Employers will no longer be allowed to give workers extra hourly pay in lieu of annual leave, after the European Court of Justice (ECJ) ruled that the practice contravenes the Working Time Directive.
Known as ‘rolled-up holiday pay’, the practice is common in sectors such as transport, construction and manufacturing.
The ECJ was ruling in the case of Caulfield v Hanson Clay Products, which was brought by a group of UK shiftworkers demanding the right to payment during their holidays instead of notional extra hourly pay.
The ECJ said holiday pay must be paid in respect of a specific period during which the worker actually takes leave, to ensure they are not forced to work long hours instead of taking holiday.
The law firm acting for Hanson, Pinsent Masons, said the ruling would prove inconvenient, but employers would welcome the fact transparent payments could be set off against the payment due for specific leave.
“This means that there is only likely to be a financial exposure as a result of the ECJ’s judgment for those employers that have paid rolled-up holiday pay in a way which lacks transparency,” said Philip Titchmarsh, employment senior associate at the firm.
TUC general secretary, Brendan Barber, said the decision would make it harder for “rogue bosses and employment agencies to cheat staff out of holiday pay”.