Case of the week: well-drafted contract is key to holiday dispute

Industrial & Commercial Maintenance Ltd v Mr A M Briffa

FACTS The claimant, Briffa, was employed by Industrial & Commercial Maintenance Ltd (I&CM) from May 2005 to February 2007, and again from March to August 2007. The terms of his contract of employment provided that if he gave or received statutory notice of termination he would be regarded as on holiday during that notice period.

On 10 August 2007 he was given one week’s notice that his employment would be terminated on 17 August. He had accrued four days’ holiday. The letter giving him notice confirmed he was not required to work but would have to take his accrued holiday during his notice period.

DECISION Briffa made a claim in an employment tribunal for outstanding holiday pay (£249.50). He claimed that he should have been given notice of twice the length of holiday to be taken, ie, eight days. As he was not given such notice, he said he should be paid in lieu of his holiday. The tribunal accepted his argument. Under Regulation 15 of the Working Time Regulations (WTR), an employer is required to give notice of twice the length of holiday to be taken.

I&CM appealed to the Employment Appeal Tribunal (EAT).

The EAT held that the tribunal had not looked at the WTR properly. The WTR allow an employer to vary the rule about giving notice to take holiday by a ‘relevant agreement’. This includes a contract of employment. The EAT found that I&CM had validly varied the rule about giving notice by including a term to this effect in Briffa’s contract of employment. Briffa was not, therefore, entitled to compensation in lieu of accrued holiday.

IMPLICATIONS It has long been a source of frustration to employers that, almost whatever the circumstances of termination of employment, the employee is entitled under the WTR to be paid in lieu of accrued, but untaken, holiday. It is the one exception to the overriding purpose of the WTR – to ensure employees take paid holiday.

When interpreting the clause in Briffa’s contract in the EAT, judge Peter Clark said that his decision to uphold the clause, as well as being a correct interpretation of the WTR, was also in line with the purpose of the WTR ‘to ensure that workers take sufficient holiday with pay’. Until this case there was doubt whether such clauses would be effective when construed with the WTR. The decision gives employers the scope to avoid having to make a payment in lieu of holiday on termination by including such a clause.

Employers often find that they either don’t need or don’t want an employee to work during their notice period. Having required an employee to be at home during their notice period (effectively on holiday), employers find it grates to have to pay them in lieu of accrued holiday as they are required to do under the WTR.

Briffa had accrued only four days’ holiday, but employees often accrue more. This case shows that if a contract is properly drafted, employers can now avoid having to pay for accrued holiday in addition to notice.

This case referred only to statutory notice, but there is no reason why the same principles should not apply to longer periods of contractual notice. What is important is that employers make sure that their employment contracts clearly set out that they may require an employee to use up any accrued holiday during their notice period.

Roger Byard, head of employment, Cripps Harries Hall

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