Employment Law Update (July 2009)
Holiday ruling throws law into confusion
What happens to holidays for staff who are absent from work on
long-term sickness? This is a question that has long vexed
employers and in particular those that give their staff generous
sickness leave entitlements, who have on occasion found employees
who have not done a day's work during the whole holiday year
claiming four weeks' paid holiday in addition to sick leave.
The House of Lords (HoL), the highest court in the U.K.,
recently considered this question – and failed to answer it.
However, the HoL did answer a different question – this time about
whether underpaid holidays could be claimed as unlawful deductions
from wages – and turned the previous legal position on its
head. It is this answer that will cause employers the most
Holidays and long-term absence
The basic rule is that minimum holiday entitlement due under the
EU Working Time Directive continues to accrue during long-term
absence. This amounts to four weeks' holiday each year. However,
the taking of this entitlement is subject to the rule under the UK
Working Time Regulations which has the effect of "if you don't ask
– you don't get" – so workers who fail to request holiday
entitlement during the holiday year forfeit that entitlement at the
end of the holiday year.
If an employee on long-term absence asks for holidays during the
course of the holiday year, the employer will need to designate a
period of four weeks during which the employee takes the holiday
and is paid for it. If, on the other hand, the employee fails to
ask for the holiday during the course of the holiday year, the
employer may treat the entitlement as having been forfeit.
Workers are not entitled to a payment in lieu of untaken holiday
except when their employment is terminated and they have unused
holiday entitlement from the current holiday year.
Claiming holidays as unpaid wages
The House of Lords has ruled that holidays can be claimed as
unpaid wages, as well as being claimed under the Working Time
The law on claiming for unpaid or underpaid wages in an
employment tribunal goes back a long way and was designed to
protect low-paid workers from having their wages reduced even
further by unscrupulous employers deducting money for breakages,
However, the law offers wide protection for most forms of
payment, including commission, bonuses, and overtime. The House of
Lords' judgement has simply added "holiday pay" to the list.
Why does this matter?
It could matter in either of two ways. The important point is
that, where the underpayment of wages is part of a "series of
deductions" from wages, the time limit for claiming is kept open
for three months following the most recent deduction. For holidays,
one possible impact is that, upon the ending of a worker's
employment, any unpaid holiday from previous years could be judged
to be payable. However, because UK law states that unused holiday
entitlement cannot be carried over from one year to the next, it is
not clear whether this will apply in practice.
The second, and perhaps more significant, impact concerns
underpaid holiday which may occur when an employer pays holiday pay
at a basic rate but where the worker's normal earnings include
commission and or bonuses. Where the worker disputes the
amount of holiday pay due, he or she may make a claim dating back
many years for the alleged shortfall, rather than such claims being
limited to the current year.
What action should I take?
It gives us no pleasure to say that the law is still far from
clear, as the House of Lords ruling has failed to clarify the law
in one important respect and has caused additional problems where
no problem previously existed.
The law will only be made clearer by new regulations – which do
not look likely – or further cases in employment tribunals. In the
meantime, our advice is as follows:
- There is no need to change your policies on accrual and payment
of holidays during long-term sickness absence; but
- Take advice in each case where the question arises.