Holiday pay claims – on the increase?
Summary
The House of Lords has ruled in favour of a group of employees claiming holiday pay dating back to periods when they were absent from work on sick leave.
Following this case, it is possible to raise claims for unpaid holiday pay as an unlawful deduction from wages by contending that the last deduction formed part of a series of deductions. In practical terms, this might enable employees and workers to bring claims for monies dating back several years.
Background
Under the Working Time Regulations 1998 (“WTR”), workers and employees are entitled to receive 28 days’ paid leave per annum. If an employee leaves employment part way through the holiday year, they are entitled to receive pay in lieu of any accrued but untaken holiday.
The case of HMRC –v- Stringer & Others examined whether or not non payment of holiday pay, or the non payment of pay in lieu of untaken holiday, could amount to an unlawful deduction from wages and consequently action commenced under the Employment Rights Act (“ERA”) instead of the WTR.
Under the ERA it is unlawful for an employer to make any deductions from wages unless authorised by the employee, usually within the contract of employment.
Time Limits
The time limits for commencing claims differ between the WTR and the ERA, as follows:
WTR: claims for holiday pay must be submitted within three months of the date when the payment should have been made, so, usually the last day of employment. Therefore, predominantly, claims are limited to those dating back three months
ERA: within three months of “the last deduction in a series of deductions”. In essence, this permits claims for payments dating back further in time than under WTR claims, provided they form a series of events which can be linked together.
Decision
- The Stringer case concerned a number of HMRC employees who had been absent on long term sick leave to varying degrees.
- Clear policies exist as to the treatment of holiday pay in cases of long term sickness, i.e. employees continue to accrue their holiday but this is lost if it remains untaken at the end of the holiday year, subject to contractual rights to carry over and in circumstances where the employee leaves the company's employment.
- It is contrary to public policy to pay employees in lieu of them taking their annual leave.
- A key issue in this case was whether or not holiday pay can fall within the definition of “wages” under the ERA. In this context, wages include “a sum payable to a worker in connection with his employment”.
- In the first instance, the Employment Tribunal (“ET”) and subsequently, the Employment Appeal Tribunal (“EAT”) allowed the employees' claims. However, the decision was overturned by the Court of Appeal.
- The Court of Appeal concluded that the provisions of the ERA did not extend to holiday pay, remedies in relation to which should be enforced via the WTR.
- The House of Lords reversed this judgment and reinstated the decision of the ET and EAT.
Conclusions
The House of Lords concluded that it is possible to bring holiday pay claims under the ERA, as unlawful deductions from wages.
As a result, employers could be faced with claims which stretch back several years (utilising the series of deductions argument). Depending upon the level of an employee’s remuneration, naturally the time over which a claim can span impacts directly on the sums being claimed. It is not inconceivable that (perhaps lesser paid) employees will now view such claims as lucrative, given that effectively they are able to go back further in time than was previously the case.
However, employers may not suffer as much as would appear on first sight because the merit and value of these types of claims is likely to be restricted to employees who have been absent on long term sick leave. The majority of employees present at work will tend to exhaust their holiday entitlement in the same holiday year (or the following one, subject to carry over rights).
Issues surrounding holiday entitlement, particularly in the context of sickness absence, are continuing to prove sensitive and it is likely that we will continue to see litigation in this area.
For further information on this topic, please contact Neisha Glynternick
Issued July 2009.
