Veitch Penny LLP - Exeter | Crediton, Devon

Case

Smith v A J Morrisroes & Sons Ltd & Other Appeals
Employment Appeal Tribunal - (22 November 2004)

Issues

(1) Contract of Employment
(2) Working Time Regulations
(3) “Rolled-up” holiday pay

Facts

The cases under appeal all involved claims by workers that they had not been paid the holiday pay to which they were entitled under the Working Time Regulations. In each case the employers contested the claims on the basis that pay was “rolled-up” in the basic rate of pay. In each case the Employment Tribunal had reached it decision by referring to the guidelines set down in the Employment Appeal Tribunal (EAT) decision in Marshalls Clay Products –v- Caulfield (2003) IRLR 552.

In Mr Smith’s case he was employed as a self-contractor by Morrisroes under a Contract which specifically provided he was not entitled to holiday pay. He was told that in future he would be paid £138.00 per day with £12.00 being retained by Morrisroes and paid to him as and when he took holidays. Morrisroes continued to pay him at the rate of £150.00 but deducted £11.54 as holiday. When he left he received a refund of the sums which had been deducted from his holiday pay. At first instance the Tribunal dismissed his claim finding that the guidelines in the Marshalls Clay decision had been complied with. Mr Smith appealed to the EAT.

In the second case Mr Byrne commenced employment with J J Cafferkey & Co under a Contract which provided that his holiday pay entitlement of an additional 8% was added to his hourly rate giving a total daily rate of £140.00. On the evidence it was accepted that his daily base rate was £140.00 and that accordingly the contractual provision did not represent a true addition to the daily rate and that the guidelines in Marshalls Clay had not been satisfied. The employers appealed against the decision.

In the third case Mr Wiggins was employed by North Yorkshire County Council as an “Unattached Teacher”. The Tribunal concluded that since Mr Wiggins was employed on the same terms as all teachers albeit on a proportional basis, his pay included an element of annual leave even though his Contract of Employment did not include an express provision to that effect. Accordingly he was not entitled to any further payment in respect of annual leave. This decision was appealed to the EAT.

Decision

The EAT considered the guidelines in Marshalls Clay. It emphasised that the principal guideline in determining whether a provision for rolled-up holiday pay meets the requirements of the Working Time Regulations is that there must be mutual agreement for genuine payment of holidays representing a true addition to the contractual rate of pay. This is more that simply the existence of a contractual provision for rolled-up holiday pay. A Tribunal must be satisfied that holidays are actually being paid for.

The EAT proposed the following guidelines:-

(a) the provision of rolled-up holiday pay to be clearly incorporated into the Contract of Employment;

(b) the percentage or amount allocated to holiday pay (or particulars sufficient to enable it to be calculated) to be identified in the Contract, and preferably also in the payslip; and

(c) records should be kept of holidays taken (or of absences from work when holidays can be taken) and for reasonably practicable steps to be taken to ensure that workers take their holidays before the end of the relevant holiday year.

In applying these new guidelines in the Smith case the appeal was allowed. There was no mutual agreement for genuine payment for holidays representing a true addition to the contractual rate of pay. Mr Smith’s daily rate was the same as it was after it included holiday pay and accordingly there could be no true addition.

In Mr Byrne’s case the employers appeal would be dismissed. The EAT confirmed the Tribunal decision was correct and that it was entitled to find that there was a genuine contractual agreement between the parties where the basic rate was to include holiday pay.

In the Wiggins case the appeal was dismissed. Whilst there was no expressed provision in the Contract relating to holiday pay, his Contract incorporated documents which showed that his holiday pay was included as an element in his hourly rate and how that would be calculated. Accordingly Mr Wiggins had received his holiday pay through the basic remuneration and was not entitled to any further payment.

Comments

This case provides further guidelines when dealing with “rolled-up” holiday pay. However the Marshalls Clay case is currently being referred to the European Court of Justice and is awaiting a hearing date. The key point to note at present is that the EAT clearly felt it was important that the employer shows that the holiday pay is an additional amount. In the Byrne case the Tribunal noted that whilst the Contract expressly provides that the hourly rate was increased by 8% in respect of his statutory holiday pay entitlement, the EAT was able to show that the going daily rate for the job was £140.00 in any event so there was no evidence that the holiday payment was a true addition to the daily rate.