Holidays are here again: roundup of recent cases
Labour & European Law Review Weekly Issue 80 - June - July 2003 02 June 2003
List Design Group Limited v Douglas and Others  ICR 686
Kigass Aero Components Limited v Brown & Others 2002 IRLR 312
Blackburn v Gridquest Limited  IRLR 604
MPB Structure Limited v Munroe  IRLR 350
Hill v Chapell  IRLR 19
As it's summer , this month we look at developments in holiday leave and pay cases over the past year. There have been a number of important recent decisions in relation to annual leave rights that are generally extremely helpful to applicants. The introduction of the right to paid annual leave under the WTR has liberated holiday pay claims from the straightjacket of contract law, requiring a detailed analysis of the statutory entitlement as well as any contractual entitlement.
In Blackburn v Gridquest Limited, the Applicants were unaware that their weekly pay included a notional holiday pay element.
Nevertheless, the EAT held that credit had to be given if the ordinary week's pay in fact included an element of holiday pay, even if this was not part of the contract, since the WTR were designed to prevent double-recovery by workers. In this case the employer's argument was that the hourly rate of pay was "rolled-up" to include an element for holiday pay, sick pay and other unremunerated absences. The Court of Appeal overruled the EAT, holding that an employer "cannot unilaterally decide that a week's pay is a payment not only for the hours worked during the week but also includes an amount of holiday pay". A weekly payment can only be held to include an element for something else, such as holiday pay, if that is agreed between the employer and the employee, or so the Court of Appeal commented in Blackburn.
However in Blackburn there was no agreement that holiday pay would be rolled up into the salary. So, what would be the case where the contract expressly provides that a certain proportion of the weekly wage represents holiday pay? In MPB Structure Limited v Munroe, the proposition was tested to its limits. The contract of employment stated that within the hourly rate there was an eight per cent allowance for holiday pay and that it was the worker's responsibility "to retain such advance payments in order that you are in funds at the time you do take your holidays". Mr Munroe and his colleagues had agreed to the term in the contract. The EAT in Scotland, upheld by the Inner House of the Court of Session, has ruled that such a contractual clause is void because it limits the effect of the WTR. The clause was therefore caught by the restriction on contracting out of the Regulations. Employees in such cases are therefore treated as not having received holiday pay. In effect, therefore, the workers received the enhanced hourly rate and their holiday pay as well. The thinking behind the judgment was that an arrangement, under which holiday pay is "rolled-up" into ordinary wages, discouraged workers from taking their holidays when they would otherwise have sought to do so and this conflicts with what the WTR and the Directive seek to achieve. It is to be remembered that the WTR and its parent European Directive were introduced for the purpose of safeguarding the health and safety of workers and in acknowledgment of the benefit of actually taking holiday. The holiday pay is not the main point, it's the taking of the leave, but the mechanism for enforcing the regulations is through financial penalty equivalent to the pay for the period of the untaken leave entitlement. In practice, however, the payment aspect often becomes the main issue in the case.
In List Design Group Limited v Douglas and Others the EAT confirmed that claims in respect of holiday pay are "wages" for the purpose of part II of the ERA 1996 (since by virtue of Section 27 (1) (a) they are due "under the contract or otherwise"). So withholding holiday pay amounts to a deduction from wages in breach of Section 13 (1) ERA 1996. Further, the EAT helpfully confirmed that withholding holiday pay amounts to a series of deductions, so Mr Douglas and his colleagues were able to claim pay for holidays taken/due for the whole of the period between 1st October 1998 and December 1999, despite the fact that the claims were not submitted until January 2000. As a consequence, one of the Applicants in the joined appeals was paid for four days holiday not taken in the holiday year prior to the claim being submitted.
List Design therefore provides a useful way of avoiding the limit on enforcement for cases taken under the WTR alone, where compensation is limited to holiday pay due in the three months prior to the submission of the claim. While this has been generally interpreted as including (if the claim is submitted within three months of the end of the holiday year) any holiday pay due for that year, after more than three months has elapsed since the end of the holiday year any claims under the WTR alone would be time-barred.
There is a significant difference between the List Design case and the earlier case of Kigass Aero Components Limited v Brown & Others.
In List Design, entitlement to paid leave under Regulation 16 is seen to derive from Regulation 13 alone. According to the EAT decision, the worker is entitled to be paid in respect of any period of annual leave to which he is entitled under Regulation 13.
This contrasts with the decision in Kigass where entitlement to paid leave under Regulation 16 is seen to derive from a combination of Regulation 13 and Regulation 15 (i.e. the requirement that a formal request for leave should be made). The EAT in Kigass in essence said that the right to payment should only be in respect of each week of leave actually taken, or requested and refused.
We consider the List Design interpretation to be the better interpretation, since it does not involve incorporating words that are not present in Regulation 16 and is more likely to achieve the purpose of the Regulations to prevent employers from making a payment in lieu of annual leave entitlement and/or rolling over leave entitlement into the next holiday year.
List Design is also useful because it means that, where Applicants have had lengthy periods of sick leave prior to retiring or being dismissed on ill health grounds and have not had any holiday pay during that leave, they should be entitled to 20 days holiday pay for all of the period of their leave, not just in relation to the last holiday year. It means, too, that, where an employer has not given workers their full entitlement to leave since October 1998, its workers will be able to sue the employer for the whole of the period, not just the last holiday year (assuming they have continuity of service during the relevant period).
In advising clients about their current entitlements to leave, we should clearly be erring on the side of caution and, in line with the Kigass decision, ensuring that clients apply for annual leave under Regulation 15.
Where our clients have not done so in the past, we can rely on the List Design case to argue that they are still entitled to holiday pay, and pursue this as an unlawful deduction of wages claim. In addition, where clients have been told that they are not entitled to any paid holiday, and therefore have not asked for it, the Kigass judgment is of some considerable comfort. The EAT stated that, if some clear and comprehensive pre-emptive indication of a refusal by the employer to permit the leave has been given, then the need to make a request may be dispensed with to claim the entitlement.
What of the situation where an employer decides to withhold a portion of final salary where an employee leaves having taken more paid leave than she or he has already accrued for that leave year? This was the position in the case of Hill v Chapell. The (by then former) employee, Ms Hill, claimed that the withholding amounted to an unlawful deduction of wages. The EAT agreed with Ms Hill that her employer had no right to do this. There is scope in the WTR for a relevant agreement to make express provision for an employer to make deductions from pay for excess holidays taken, but, if the matter is not provided for in the written contract of employment or collective agreement, the employer cannot deduct the excess from wages due to the employee. Employers advisors are no doubt informing their clients of the scope to make provision to claw back overpayment of wages. However, unless the provision is in part of a relevant agreement and is not a unilateral variation of contract, and the contract must be written, the clause will not be effective to entitle an employer to recover overpaid holiday.