Emp law briefing: Rolled-up holiday pay

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Couple having a picnic in Llyn Nantlle, Gwynedd, Wales
The Advocate General of the European Union has recently given his opinion to the European Court of Justice regarding the lawfulness of ‘rolled-up’ holiday pay arrangements; read on for your employment law briefing on this point of law.

Such arrangements between an employer and a worker provide that a specific part of the worker’s wages represent ‘holiday pay’. Accordingly, these workers do not then receive any wages whilst on leave as the payment in respect of such leave has been spread throughout the year.

The question of whether ‘rolled-up’ holiday arrangements are lawful had been referred to the European Court of Justice as a result of conflicting judgments between the Scottish Court of Session and the English Court of Appeal, to whom decisions from Employment Appeals Tribunal may be appealed.

In April 2003, the Scottish Court of Session hearing the case of Munro v MPB Structures Ltd, decided that all ‘rolled-up’ holiday pay arrangements are unlawful as they are likely to discourage workers from taking holidays, contrary to the purpose of the Working Time Directive. This conclusion stemmed from the argument that as employees would not receive any holiday pay whilst on leave, they might choose to work continuously and not take any holiday so as to continue earning.

In the following April the issue of ‘rolled-up’ holiday pay was raised before the Court of Appeal, in the joint appeals of Clarke v Frank Staddon Ltd and Caulfield and Others v Marshalls Clay Products Ltd. Here the Court of Appeal decided that rolled-up holiday pay arrangements would be lawful as there was nothing in the Working Time Directive which required holiday pay to be paid at a certain time.

The Court also disagreed that employees being paid holiday pay on a rolled-up basis would be discouraged from taking leave and felt confident that employees who agreed to rolled-up holiday pay arrangements would be able to plan their financial affairs adequately so as to take their annual leave.

Conscious of its differing approach to the Scottish Court of Session in dealing with this issue, the Court of Appeal referred the matter to the European Court of Justice for a definitive ruling.

Following his consideration of the arguments for both sides, the Advocate General has decided that rolled-up holiday pay arrangements can be lawful provided that there are clear systems in place to ensure that workers actually take their holidays. This opinion treads a middle ground between the conflicting decisions of the Scottish and English Courts.

It deals with the concern of the Scottish Court of Session that rolled-up holiday pay arrangements will result in employees not taking holidays, whilst at the same time acknowledging the Court of Appeal’s observation that there is nothing in the Working Time Directive which dictates when payments in respect of leave are to be made.

Whilst the question of the lawfulness of rolled-up holiday payments remains open until the European Court of Justice has given its ruling on this matter, the Advocate General’s opinion is a welcome and encouraging sign (this is because although the Advocate General’s opinion is not binding on the European Court of Justice, it is usual for it to agree with the Advocate General).

In the meantime, employers operating rolled-up holiday pay arrangements should put in place systems to ensure that workers take their holidays. A failure to do so now may result in pay arrangements being found to be unlawful if the European Court of Justice gives its decision in line with the Advocate General’s opinion.

For further information please contact Carl De Cicco at or visit www.reedsmith.com

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