Under the Working Time Regulations 1998 (WTR), on termination, a worker is entitled to be paid in lieu for any annual leave they have accrued but not yet taken. A formula is provided to calculate this payment but, as an alternative, a ‘relevant agreement’ (such as the employment contract or a collective agreement) can be used fix the method of calculation of this payment in lieu. The EAT has previously held that a relevant agreement cannot result in the worker receiving zero (Witley & District Men’s Club v Mackey [2001] IRLR 595), but the question of whether a nominal sum could be substituted for the full entitlement was left unresolved. The EAT has recently considered this issue afresh.
Following his dismissal by his police force employer, C was entitled to a payment in lieu of his accrued but untaken annual leave. C’s contract said that this payment in lieu would be based on 1/365th of his salary for each day of accrued leave. This calculation resulted in C being paid less in lieu than had he taken his annual leave whist still employed so he brought a claim for the balance. The employment tribunal were satisfied that the contract term was part of a relevant agreement which was permitted by the WTR and went on to hold that C’s holiday pay had been correctly calculated in accordance with that relevant agreement.
The EAT upheld C’s appeal. The EAT identified that they key question was whether a relevant agreement could permit there to be a difference between payment for holidays taken whilst in work, and payment in lieu of untaken leave on termination. The EAT noted that, under the legislative provisions in the WTR regarding payments in lieu on termination, they payment is only adjusted on account of the proportion of the leave year worked before the termination (to pro-rata the entitlement). The EAT also noted that the WTR are underpinned by important health and safety considerations, and that it would undermine those purposes if the amount paid to a worker during annual leave differed from their normal pay. Whilst the WTR permits the payment in lieu to be ‘such sum as may be provided… in a relevant agreement’, the EAT held that the relevant agreement must provide a calculation formula which is ‘in keeping with’ the worker’s WTR rights. The EAT held that any such relevant agreement cannot result in the worker being paid less in lieu than they would ordinarily have be paid if they had taken their holiday whist they were working.
Connor v Chief Constable of the South Yorkshire Police [2023] EAT 42
For further information, please contact:
Fiona McLellan, Partner, Hill Dickinson
fiona.mclellan@hilldickinson.com
