Holiday pay - more case law on the issue of untaken leave

Historically, many employers have taken the view that if an employee fails to take leave in the holiday year in which it is due then this leave will be lost. However, there have been recent changes in the law which have now clarified the situation for both employers and employees alike.

The case of NHS Leeds v Larner

In the case of Larner, Mrs Larner had her employment terminated by NHS Leeds after a prolonged period of sickness leave. Mrs Larner was absent from work sick throughout the whole of the holiday leave year 2009/10.  She was dismissed from her employment early on in the 2010/11 holiday leave year. NHS Leeds refused to pay her for the leave not taken in the year 2009/10.

The decision of the Court was clear. Leave could be carried over into the next year. No request need be made to allow this to happen. Mrs Larner was entitled to be paid for the leave she had been prevented from taking at termination, which was very early on into the next holiday leave year.

The case of Sash Window Workshop v King

The facts of the case of Mr King are perhaps not important. In fact, he lost his appeal in the EAT who said that the employment tribunal should not have allowed his claim for unlawful deductions as the loss in the case was compensation under the Working Time Regulations for not having the benefit of taking holiday. Unfortunately, his claim was out of time and therefore had to fail.

However, the important principle established in this case was that the EAT stated that sick leave may not be the only circumstance that could act as an impediment that could prevent an employee or worker from taking his entitlement to leave in a particular year of holiday leave. As such, circumstances beyond the control of the employee or worker which prevent them from taking leave in the relevant year should therefore allow the said leave to be carried over into the following year.

What does this mean for employers and employees alike?

If an employee has good cause for not taking his or her holiday entitlement within a specific holiday year then the employer must allow the employee to carry over any untaken holiday entitlement into the next holiday year. A failure to do so will lead to proceedings being taken.

What action should employers take?

• Employers should carry out a review of their contracts of employment and staff handbooks so as to make sure that their employee documentation is up to date and reflects the law as it stands.
• Employers should carefully record holiday leave and be aware of any potential difficulties that any employee or worker may face towards the end of the holiday year that may entitle them to carry over their untaken leave.

We hope that you have enjoyed this blog and found it to be informative. The blog represents the thoughts of the writer and is not meant to be specific legal advice to be relied upon in any particular set of facts.

At Chiltern HR we are a bespoke employment law practice, offering HR support and software to both small and large employees alike. For more information view our website at www.chilternsolicitors.co.uk or email us at info@chilternsolicitors.co.uk. Our office number is 01582 439795.

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How do overtime payments affect holiday pay?

Traditionally, most employees are paid a flat rate for holiday pay. This will be their normal weekly wage less any overtime, commission or other payments. However, in recent months there have been a number of landmark decisions which has completely changed this position.

The history
In the briefest of terms, the right to paid holiday was introduced but the government of the time did not set out how a weekly wage was to be calculated. Further legislation from Europe provided no further guidance. After the Williams v British Airways case, discussed at our blog dealing with commission and holiday pay, further challenges to the law were inevitable.

The cases of Bear Scotland, Hertel and AMEC
In all of these cases, employees took their cases to the Employment Appeals Tribunal (EAT)  seeking a ruling on how a week's pay should be calculated. The EAT decided that, in the case of overtime which was mandatory, this should form part of the calculation of a week's pay. The same will no doubt apply for overtime that is not guaranteed but forms part of normal remuneration due to its regularity. Occasional overtime is not included.

What does this mean for employers?
The effect of the decisions is that employers will need to look very carefully at the issue of overtime payments and how they are made. If they find that their overtime worked is caught by these decisions then the employer will need to allow for overtime payments in future holiday payments.

Can claims be made by employees for back holiday pay?
The decision of the EAT seems to be against this idea. The Tribunal decided that the holiday pay affected would only be the first 20 days as this is what European legislation allows for. The additional 8 days will be paid at the normal weekly rate as will any additional discretionary contractual days. However, claims dating back three months may be seen.

Is there any good news for employers in this area?
Sadly not. The estimates are that holiday pay costs will increase between 2-4% and there is also income tax and national insurance to consider.  There seems little doubt that the costs involved in staff taking holidays will increase for most employers. Whether this leads to employers being reluctant to sanction overtime or seeking variations to contracts of employment in relation to commission payments remains to be seen.

Summary
Our blogs on holiday pay have been brief and are designed to provide a quick oversight to changes in the law in this important area. If you would like to receive a more detailed note of the problems surrounding holiday pay please email info@chilternsolicitors.co.uk.

This blog is designed to give an overview of the law and should not be relied upon for advice in relation to any specific employment or staffing issue. If in doubt always seek legal advice.

If you have enjoyed this blog or have a comment to make we would love to hear from you. Please leave a comment and we will get back to you as soon as possible.



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Holiday pay and commission - how does one affect the other?

There have been a number of recent cases on holiday pay and how payments of commission and overtime may influence what an employee is paid when they are on holiday. We have written a separate blog on the issue of holiday and overtime which we invite you to also read.

For many years, companies have tended to pay employees their normal weekly rate when they have been on holiday. This has meant that many staff who may receive a low basic wage and large sums of commission are significantly affected financially when they take holiday leave. Indeed, this may mean that staff choose not to take all of their holiday entitlement.

The problem
The main problem with holiday pay is that the government who introduced the Working Time Regulations did not set out how a week's pay should be calculated. This led to employers relying upon the definition in the Employment Rights Act of the normal rate of pay or, if this varies, the average pay over a twelve week period.

Lock v British Gas
This case is now the main authority for holiday pay and commission. Mr Lock was a salesman. More than half of his salary was commission.  He took his case to Europe and successfully argued that his holiday pay should take into consideration his commission payments. The Court stated that if a person earns far less in wages when they are on holiday, they will be less likely to take holiday. This defeats the purpose of employment legislation guaranteeing a certain amount of holiday entitlement to employees of member states.

Where does this now leave us?
With immediate effect, all employers should be calculating holiday pay in accordance with the Lock decision and therefore including commission in such payments. The Lock case has been referred back to the UK Tribunals to decide whether commission should be calculated over the 12 weeks before the holiday is taken or the preceding 12 months. The European Court seems to prefer the 12 month approach but employers may wish to adopt the 12 week approach until matters are final clarified in 2015. 
Employers must however act now and cannot simply wait for the UK Tribunal to decide whether the relevant period is 12 weeks or 12 months.

This blog sets out the law as we see it in relation to holiday pay and commission. It is not intended to be specific legal advice in relation to an employer or employee and must not be relied upon a such. If in doubt any person should always seek legal advice.

We have written a separate blog on holiday pay and overtime and hope you will take a look at that as well. We love to read your comments upon our blogs. Please feel free to therefore leave your thoughts and comments.

Chiltern Solicitors is a specialist employment law practice which offers a wide range of services to both employers and employees. We are particularly proud of our HR service for employers called Chiltern HR. For more details call our team on 01582 439795 or email info@chilternsolicitors.co.uk

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