Employment Update: Working time - 'rolled-up' holiday pay

21 November 2007

A system of ‘rolled-up’ holiday pay may still be allowed even if the worker has no written contract, provided it falls within the exception allowed by the ECJ in Robinson-Steele v RD Retail Services.

In Lyddon v Englefield Brickwork, the EAT upheld an earlier Tribunal decision that a ‘rolled up’ holiday pay arrangement was effective to honour the worker’s entitlement to paid leave under the Working Time Regulations 1998.

In March 2006, the ECJ decided in the Robinson Steele case that it was incompatible with the Working Time Directive for workers to receive statutory holiday pay staggered over the year, paid together with remuneration for work done, rather than as a separate payment in respect of a specific period of leave actually taken by the worker.

The ECJ held however that this did not preclude ‘rolled up’ holiday pay being set off against the worker’s entitlement to payment for a specific period of leave, provided that the arrangement was ‘transparent and comprehensible’.

In Lyddon, the worker had no written terms of employment (in breach of s.1 of the Employment Rights Act) but he has been told that part of his pay was referable to holiday pay. When he received his computer-generated payslip, it showed the precise amount of holiday pay paid to him as a separate item added to his basic pay.

This was enough for the Tribunal and the EAT. For this system to be legal, it was not necessary for there to have been a written contractual term or for the precise amount to have been agreed before he started work. It was sufficient that he was told that a system for ‘rolling up’ holiday pay was in place and that such a system did in fact exist.

Points to note:

  • Employers of casual workers will be pleased to note that the EAT appears to be taking a pragmatic approach to the question of how an employer is meant to fulfill an obligation to pay holiday pay that is calculated on an annual basis, in the case of workers who are not necessarily employed as such.

  • After the ECJ decision in Robinson Steele, the Department for Business Enterprise and Regulatory Reform (“DBERR”) (then the DTI) said that employers ‘should have taken steps to renegotiate contracts involving rolled up holiday pay to eliminate this practice’. It said that transparent and comprehensible rolled up holiday pay arrangements, as in Lyddon above, were the only ones that could be offset against the employer’s liability to make payments in respect of future annual leave ‘during this transitional period’. It is however unclear what is meant by DEBRR’s use of the phrase “this transitional period”. There have been no further suggestions that the government is contemplating changing the law but we will of course keep you informed of any developments.