Legal counsel

Ever since the 1998 Working Time Regulations came into force, people who engage employees to work irregular hours have struggled to find a practical way to comply with their statutory obligation to pay holiday pay.

Whereas the practice of rolling up the hourly rate to include an amount for holiday pay has been used by many organisations, this method has now been successfully challenged in Scotland, which could have a knock-on effect for the whole country.

In the case, MBP Structures Ltd v Munroe, the Court of Session held that hourly or weekly rates of pay that expressly include an element of holiday pay do not comply with the provisions of the Working Time Regulations.

Employers who have been acting in this way, the court held, are still potentially liable to pay their workers for annual leave that has not been taken.

However, the Court of Sessions decision appears to conflict with an earlier decision of the Court of Appeal in the case of Blackburn v Gridquest. In this case, the court inferred that the practice of rolling-up pay could be used where there was a contractual entitlement to this effect in the employee's contract.

As the Court of Sessions decision can be taken into consideration by an employment tribunal until the issue is further clarified, employers would be well advised to review – and, where necessary, amend – the terms and conditions of employment that they issue to staff engaged on irregular or zero-hours contracts.

There is some good news for employers, though. In a decision passed on 27 March, the Employment Appeals Tribunal held that, when calculating holiday pay under the Working Time Regulations, an employer could exclude the value of overtime that is not contractually guaranteed. This is true even in circumstances where the employee regularly works the overtime.

However, leave has been granted for this decision to be appealed against so its future impact will depend on the outcome of that hearing in the Court of Appeal.