ROLLING OVER

Lyddon v Englefield Brickwork Ltd

The European Court of Justice has said that the practice of “rolled-up” holiday pay is illegal unless employers use a very transparent system to implement it. The Employment Appeal Tribunal (EAT) has now said in Lyddon v Englefield Brickwork Ltd (IDS 842) that even if the contract does not stipulate the exact amount to be paid, rolled-up holiday pay will still be legal if the employer spells out the exact sum on the pay packet.

Basic facts

Mr Lyddon worked for Englefield for a total of 17 weeks and was told at the start that he would be paid £135 per day, including holiday pay. He was not given any details of the rate of holiday pay, nor how it was calculated. In fact, he did not receive anything in writing about his terms and conditions.

He was paid every week by cheque in a pay packet which showed the amount of the basic wage, holiday pay added, deductions made due to tax and the net amount owing. This information was prepared at head office using a computer programme. Mr Lyddon took two weeks leave but received no extra payment for that period.

Once his employment ended, Mr Lyddon brought a claim for holiday pay under the Working Time Regulations 1998 (WTR), arguing that he had not been paid for the statutory leave entitlement he had accrued during the 17 weeks.

Relevant law

The WTR state that workers are entitled to be paid "at the rate of a week's pay in respect of each week of leave”, and that any contractual pay that an employer makes “in respect of a period of leave goes towards discharging any liability of the employer to make payments”.

This, however, did not make clear whether employers were allowed to “roll-up” holiday pay. In other words, whether they could include an element of holiday pay within a worker’s weekly or daily pay rate. This issue was resolved by the European Court of Justice in Robinson-Steele v R D Retail Services Limited (LELR 111) when it said that “rolled-up” holiday pay was illegal unless employers could show that they had implemented it in a way that was transparent and understandable.

Tribunal decision

The tribunal said that the key question, in line with Robinson-Steele, was whether the payment had been implemented "transparently and comprehensively".

It concluded that it had because, although Mr Lyddon did not know exactly how they were calculated, the payments “were sufficiently transparent in that exact sums were stated with corresponding descriptions (eg 'holiday £56').” The tribunal also pointed out that Mr Lydden had “accepted payment on that basis with no challenge throughout his employment”.

EAT decision

And the EAT agreed. It said that there was a contractual arrangement “which provided that the remuneration should include a sum referable to holiday pay” and that there was a contractual agreement as to the amount.

It accepted that Mr Lyddon had not been given written contractual terms, nor had he been told in advance of starting work how the holiday pay would be calculated nor what the amount would be. However, it concluded that “it is plain that there was a system in place, reflected in the computer programme, for determining the sum referable to holiday pay. That could readily have been explained to Mr Lyddon at the time he started work had he asked for the information.”

It also rejected Mr Lyddon’s argument that the tribunal was wrong not to have followed the guidelines set out in the 2005 case of Smith v AJ Morrisroes and Sons Ltd which suggested (among other things) that employers should make clear provision for rolled up holiday pay in the contract of employment. It said these were only guidelines and were only one way of deciding whether an employer had implemented a system for paying holiday pay that was transparent and understandable.