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Insight

Holiday pay - nominal sum is not enough

Nick Thorpe
18/09/2013
The recent judicial trend to adopt a purposive approach to the interpretation of the Working Time Regulations 1998 so as to give effect to the Working Time Directive is gathering pace, with a further The recent judicial trend to adopt a purposive approach to the interpretation of the Working Time Regulations 1998 so as to give effect to the Working Time Directive is gathering pace, with a further decision now reported from Reading Employment Tribunal, this time in respect of payments made on termination in lieu of untaken holiday.  

It had previously been understood that Regulation 14(3) permitted employers to pay workers a nominal sum on termination in lieu of untaken holiday if this arrangement was provided in a 'relevant agreement'.  A 'relevant agreement' includes an individual's contract of employment or any other enforceable written agreement between a worker and his or her employer.   

Typically, an employer would take advantage of this provision in a gross misconduct situation and provide in the employment contract that if the employee was dismissed for gross misconduct, they would only be paid a nominal sum (for example, £1) in lieu of any untaken holiday.  

However, this approach was challenged in Podlasiak v. Edinburgh Woollen Mill Limited.  Following a line of recent ECJ decisions, Reading Employment Tribunal concluded that Regulation 14 should be construed as far as possible to give effect to the Directive and that the payment made under a relevant agreement must reflect the employee's normal pay.  In that case, the Claimant was employed under a zero hours contract which provided that, on termination, she would be paid £1 in lieu of untaken holiday.  However, the Tribunal concluded that this was not permissible under the Directive and that the Claimant should have been paid a sum equivalent to the amount she would have received if she had taken her remaining holiday during employment.

This decision is non-binding but provides another example of the lengths that Tribunals are now prepared to go to give domestic effect to the Working Time Directive.  Employers would, therefore, be well advised to review their holiday pay arrangements in light of these recent decisions.

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