker must receive their normal remuneration when taking statutory holiday under the Working Time Directive. Holiday pay must be comparable to pay when working (Williams v British Airways [2011] EUECJ C-155/10). The Williams ruling established that when on holiday, workers must be paid any component of their normal wages that is “linked intrinsically” to the performance of their contractual tasks. Otherwise, the health and safety purpose of the Directive would be thwarted, because workers would be deterred from taking holiday due to the prospect of income loss.
In another key test case, this time supported by public services union UNISON, the Court of Appeal confirmed that for workers whose pay is made up wholly or partly of results-based commission, holiday pay must include the commission the worker would have earned if they had not been on holiday:
UNISON member Joe Lock worked as a salesman for British Gas Trading. His pay consisted of a basic salary plus variable monthly commission based on new sales contracts entered into by British Gas as a result of his leads over previous months. Commission represented more than 60% of his pay and was directly and intrinsically linked to the performance of his work tasks. Taking holiday had a very serious negative impact on his pay because, while on holiday, he was not generating new leads. The European Court of Justice (ECJ) said that this was a breach of the Working Time Directive. Holiday pay must include all the pay a worker normally receives when at work, including the variable commission he would have earned if he had not been on holiday.
Mr Lock was able to enforce his right to unpaid holiday pay as a claim for unlawful deduction of wages (British Gas Trading Limited v (1) Lock and (2) BIS [2016] UKEAT/0189/15/BA).
The case went to the Court of Appeal. It confirmed that the Working Time Regulations can be interpreted to enable Mr Lock to enforce his right to holiday pay. British Gas was refused permission to appeal against this ruling to the Supreme Court, so the case must now return to the employment tribunal to calculate the amount owed. Thousands of similar cases were put on hold pending the final outcome. The ruling applies only to the four weeks of holiday pay covered by the Working Time Directive, and only to workers like Mr Lock whose wages include contractual “results-based” commission – not to irregular or one-off commission payments, or annual results-based bonuses.
UNISON has warned that the decision, along with other holiday pay gains won by unions in the tribunal could be at risk, depending on the outcome of the government negotiations to leave the EU.
British Gas Trading Limited v (1) Lock and (2) BIS [2016] EWCA 983
Another very important case, this time backed by general union Unite, has established, following on from the Williams ruling, that holiday pay must include all regular overtime, both guaranteed and non-guaranteed, and all other payments that are linked to work, such as travel time payments, shift or weekend premium payments and anti-social-hours payments. These payments are all part of a worker’s “normal remuneration” that are “intrinsically linked” to the performance of tasks under the contract of employment, so they must be included (Bear Scotland Limited, Hertel (UK) Limited and Amec Group Limited v Fulton, Woods, Law and others [2014] UKEATS/0047/13/B1).
A ruling of the Northern Ireland Court of Appeal confirmed that voluntary overtime (i.e. overtime that the employer is not obliged to offer and which, if offered, the employee is not obliged to do) should also be included as long as it is worked regularly (Patterson v Castlereagh Borough Council [2015] NICA 47).
Despite employer fears, the Bear Scotland ruling did not result in large claims for back-payment of arrears of holiday pay. Even so, the government rushed through new regulations — the Deduction from Wages (Limitation) Regulations 2014 — limiting all claims for unpaid wages to a maximum of two years of back pay. The scope of the new regulations extends far beyond “holiday” pay to cover most claims for unpaid wages owed under the employment contract (even claims for non-payment of the national minimum wage). (For more information, see the Labour Research Department annual publication, Law at Workwww.lrdpublications.org.uk/publications.php?pub=BK&iss=1873.)
The variable element of holiday pay should be worked out by averaging pay over the preceding 12-week period (May Gurney v Adshead & 95 others EAT/0150/06).
It is unlawful to pay holiday pay as part of the hourly rate of pay. The practice, known as rolled-up holiday pay, breaches the Working Time Directive which requires workers to be paid for their holiday at the time they take it (Robinson-Steele v RD Retail Services Ltd [2006] IRLR 386).
In Greenfield v The Care Bureau Ltd [2016] IRLR 62 the European Court of Justice (ECJ) looked at the calculation of the annual leave entitlement of a care worker whose hours of work increased from part-time to full-time. The ECJ decided that where a worker, after accumulating rights to paid annual leave during a period of part-time work, increases the number of hours worked, moving to full time, the annual leave entitlement in relation to the number of hours worked must be calculated separately for each period.
In June 2017, the Advocate General’s Opinion in C. King v The Sash Window Workshop Limited C-214/16 set out that where an employer has not provided a worker with paid leave, the right to paid leave carries over until the worker is able to take it. If it is still outstanding when the worker leaves the job, they are entitled to payment in lieu. In this case, although Mr King had opted to remain self-employed, an employment tribunal found that he was a “worker” for the purposes of UK law and therefore entitled to paid annual leave of at least four weeks. The Court of Appeal asked the European Court of Justice (ECJ) whether it was compatible with EU law to require a worker to take leave before they are able to establish whether they are entitled to be paid for it. The Advocate General considers that it is not. The opinion is not binding on the ECJ, which will give its judgement at a later date.