Further confusion with rolled-up holiday pay

Many
employers attempted to comply with their obligations under the Working Time
Regulations (WTR) requirements for paid holidays by increasing the hourly rate
of the workers to include a proportion for holiday payments. This meant that
they did not pay the workers at all during the actual holidays taken. Employers
argued that it was the duty of the recipient to put the (extra) money aside for
their statutory holiday periods.

By
late 2003, the UK courts had reached an impasse on this issue. There was a split
in the view taken by the Scottish Courts and the English Courts as to its
legality. The Inner House of the Scottish Court of Session in the case of MPB
Structures Limited v Munro had decided that the provision of an increased
hourly rate did not discharge the employer’s liability to make payment for
holiday pay. It argued that it did not meet the WTR requirements. The
Employment Appeals Tribunal (EAT), however, took a different view when, in
2003, in the combined case commonly known as Marshalls Clay Products Ltd v
Caulfield, it accepted that rolled-up employment contracts could be valid in
two very specific situations:

Where
written contracts specifically provided for a basic salary or rate topped up by
a specific sum or percentage in respect of holiday pay

Contracts
where holiday pay is allocated to and paid during (or immediately prior to or
immediately after) specific periods of holiday.

In
my last ‘Letter of the Law’ on this subject, I stated that this was probably
not the end of the debate. This has proven to be true.

In
March, the Leeds Employment Tribunal considered the case of Robinson-Steele v R
F Retail Services Ltd, which involved another issue concerning ‘rolled-up’
holiday payments.

Mr
Robinson-Steele was a casual worker who was employed on a week-to-week basis.
The contract under which he carried out work contained a provision that on top
of his normal hourly rate he would receive a further 8.33 per cent which was
pay in respect of his entitlement to payment for his annual leave entitlement.
When his contract was ended he made a claim for holiday payments he alleged
were due under the WTR. These payments amounted to two-and-a-half-weeks salary
for untaken leave.

The
Tribunal compared the findings of the Scottish Court of Session in Munro and
those of the EAT and preferred the Munro interpretation. The Tribunal took the
view that the holiday allowance did not meet the WTR requirements, which appear
to state that the requirement was to provide payment as and when holidays were
taken. The Leeds Tribunal therefore took the very unusual step of referring the
issue to the European Court of Justice (ECJ), asking two questions:


Are our national laws consistent with the European directive by allowing
holiday payments to be paid by way of an allowance?


Can credit be given for such sums paid under such a stated allowance?

We
are now waiting for the ECJ’s decision. This once again raises issues for
employers in the UK who will not be sure whether their existing contractual
provisions are, in fact, lawful.

If
the ECJ finds that the previous Marshall Clay decision is incorrect, many
employers with casual and shift workers will be in the unenviable position of
facing potential claims for unpaid holiday. They will also have to restructure
their methods of providing holiday pay to such workers.

If
the ECJ also decides that a previously stated increase in hourly rate cannot be
taken into account, this could prove very expensive for employers who may face
historic claims for untaken holiday.

This
is of particular concern for those employers who have been less than vigorous
in checking that employees have, in fact, taken the required WTR holiday. There
must be a concern that employees will pursue claims against such employers,
requesting back payments if the full holiday entitlement was not taken. This
could also cause expensive problems for employers.

In
short, when it comes to the effectiveness of ‘rolled-up’ payments for holiday,
we’re once again in a muddle.

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