Holiday pay issue goes to europe

The issue of holiday pay for staff engaged on atypical contracts should be easy to resolve but it is still causing headaches for many human resources professionals. Now, the European Court of Justice has been asked for its opinion.

In practice, many employers have adopted the practice of "rolling up" the basic rate of pay to include an element of holiday pay. The difficulty with this approach, though, is that it means employers do not pay the workers at all during the actual holidays they take.

In July 2003 the Employment Appeal Tribunal, in the case of Marshalls Clay Products Ltd v Caulfield, rejected the finding in the earlier Scottish case of MPB Structures Limited v Munro (2003) that "rolling up" contravened the 1998 Working Time Regulations.

As I reported last year, employers welcomed the Marshalls Clay decision.

In Marshalls Clay the tribunal found that contracts properly drafted to include terms that provided for a basic wage or rate topped up by a specific sum or percentage in respect of holiday pay were lawful.

But last month, in Robinson-Steele v Retail Services, the Leeds Employment Tribunal disagreed with the EAT finding and took the unusual step of referring this issue to the European Court of Justice for determination. The court has been asked to consider:

• whether our national laws, which have been interpreted to allow holiday payments to be paid by way of allowance, are consistent with the European Working Time Directive
  
• whether credit can be given for sums paid in this way if this approach is found to contravene the directive.

If the European court finds that the practice of rolling up holiday pay is unlawful, employers will be faced with potential claims for unpaid holiday even where they have strictly paid for this.

The question of credit, however, is of greater importance. If the European court finds that employers can give credit for the rolled-up payments made, in practice the value of claims may be nil or nominal and not worth employees pursuing.

But the real risk to employers is if the European court finds that credit cannot be given for payments already made. This could mean employers are faced with having to remunerate employees twice for holidays already taken and having to change their practice in future.