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• Facebook – the danger for employers
• The Consumer Protection from Unfair Trading Regulations 2008
• Rethinking the UK approach to private copying and format shifting
• EC Green Paper on Copyright in the Knowledge Economy
• Australian Producer Offset – Quick Reference Guide
• Workers’ Entitlement to Holiday
• Regulating Performances by Children
• Counterfeiting – The challenge to brand owners and manufacturers

Workers’ Entitlement to Holiday

Is it open for an employer to agree with its workers an inflated rate of pay which apportions part of a worker’s hourly rate as holiday pay (i.e. adopt the practice known as “rolling up”)?

Many of our media clients repeatedly face this dilemma and so whilst the case law remains ambiguous, we are committed to providing a number of creative solutions designed to reduce the risks associated with this practice. Here we analyse the latest challenge brought before the Courts and in particular its impact on our clients in the media and entertainment sector.

The Regulations

The Working Time Regulations 1998 (“WTR”) entitle a full time worker (working a 5 day week) to a minimum of 24 days’ paid holiday per annum (and 28 days with effect from 1 April 2009). A worker is entitled to take holiday during the course of his or her contract and to be paid in respect of any unused holiday at the end of the contract. The payment provisions only apply at the end of the relationship. It is contrary to public policy to make payments for holiday (in place of time off) whilst the contract is live.

Rolled up holiday pay (“RHP”)

For years there has been a question mark over the legitimacy of RHP. RHP involves, for example, a worker who earns £18 per hour accepting a higher rate, of say £20 per hour, in lieu of their holiday entitlement.

The principles underlying the WTR are that a worker should be paid (at the same rate as a normal week) at the time when holiday is taken. At first glance, the concept of RHP clearly conflicts with the purpose of the WTR and case-law has, historically, supported this view and ruled RHP unlawful.

Lyddon v Englefield Brickwork Limited (2007)

The Lyddon case (heard in the Employment Appeal Tribunal) is the most recent case in this ongoing saga. It examined the question of whether an employer had been entitled to set off RHP against sums claimed by a former employee.

Facts

• On commencing work with Englefield Brickwork Limited, Mr Lyddon was told that he would be paid £135 per day, which would include holiday pay. He worked for 17 weeks.
• No written contract was in place and no details were provided concerning the rate or calculation of holiday pay.
• During the engagement Mr Lyddon accrued 6 days’ annual leave.
• Mr Lyddon took 2 weeks leave, during which time he did not receive any pay.
• Following the termination of his employment, Mr Lyddon commenced proceedings in the Employment Tribunal (“ET”) for holiday pay pursuant to the WTR.

Decision

• The ET concluded that because of the description on the payslip and the fact that Mr Lyddon did not query the lack of payment during his 2 weeks’ leave; the arrangements regarding the RHP had been implemented “transparently and comprehensively”.
• Whilst the system of RHP should not have been used, the ET was satisfied that the employer was nonetheless entitled to set off the amounts it had paid against Mr Lyddon’s entitlement.
• Mr Lyddon appealed to the Employment Appeal Tribunal (“EAT”), stating that the guidelines (in the earlier case of Marshalls Clay) detailing the way in which RHP can be off set had not been adhered to.
• The EAT rejected the appeal, concluding that there had been consensual agreement identifying a specific sum properly attributable to periods of holiday.
• In support of Englefield’s position, the EAT referred to the fact that the employer had in place a system (its computer programme) to determine the holiday pay sum and that could have been explained to Mr Lyddon if he had requested it to do so.

Comment

By virtue of the EAT's willingness to condone the manner in which RHP was off set, this decision appears to lend support for the concept of allowing RHP, in principle. Conversely, on a technical interpretation of the law RHP remains unlawful and the position post Lyddon remains unclear. In summary, if industry pressures result in businesses applying RHP then such arrangements should be set out clearly within the contractual framework. This should maximise the chance for the business to off set any payments made in this manner in the event of a claim.

Advice

This area remains uncertain and seems set to remain so for some time. At present, media businesses engaging workers have a series of options:

1. Implement RHP, ensuring the arrangements are transparent and expressed comprehensively, preferably in a written contract issued at the commencement of the relationship. For additional protection, an indemnity can be sought from the worker, indemnifying the business against all claims for breach or alleged breaches of the WTR.
2. Follow a strict interpretation of the WTR and only make payments in lieu of holiday accrued (in accordance with the rules of the WTR) but not taken.
3. Set up a form of hybrid arrangement, for example via a holiday savings scheme, whereby monies accumulate in a fund and are utilised by the worker at the time they take holiday.

The risks associated with exposure to holiday pay claims are not limited to financial awards but also the cost and inconvenience of resolving such issues. However, in practice, provided the worker is comfortable with the arrangements regarding holiday and remains on good terms with the business then the risks of claims should be minimised if not eliminated altogether.

For further details on this topic please contact Neisha Glynternick or another member of the Employment Group.

Issued August 2008.