In Connor v Chief Constable of the South Yorkshire Police, the Employment Appeal Tribunal (EAT) has considered the correct approach to calculating pay for accrued but untaken statutory holiday on termination of employment and whether under a "relevant agreement" a worker could receive less than the amount they would have been paid in respect of holiday taken during their employment.
The claimant was employed by the Chief Constable of the South Yorkshire Police. He worked a 37-hour week and his annual salary was paid in monthly instalments. During the course of his employment he received the equivalent sum for a week of holiday as he would for a week of work. By the time his employment was terminated, he had spent over a year on sick leave and had exhausted his sick pay entitlement. His contract stated that employees may be entitled to payment for untaken annual leave and that such payment would be based on 1/365th of annual salary for each day's leave. On termination it was agreed that the claimant was entitled to be paid for 40 hours and 42 minutes of holiday based on his accrued untaken entitlement. The calculation applied meant that he received less than he would have been paid had he taken the holiday during employment and so he brought a claim for unlawful deduction from wages.
The tribunal held that the rate of pay was set out in the "relevant agreement" contained in his contract (the Working Time Regulations 1998 (WTR) provide that, on termination of employment, a worker is entitled to pay in lieu of unused statutory holiday and that such a sum can be provided for "in a relevant agreement") and, on that basis, the calculation undertaken was correct. However, the EAT found that the employment judge's interpretation of the phrase "relevant agreement" had been too literal and tended against the purpose of the WTR. A relevant agreement could not provide a formula which would result in a worker being paid less than the usual amount they would have been paid for working when holiday pay is calculated.
Take note: The EAT's decision in Connor provides welcome clarification that it is not possible for a "relevant agreement" under the WTR to provide a formula which results in a worker being paid less than they would have been paid for working when holiday pay is calculated. Prior to this, the EAT held in Witley & District Men's Club v Mackay that a relevant agreement could not provide for no payment at all, but there seemed to be scope to argue that it could provide for a payment in lieu of unused holiday that was less than that provided by the statutory formula. Although it was then held by the employment tribunal in Podlasiak v Edinburgh Woollen Mill Ltd that a worker should be paid as if they were taking holiday during employment, it was left uncertain whether this just applied to workers who had been unable to take accrued holiday during their employment. The decision in Connor makes it clear that the starting point for such a calculation is the working week, or proportion thereof, that would be paid if someone was working. This will then be multiplied by the figure reached using the application of the formula within the WTR.
