Holiday heaven or hell?

As thoughts turn to when (or if) we might get to take summer holidays, it is perhaps an appropriate time to stop for a moment to consider a number of recent decisions on holiday entitlement and holiday pay.  The most important of these is the much-anticipated judgment of the Court of Session (CoS) in MPB Structures Ltd  v Munro on the issue of rolled-up holiday pay.  

The practice of paying employees an allowance as part of weekly pay to cover holiday pay has caused a great deal of confusion generally, confusion only heightened in recent months by the MPB case in Scotland running in parallel with that of Blackburn and Others v Gridquest in England.  Despite the fact both cases have been dealing with the same issue, the decisions appear to have been taken in isolation and to have been based on different provisions within the Working Time Regulations (“the Regulations”).

The Court of Appeal decision in Gridquest, handed down in July 2002, was authority for the proposition that payment of a rolled up rate could only discharge liability where there was an agreement to that effect.  However, the CoS decision in MPB, issued in April 2003, goes further.

In the MPB case the contract of employment stated that the employee’s pay contained an 8% allowance in respect of holiday pay and made the employee responsible for retaining such advance payment in order to ensure that he was “in funds” at the time he did in fact take his holiday(s).  In terms of the Gridquest ruling, this would seem legitimate.  However, the CoS held that such a contractual arrangement fell foul of the Regulations.  

The Court noted that the Working Time Directive treats the right to annual leave and to payment for it as part of a single entitlement and, therefore, it is essential not only that payment be made for annual leave, but that it be made when the leave is actually taken.  The Court held that payment of the rolled-up rate did not go any way towards meeting the employer’s duty to make payment of holiday pay.  The employer therefore remained liable for payment of the employee’s entire holiday entitlement.   

When the decision in the MPB case is added to that in List Design Group Ltd v Douglas & Others [2003] IRLR 14, the situation becomes all the more heartening for employees/workers and all the more worrying for employers.  In List the EAT held that employees whose claims were out of time under the Regulations could instead bring unlawful deductions from wages claims under the Employment Rights Act 1996 (“the 1996 Act”) given that holiday pay is included in the definition of “wages” (s.27(1)(a)).  In this case, employees who submitted tribunal claims in 2000 received awards dating back to 1998.  There is, of course, no limit on a tribunal’s power to order payment of unauthorised deductions.

It should also be remembered that the Regulations extend to the class of individuals termed “workers”, a wider class than employees.  The same is true of the provisions on unlawful deductions from wages in the 1996 Act.  The boundaries of the definition of “worker” have recently been tested in the case of Torith Ltd v Flynn EAT/17/02.  The EAT viewed “worker” as a hybrid category falling between “the clear question of a contract of service and equally clear issue of contract for services”.  This led the EAT to hold that a joiner who submitted an annual tax return as a self-employed person; had limited supervision; was provided with materials by T Ltd; had no entitlement to receive, nor obligation to give, notice; had no entitlement to sick leave; and whose engagement would have been terminated had he taken holidays at a time when T Ltd did not wish him to, was indeed a “worker” for the purposes of the Regulations.

These cases highlight the need for workers and employers to review contractual arrangements and collective agreements detailing holiday pay entitlement as a matter of urgency, on the one hand to determine the prospects of a claim for unpaid holiday pay, and on the other to determine the likely exposure to such claims.  

Finally, if you are looking for ideas for holiday destinations, perhaps the case of Lawson v Serco Ltd (EAT/18/02) can provide the inspiration required.  The case is noteworthy in two respects:

• The EAT noted that the 1996 Act applies to any employer that is incorporated or carries on business, in the United Kingdom, irrespective of where the work took place or what the parties to the contract had determined as to choice of applicable law.   
• The EAT also held that the tribunal did not have power to sist the proceedings in favour of a more appropriate and convenient forum i.e. Ascension Island. The EAT stated that “It is clear to us that there is no power to [sist] proceedings before a Tribunal, and that once jurisdiction is established, the Tribunal cannot close its doors to parties who wish to appear before it.”

It is also noteworthy on the holiday front for the fact the applicant worked on Ascension Island in the South Atlantic.

Louise Adamson Maclay, Murray & Spens