'Rolled Up' Holiday Pay Decision: More Information

Employers cannot unilaterally decide that weekly pay includes an amount for holiday pay, the Court of Appeal ruled on Tuesday 23 July in a judgment about the Working Time Regulations (as previously reported on the Network).

The Court of Appeal rejected an argument that hourly rates paid to a group of engineering workers were “rolled-up” amounts which already included a notional element for holiday pay. The judgment found that the three employment agencies involved were in breach of the Working Time Regulations because the engineering workers – supplied to the Ford Motor Company – had contracts which said nothing about holiday pay being covered by their hourly rate.

The Court of Appeal agreed that the workers were entitled to holiday pay under the Working Time Regulations. They overturned the previous Employment Appeal Tribunal (EAT) decision in the case. This is the first time the Court of Appeal has ruled on holiday pay under the Working Time Regulations.

The Working Time Regulations provide that all workers are entitled to a minimum of four weeks' annual leave. Representing the workers in a hearing on 10 July, Brian Langstaff QC and Rachel Crasnow of Cloisters had urged the Court of Appeal to accept three points:

- Simply telling workers when the Regulations came into force – on the 1 October 1998 – that their pay already included a notional element for holiday pay did not satisfy the new obligations.
- Nor could the requirements be met if there was no actual agreement between worker and employer that an hourly rate also covered holiday pay.
- The Regulations are also intended to ensure workers actually have a break from work, as the original EU Directive demonstrates.
The Court of Appeal allowed the appeal, affirming the decision of the Employment Tribunal. The EAT decision was said to be a startling departure from the ordinary law of contract. In his judgment of 23 July 2002 Pill LJ stated:

“Only if it is agreed between employer and employee that the weekly payment includes an amount for something else, such as holiday pay, can it be held to do so. An employer cannot unilaterally decide that the week’s pay is a payment not only for the hours worked during the week but includes an amount of holiday pay…

….Regulation 16(5) does not confer that right on an employer. Indeed, it expressly refers to “contractual” remuneration paid in respect of a period of leave. If the worker has not agreed that the sum paid includes a sum in respect of a period of leave, it is no part of the contract that the sum includes an element of holiday pay. The remuneration under the contract is for the week’s work”

Rachel Crasnow, the barrister of Cloisters who represented the workers, commented:

" This guidance on the meaning of the holiday pay element of the Working Time Regulations is much welcomed, especially to address the context where there is no agreed or transparent holiday pay entitlement.”
This document is for general guidance and research purposes only, and does not purport to give professional advice. Please check the date at the top of the article; the Workplace Law Network retains historic articles for general research.