6. Case Law on Holidays
Changes in Holiday through Case Law
Case law is always developing the law. This has happened extensively in the area of holiday / annual leave. Case law has looked at and interpreted the Working Time Regulations (1998) to confirm how these regulations should be applied. Detailed below are some of the key cases.
Calculating Holiday Pay
There have been several decisions both within the UK courts and the European Court of Justice (ECJ) that impact on the calculation for statutory holiday pay during the 4-week entitlement, specifically in relation to overtime and commission payments.
Essentially the law says that employees who take annual leave should not lose out in their pay and should receive the same pay when they are on holiday as they do when working. So, if they earn other regular payments these should be reflected in their holiday pay. Otherwise, there would be an incentive for employees to not take their full holiday entitlement and that would undermine the protection of the Working Time Directive.
Case law on how to calculate holiday pay
A series of cases have outlined which factors of pay should be considered as ‘normal remuneration’ for the purposes of calculating holiday pay.
In Williams and others v British Airways plc [2011] IRLR 948 ECJ, the European Court of Justice (ECJ) held that any part of pay that is linked to the performance of tasks required by a worker, should be included in the calculation. This decision meant that an allowance for the time spent flying should be taken into account when calculating pilots’ holiday pay.
In Lock v British Gas Trading Ltd [2014] IRLR 648 ECJ, the ECJ held that holiday pay should include a payment representing the commission the worker would have earned if they had not taken annual leave.
Following the EAT’s decision in Bear Scotland Ltd and others v Fulton and others; Hertel (UK) Ltd v Woods and others; Amec Group Ltd v Law and others [2015] IRLR 15 EAT, a week’s pay must include regular overtime employees are required to work, even if the company is not contractually obliged to offer a minimum number of overtime hours.
In East of England Ambulance Service NHS Trust v Flowers and others [2019] IRLR 798 CA, the Court of Appeal confirmed that this also applies to voluntary overtime. For example, where voluntary overtime is paid and is part of a regular pattern of work, to amount to ‘normal remuneration’.
The above cases only apply to the 4 weeks’ holiday entitlement employees receive under reg.13 of the Working Time Regulations 1998. This is because this entitlement derives from the Working Time Directive. So, for the additional 1.6 weeks, these findings do not apply.
What should Holiday Pay include?
In light of the case law, it can be determined that normal remuneration may include:
- Guaranteed overtime – overtime that is guaranteed according to the contract of employment.
- Non guaranteed overtime – regular overtime that workers are required to work, even where the company is not contractually obliged to offer a minimum number of overtime hours.
- Voluntary overtime – overtime employers are not required to offer and individuals are not required to work.
- Bonus payments – additional payments including attendance bonuses and productivity bonuses, for instance where employees meet or exceed targets (but excluding annual bonuses as these are not 'regular').
- Commission payments – Payments that are made to individuals for selling a certain amount of goods or services, which would have been earned during a period of annual leave.
- Flying allowances – pilots flying time should be included.
- Travelling-time allowances – there should be an allowance for time spent travelling if this is linked to the performance of normal duties.
Claiming for holiday pay underpayments
Many organisations have been required to review their approaches to holiday pay and in some cases employees have been entitled to claim back pay.
There are currently some factors to consider when looking at whether an employee can claim for an underpayment. This includes:
- Limitation period – there is a period for bringing claims for underpaid holiday and this is 3 months less one day. Therefore, an employee has 3 months less one day, from the last underpayment to raise a claim.
- Backdating claims – employees can make a claim for backdated holiday (i.e. previous holiday years).
- Series of deductions – A series of deductions will be broken if a gap of 3 months or more exists between deductions. Once this happens, claims for deductions made before that gap cannot be claimed for.
But please note that case law is always developing and some or all of these factors could be open to challenge.
Accrual of Holiday While Off Sick
Should someone continue to accrue holiday when they are off sick? And can they carry this holiday forward to the next holiday year? The simple answer is YES.
Case law has confirmed that holiday does continue to accrue during periods of absence and that employees should be allowed to carry forward holiday if they cannot take it due to sickness absence. With regards to carrying forward holiday, only 4 weeks (20 days) of the holiday has to be carried forward.
In the case of NHS Leeds v Larner, Mrs Larner was absent due to sickness for the whole of the whole year (2009/2010). She didn't take paid annual leave nor did she request that it be carried forward to the next leave year.
Early in the following leave year Mrs Larner was dismissed and NHS Leeds refused to pay for the leave not taken in 2009/2010. Mrs Larner claimed a payment in lieu of the untaken leave.
It was held that as her employment was terminated before she could take her carried forward leave, she was entitled to a payment on termination for the paid annual leave that she had been unable to take, irrespective of any prior request to do so.
Comment: This case runs in line with recent case law regarding the accrual and payment of holiday during sickness absence. It is now established case law that holiday continues to accrue during periods of absence due to sickness (Stringer v Revenue & Customs; Schultz-Hoff v Deutsche Rentenversicherung Bund) and an employee who is prevented from taking annual leave through sickness must be allowed to take their annual leave that they missed later in the year, or if that is not possible, in a subsequent leave year (Pereda v Madrid Movilidad; Asociation Nacional de Grandes Empresas de Distribucion (ANGED) v Federacion de Asociaciones Sindicates (FASGA).
Use it or Lose it
ECJ (European Court of Justice) gave important clarification about the step’s employers must take if they wish to enforce the “use it or lose it” rule for holidays at the end of the leave year. This rule sets out that if a worker does not take their holiday leave in the current holiday year, they will lose it.
ECJ (European Court of Justice) gave important clarification about the step’s employers must take if they wish to enforce the “use it or lose it” rule for holidays at the end of the leave year. This rule sets out that if a worker does not take their holiday leave in the current holiday year, they will lose it.
In the cases of Kreuziger v Land Berlin and Max-Planck-Gesellschaft v Shimizu, it was decided that a worker should NOT automatically lose their right to paid annual leave because they did not apply for it, unless the employer could demonstrate that the worker deliberately refrained from taking the leave “in full knowledge of the consequences”.
The court went on to give guidance on what would be required and said that the employer must inform the worker of the leave they have outstanding and in good time for them to take it. If the worker still does not take leave, then they will lose their right.
Importantly the onus is on the employer to prove that they have communicated this and to show that the worker was able to take annual leave. Any communication to the worker must also confirm that untaken leave will be lost if not taken.
Therefore, to be able to rely on the ‘use it or lose it’ principle, you need to have in place clear procedures for communicating to employee and accurate records of outstanding holiday.
Legal Reference: In the UK, the use it or lose it principle is set out in regulation 13 Working Time Regulations, which says that leave “may only be taken in the leave year in respect of which it is due”. This principle has already been significantly qualified by case law in the event of long-term sickness and maternity leave, or if entitlement has been positively denied by the employer. This latest ruling from the ECJ potentially extends these exceptions to cases where the employers have not done enough to encourage workers to take their leave.