Caulfield -v- Hanson Clay Products Ltd and other cases
Under the working time regulations, workers are entitled to four weeks’ paid annual leave. The regulations did not make clear, however, whether employers had to pay it during the time the worker was on holiday, or whether it could be “rolled up” into pay for work already done.
The European Court of Justice (ECJ) has now said in Caulfield -v- Hanson Clay Products Ltd; Clarke -v- Frank Staddon Ltd; and Robinson-Steele -v- RD Retail Services Ltd (IDS 802) that employers cannot include holiday pay in someone’s monthly or weekly wage, and not pay them when they take annual leave.
What were the basic facts?
Mr Clarke worked for Frank Staddon Ltd from April to the end of June 2001 when he went on holiday for a month. He was not paid for the time off, because the company said his holiday pay was already included within his daily rate.
Mr Caulfield worked for Marshalls Clay, four days on and then four days off, but was only paid for the days he worked. His holiday pay was included in his hourly rate of pay so there was no accumulation of holiday pay.
Mr Robinson-Steele worked as a temporary shop fitter for Retail Services Ltd between April 2002 and December 2003. He took a week’s leave at Christmas, for which he was not paid separately as he was told his leave was paid at the rate of 8.33 per cent of his hourly rate.
What was the outcome?
The first two cases were heard jointly by the Court of Appeal, where the claimants argued that the legislation required payment to be made during the time the worker was actually on holiday. Otherwise it constituted a payment in lieu, which is only permitted when the contract comes to an end.
The employers said, however, that there was nothing in the directive to say that payment for annual leave should be made in a particular way or at a particular time.
The Court of Appeal decided, in both cases, that because article 7 of the directive did not say anything about the timing of holiday pay, that rolled-up holiday pay was lawful. However, because a Scottish court had already found in the employee’s favour in another case, it referred both cases to the ECJ, where they were joined up with Mr Robinson-Steele’s claim.
What did the ECJ decide?
The ECJ said that, as the whole point of the directive was to enable workers to take the leave to which they were entitled, the term “paid annual leave” meant they must be paid a comparable amount of money at holiday time as they would do if they were at work.
Employers could not, therefore, designate part of the pay that a worker received for work already done as holiday pay. It had to be additional to that.
Although the regulations did not stipulate when the payment had to be made, it said the whole point of it was to ensure that workers were paid a comparable amount of money at holiday time as they would do if they were at work. Staggering payments would be counter to that aim.
However, it also said that employers can make part payments staggered over the year along with payments for work already done, so long as it’s obvious that that is what they are doing.
The sting in the tail is that, according to the ECJ, employers can then set off the extra money already paid against the payments for holiday leave actually taken by the worker. However, the burden of proof is on employers to show that these sums were additional to payment for work already done.
So while rolled up holiday pay is technically unlawful, as long as it is transparently set out and a genuine payment in respect of holidays then the payment can be set off against holiday pay entitlement.