EAT Rules on Pay in Lieu of Accrued but Untaken Holiday
The Employment Appeal Tribunal (EAT) has confirmed that an agreement governing pay in lieu of accrued but untaken holiday cannot result in lower pay than would be paid under the Working Time Regulations.
Background of the Case
In the case of Conner v Chief Constable of the South Yorkshire Police, the claimant was dismissed after a period of ill health. On the termination of his employment, he was owed pay in lieu of accrued but untaken holiday. His contract of employment contained a clause providing that this would be calculated at the accrual rate of 1/365.
As a salaried employee, had the claimant taken this holiday during his employment, he would have received the same amount of pay for time spent on holiday as he would have received had he been at work. However, when the 1/365 contractual accrual rate was used, the value of this accrued holiday was less than his salaried rate of pay.
The claimant brought a holiday pay claim to recover the shortfall. The Tribunal rejected his claim, holding that the 1/365 contractual accrual rate was a 'relevant agreement' for the purposes of the Working Time Regulations (WTR). The WTR deals with pay in lieu of accrued holiday where the claimant leaves part-way through the leave year. It provides that the amount due in these circumstances will either be provided under a 'relevant agreement' (which can include a contractual clause), or will otherwise be calculated according to a statutory formula.
The claimant appealed to the EAT.
EAT Outcome
The EAT upheld the appeal. For a worker with normal working hours and pay that does not vary, the usual approach will be to divide their annual salary into 52 in order to calculate the amount of a week's pay. This will be the amount paid during both working time and holiday time. A relevant agreement can alter the approach to calculating accrued holiday pay. However, a relevant agreement must provide for a calculation method that is in keeping with the rights provided for in the WTR. It cannot provide for a calculation that makes the employee worse off than had they worked instead of taking, or being paid for, the leave.
Best Practice
This case reinforces the key underlying aim of our holiday pay law framework - workers must not be disincentivised from taking their leave. If they are paid less than their normal remuneration during a period of leave, they are less likely to take holiday. Employers should check that any contractual mechanism governing the calculation of accrued holiday does not result in a lesser amount of pay than the worker would have received had they been at work.
