Compensation & Benefits: Clarification of entitlement to holiday pay upon termination
The Employment Appeal Tribunal (“EAT”) has upheld an employment tribunal’s decision that, under the terms of the employment contract, an employee was entitled to a payment in lieu of untaken holiday accrued over the full period of seven and a half years of employment, rather than just in her final year.
Under an oral employment contract, the employee was entitled to 30 days’ holiday per year. Upon termination of that contract, she would be paid in lieu of untaken holiday. Following termination, the employee brought a claim seeking pay in lieu of the full amount of untaken leave which had accrued to her over her seven and a half years of employment (amounting to pay in lieu of 131 days in total).
Her employer argued that Regulation 13(9) of the Working Time Regulations (“WTR”) prevented holiday from being carried over from one year to the next (the so-called “use it or lose it” rule). The employer contended that the employee’s entitlement to holiday pay was limited to untaken holiday accrued only in the final year of her employment, together with any untaken holiday from previous years to the extent that this exceeded the minimum statutory entitlement.
The EAT rejected these arguments.
The EAT found that the employee’s claim was a contractual one and was not brought under the WTR. The EAT noted that the WTR allowed an employee to contract for more favourable holiday entitlement than the minimum entitlement set out in the WTR. The oral agreement did not breach the WTR but rather enhanced it.
The case concerned an oral agreement but serves to illustrate the importance of having a carefully drafted written contract in place which sets out the employee’s holiday entitlement and how to deal with any untaken leave. Employers should consider whether their employment contracts should include an express provision to limit pay in lieu of untaken holiday on termination to the final year of employment. A provision to prevent untaken holiday from being carried over from one year to another may achieve the same effect but is arguably less robust than an express provision to limit.
For further information or to discuss the issues raised, please Colina Greenway (email@example.com) on +44 (0) 203 051 5711.