Veitch Penny LLP - Exeter | Crediton, Devon

Case

Marshall Clay Products Ltd v Caulfield
Employment Appeal Tribunal - (25th November 2003)

Issues

(1) Contracts of Employment
(2) Holiday pay
(3) Working Time Regulations 1998

Facts

Five separate complaints were made to the Employment Tribunal. The employees in each case had commenced proceedings alleging that they had not been paid the holiday pay to which they were entitled pursuant to the Working Time Regulations. Each employer responded to the allegations by contending that their entitlement to holiday pay was in a “rolled-up” basic rate of pay. In four of the five cases the Employment Tribunal dismissed the workers claims.

The cases were appealed and heard together, consolidated under the lead name above.

The Employment Appeal Tribunal had to consider whether it was lawful to “roll-up” holiday pay into the basic rate of pay. Under the Working Time Regulation, workers are entitled to 20 days holiday per year. This right was put in place to ensure that workers are permitted holiday. Any entitlement above this would be a matter of contract.

By way of analysis the Appeal Tribunal accepted that there were 5 situations in which the issue of holiday pay may arise as follows:-

Category 1: Contracts which do not deal with the matter of holiday pay.

Category 2: Those Contracts which purport to exclude any liability for or entitlement to
holiday pay.

Category 3: Contracts which state the rates of pay are inclusive of holiday pay but there is
no indication of what that is.


Category 4: Contracts which provide for a basic wage or rate which is then topped up by a specific sum or percentage in respect of holiday pay.

Category 5: Contracts of Employment where holiday pay is allocated and paid during (or immediately prior to or immediately after) specific periods of holiday.

Categories 1 to 3 outlined above clearly do not satisfy the Working Time Regulations, whereas Category 5 clearly does. Therefore the issue in this case related to Category

4. The Employment Appeal Tribunal considered the case law to that point together with the backing Directive from the EU.

Decision

The Employment Appeal Tribunal held that in Category 4 cases rolled-up pay can be “contractual remuneration” under Regulation 16(5) of the Working Time Regulations but are subject to the following 5 guidelines.

A. The rolled-up holiday pay must be clearly incorporated into the individual Contract of Employment and therefore expressly agreed with the employee.

B. The amount or percentage amounting to holiday pay must be clearly identified in the Contract and preferably also in the worker’s payslip.

C. It must be a true addition to the Contract or rate of pay.

D. The employer must keep records of holiday taken by the employee.

E. Reasonable steps must be taken to require the workers to take their holidays before the expiry of the relevant holiday year.

Comments

This clarification of the position is very useful although it is in contrast to the judgments made by the Scottish Employment Appeal Tribunal in cases such as MPB Structures Ltd –v- Munro (which stated that rolling up of holiday pay is always unlawful). The Regulations were designed to ensure that employees are allowed to take holiday (which, in the Scottish Appeal Tribunal’s opinion, is less likely if the employee does not have holiday pay in hand at the time).

This inconsistency will clearly have to be resolved.