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Rolled up holiday (again) European court says "nein" but what of transparency?

Three cases under the umbrella of Robinson-Steele v R D Retail Services Ltd (2006) (ECJ) were referred by UK Tribunals and the Court of Appeal to the European Court of Justice (“ECJ”). The ECJ has declared that paying holiday pay as an additional percentage uplift within a worker’s normal wages rather than at the time when they take their four weeks statutory holiday leave (under the Working Time Regulations) (“WTR”) is unlawful.

The ECJ was satisfied that the fore runner of the UK Working Time Regulations (the European Directive) on this issue states that a worker cannot be provided with payment in lieu of their holiday pay, unless their employment is terminated. Therefore if a worker is paid holiday pay each week or month, this may encourage employees not to take leave but take cash instead. This is against the legitimate health and safety concern that workers should take annual leave due to them.

This does not address the issue of typical workers, such as shift workers or workers on short time contracts, who are employed for temporary periods and yet are still afforded time off for their holiday. Remember the WTR allow for statutory four weeks leave to accrue on the month by month basis at the rate of 1/12 of the annual four-week entitlement. Often employers have used a rolled up holiday pay system to pay workers a rate of pay over and above their normal wages to get around the administrative nightmare of having to calculate what a worker is due in holiday pay terms at the time when they take their leave. What the ECJ says here is that:

= if a worker has in fact been paid a rolled up rate of pay (i.e. in advance with each weekly or monthly payment), then the advance payments can be deducted from any holiday pay which would otherwise be due at the time the holiday is taken, if
= the payments made in advance have been made transparently and comprehensively paid as holiday pay.

This decision sends a warning to all administrators of wages and holiday pay schemes, to ensure that the advance payment is clearly identified as holiday pay in the pay slip, with a specific rate and a specific amount, rather than an arbitrary percentage of the normal hourly rate.

Advance payments can be off-set against the amounts due for holiday pay, provided that employer and employee agree openly and in advance that the advance payment is for holiday time to be taken later.

So where does this leave us? The ECJ says its unlawful to pay holiday pay in a rolled up fashion. But it also says that if rolled up payments are challenged, there is a defence if payment has already been made transparently and by agreement. The UK Government are in favour of rolled up holiday pay,
but this new ECJ decision may make them think about legislating against this system in the future. If this happens, we are likely to see yet another amendment to the Working Time Regulations (we lost count after 5 since 1998).

Remember also that claims for holiday pay (where there has never been transparency) can only be backdated to the beginning of the most recent holiday year i.e. no more than one year, not 1998 when the WTR came in.

This is because they are WTR claims, not Wages Act claims, and the claim is the WTR which only allows claims to be made in respect of the current or recent holiday year.

For further enquiries please contact Nick Hobden (view full profile) on 01892 701326 or email nhobden@ts-p.co.uk.

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