19/06/2023

HOLIDAY PAY ON TERMINATION? (June 2023)

A recent GB EAT case considered holiday pay on termination and whether it differed to holiday pay during employment.

Regulation 14 of the GB Working Time Regulations 1998 states (paraphrased):

(3) the payment due under paragraph (2)[holiday pay on termination] is:

      (a) such sum as may be provided for… in a relevant agreement; or

      (b) where ..no relevant agreement….then sum equal ….determined according to formula– (AxB)−C…..

where:- 

A is the period of leave the worker is entitled to

B is the proportion of the leave year which has expired prior to termination date

C is the period of leave taken between start of leave year and termination date

The EAT appeal asked two questions:

(1) Is there default method to calculate accrued but untaken holiday pay on termination?

(2) Can an agreement provide for pay less favourable than the default calculation?

Facts:

The Claimant was employed from 1 November 2002 until 29 May 2020, when he was dismissed. He was suspended from work on 8 February 2019, signed off ill on 20 February 2019 and did not return to work.

The Claimant worked 37 hours per week and was paid monthly. His annual salary was £29,064.00.

The Claimant’s contract stated that, on termination, holiday pay would be paid as follows:

“Payment will be based on 1/365th of annual salary for each day’s leave. Any payment will be subject to the usual statutory reductions.”

It was accepted that the above term constituted a relevant agreement.

For holidays taken during employment, the Claimant was paid a normal week’s pay. On termination, the employer used the 1/365 calculation (as per the contractual term) meaning he received less than he would have been paid had he taken the holiday during his employment (i.e. less than a normal week’s pay).

The Tribunal found that the contractual term was a relevant agreement which modified holiday pay on termination of employment.

EAT FINDINGS

The EAT found that the contract term could not result in lower pay than would be payable under the working time regulations.

The EAT judge found that the parties had complicated the matter; this was simple as the claimant had an annual salary and set hours.

in answering whether a relevant agreement or employment contract can impact holiday pay on termination, the judge repeated that workers should get normal pay for any holiday.

A relevant agreement must provide a formula which is in keeping with those working time regulation rights and cannot provide for a calculation that means that an employee is paid less than the normal pay.

SUMMARY

Holiday pay issues continue to rumble as we await the Agnew Supreme Court decision (indeed this case referred to Northern Ireland Court of Appeal Agnew Judgment).

This case dealt with a net point that, despite the wording in any relevant agreement or employment contract, employees must also receive their normal pay for accrued but not taken holiday pay on termination.