How the Ho-Ho-Holiday entitlement affects case law

Posted on: December 23rd, 2019

It is no surprise that many staff enjoy using their holiday entitlement over the festive period; it is a chance to spend time with family or take a break and switch off from the day-to-day working routine. In addition, with the bank holidays, it is also a chance to have a large chunk of time off by only using a few days’ leave. For others it is a time to make some extra money by picking up overtime or extra shifts.

However, 2019 has been another year of lots of case law developments concerning the taking of holiday, how holiday is properly calculated, and what should and should not be included in the amount of holiday pay due.

In fact, there have been so many cases, we thought this was a good time to recap where we are and what you need to be thinking about. Certainly, if you employ staff who work part time, work regular voluntary overtime or are employed on zero hours or term-time only contracts, this summary is for you!

It may be as exciting as getting socks as a present but hey, we all need socks right?

Quick recap of the basics

Workers have a statutory right to a minimum of 5.6 weeks’ paid holiday for full time work, accruing over a 52 week year. Part time workers must get a pro rata equivalent.

What a worker is to be paid when they take holiday depends on a number of factors:

  • Normal working hours – for workers with normal working hours, holiday pay will be calculated using the worker’s normal weekly pay rate.
  • Variable hours, with no ‘normal’ working hours (for example, zero hour contracts) – for any workers with casual positions with no fixed hours or those with a working pattern with variable hours, holiday pay will be calculated on the basis of the average hourly rate in the previous 12 weeks. This calculation has always had to include any commission, shift allowance, or similar payments not just basic salary.
  • Williams and Lock – Following a raft of case law started by Williams and Lock it was found, contrary to previous understanding, that ‘normal pay’ for the purposes of calculating holiday pay for workers with normal working hours was not just basic salary and must include guaranteed overtime, together with any commission or any other allowance which is intrinsically linked to the performance of tasks the individual is required to carry out under their contract. As a result, non-guaranteed and voluntary overtime which is worked with sufficient regularity to be deemed ‘normal’ should also be included in the calculation of holiday pay.

2019 cases

East of England Ambulance Service NHS Trust v Flowers and others [2019]

As mentioned above, we have known for some time now that commission, call-out payments, guaranteed overtime or similar payment must now be included in holiday pay calculations for workers with normal work hours, and not just basic salary. However, the issue of voluntary overtime and when it must be included has continued to cause confusion, particularly around when it is sufficiently regular for it to be deemed ‘normal’. This case unfortunately did not provide much extra guidance in this regard, but did clarify and reinforce the potential for voluntary overtime to be captured.

The case largely focused on overtime being divided into two categories; non-guaranteed overtime and voluntary overtime. The tribunal held that extra hours typically worked at the end of a shift to finish a task, known as non-guaranteed overtime, should be included in holiday pay but that voluntary overtime should not. The claimant appealed the decision, stating voluntary overtime (in addition to guaranteed overtime) should be taken into account. In particular, where voluntary overtime is ‘sufficiently regular’ it should be considered as ‘normal pay’ for the purposes of calculating holiday pay. The Employment Appeal Tribunal and the Court of Appeal agreed with the claimant.

The case will be particularly interesting for retailers or other employers who often have staff who stay on late or pick up extra shifts. It is advisable, following this latest appeal level decision, for organisations that allow or require their staff to work regular overtime which is tagged on to the end of a shift to include such time in the calculation of such workers’ holiday pay.

TSN v Hyyinvointialan [2019]

This took place in the Labour Court in Finland and involved Ms Luoma, a laboratory assistant with Fimlab Laboratoriot. Ms Luoma was contractually entitled to 42 days annual leave commencing 1 April, with 24 of those days to be taken between 2 May and 30 September. Ms Luoma underwent surgery on 2 September and was subsequently absent from work on sick leave. She submitted a request that the 6 days holiday she booked prior to knowing the surgery date were carried over to a later date. The employer refused to carry over 4 of the 6 days’ leave.

This case’s main focus was on workers who have not used holiday entitlement during the year due to sickness absence and want to carry over any untaken days. It was held that Ms Luoma was only allowed to carry over up to the statutory minimum 4 weeks’ holiday that is provided by the EU Working Time Directive, and not any extra holiday she is given under her contract.

The opinion resonating from this case is that the principles from the Working Time Directive only apply in respect of the minimum 4 weeks’ holiday and not the full 5.6 weeks annual leave available in the UK under the Working Time Regulations 1998. This confirms it is possible for employers to place restrictions on carrying over periods of holiday in excess of the minimum under the Directive. In short, the basic 4 weeks’ annual leave must be taken in the year it is accrued and may not be carried over; commonly referred to as ‘use it or lose it’. However, there are exceptions to these practices for those prevented from taking holiday for reasons beyond their control e.g. those who are, or have been, on maternity leave and, like in this case, those who are on long-term sickness absence.

Harpur Trust v Brazel [2019]

This case considered the position for a term-time only music teacher at a school, Harpur Trust. It received national attention due to concerns about the implications the outcome could have on workers who work irregular hours. Ms Brazel was employed during term time only, on a zero-hour contract. She provided musical lessons for pupils and was paid for the hours she taught; those hours fluctuated over the school year.

Harpur Trust followed the ACAS guidance and paid her 12.07% of her annualised hours for periods of annual leave, which was paid in three instalments at the end of each term. Mrs Brazel complained that this was not correct and meant that she was being underpaid during her holiday periods. She felt it should be calculated by taking the average weekly wage for the twelve weeks in which she actually received pay prior to the calculation date.

The case ended up at the Court of Appeal which had to consider how holiday pay should be calculated for term-time workers and whether holiday entitlement or their pay should be pro-rated to that of an individual working full-time to reflect that they do not work all year. The expression “part-year” worker was created to distinguish workers engaged on a term by term basis, and those part-time workers that have regular hours all year. The Court reiterated and found that all workers are entitled to a minimum of 28 days’ paid annual leave, paid at the rate of a normal week’s pay, or based on the average payment for the preceding 12 weeks where pay was received.

This judgement is consistent with the long running holiday pay cases, in which the Courts and Tribunals have found that ‘normal’ pay should be paid to workers when they take holiday. This case confirmed that, for those who have irregular hours of work, an average of the previous 12 weeks’ pay should be paid during statutory leave entitlements. If an organisation has been using the industry-standard 12.07% calculation for holiday pay, it should now consider whether this has resulted in any underpayments and whether a change in approach is needed for future holiday payments.

Summary

Given the continued flow of cases on holiday pay coming before the Tribunal it is more advisable than ever for employers to consider the type of contracts their workers have signed, along with the categories of payments they receive beyond basic salary (for example, commission) to determine how their holiday pay should be calculated. In addition, if staff work any form of overtime (even voluntary) with any sort of regularity, it would be prudent to assume this may need to be taken into consideration even if they technically work under contracts with ‘normal hours’.

A common query we receive is what qualifies as ‘normal pay’; we consider that this should take into account the frequency and regularity of the payment to the employee.

However, there is undoubtedly a difficult judgement call to be made, as the risk of getting it wrong on one hand is employment tribunal claims possibly going back some time but, on the other hand, employers risk paying extra pay for holiday it did not need to. If in any doubt, organisations should seek legal advice to traverse this complicated and evolving area of law.