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  1. The right to paid holiday is a concept which has for many years been well acknowledged. The right is provided for by the Working Time Regulations 1998 which were adopted into the law of the United Kingdom by the Working Time Directive of 2003 (replacing Directive 93/104/EC).
  2. Article 7 of the Working Time Directive provides:1. Member States shall take the measures necessary to ensure that every worker is entitled to paid annual leave of at least four weeks in accordance with the conditions of entitlement to, and granting of such leave laid down by national legislation and/or practice;2. The minimum period of paid annual leave may not be replaced by an allowance in lieu, except where the employment relationship is terminated.
  3. At first glance it appeared to all that no further guidance as to what amounted to paid annual leave would be forthcoming from Europe. Over time the practise built up of employees simply receiving their basic wage in respect of holiday pay. In other words bonuses and overtime payments were ignored for the purposes of holiday pay.
  4. For some workers this would be an objectively fair outcome. If, for example, you worked a few hours overtime irregularly across the year then it would make little difference to the overall remuneration.
  5. However, some employees began to complain that they would in effect be forced into a pay cut by taking holiday leave. Contrast the employee who carries out occasional overtime with the employee who regularly conducts overtime at 10 hours a week and must meet performance targets to receive contractual bonus payments. It is not difficult to envisage a situation where the employee was in detriment by exercising his right to annual leave.
  6. The issue unsurprisingly came to the fore and a reference to the Court of Justice for the European Union was made by the Supreme Court in the case of British Airways Plc v Williams ([2012] ICR 1375) over whether European law defined any requirements as to the nature and level of payments that are to be made for paid annual leave.
  7. The CJEU responded to the reference by saying:
    “the Court has already had occasion to state that the expression ‘paid annual leave’ in Art 7 (1) of the WTD means that for the duration of ‘annual leave’ within the meaning of that directive, remuneration must be maintained and that, in other words, workers must receive their normal remuneration for that period of rest: see Robinson Steele v R D Retail Services Ltd [2006] ICR 932The purpose of requirement of payment for that leave is to put the worker, during such leave, in a position which is, as regards remuneration, comparable to periods of work.

    Accordingly, any inconvenient aspect which is linked intrinsically to the performance of the tasks which the worker is required to carry out under his contract of employment and in respect of which a monetary amount is provided which is included in the calculation of the worker’s total remuneration such as, in the case of an airline pilot time spent flying, must necessarily be taken into account for the purposes of the amount to which the worker is entitled during his annual leave.By contrast, the components of the worker’s total remuneration which are intended exclusively to cover occasional or ancillary costs arising at the time of performance of the tasks required to carry out under his contract of employment, such as costs connected with time that pilots have to spend away from base, need not be taken into account in the calculation of the payment to be made during annual leave.”

  8. With that the CJEU effectively created two categories of payment. Those which are intrinsically linked to an employee’s performance of their work and those which are intended only to cover the occasional or ancillary costs arising at the time of performance.
  9. Unsurprisingly the argument has shifted to which camp various payments fall into. An argument I came across recently was whether ‘hot payments’ which a factory worker was paid for working in hot environments was pay intrinsically linked to the work performed. In that case the worker spent 50% of his time near the furnace which entitled him to the ‘hot pay.’ In that case the Employment Judge determined that such payment was intrinsically linked to the performance of duties rather than an ancillary cost arising when he was present at the furnace.
  10. Some clarity appears to have been found from the EAT judgement in Bear Scotland Ltd v Fulton (UKEATS/0047/13/BI.) In that case Mr Justice Langstaff, held that Article 7 of the WTD is to be interpreted as such that payments for overtime which the employees were required to work, albeit that their employer was not obliged to offer (compulsory non-guaranteed overtime), was part of normal remuneration and was to be included in the calculation of holiday pay under the WTD.
  11. Mr Justice Langstaff sought to cut through the complexity at [44] where he stated:“Despite the subtlety of many of the arguments, the essential points seem relatively simple to me. ‘Normal pay’ is that which is normally received. As Advocate General Trstenjak observed in Williams, there is a temporal component to what is normal: payment has to be made for a sufficient period of time to justify the label.”
  12. Therefore the point to take away is this. The courts will not tolerate there being a disincentive to an employee taking his paid annual leave. If an element of remuneration can be considered as one that is normally received and is for something intrinsically linked to an employee’s work then there is a fair argument that it should be considered when calculating holiday pay.

Michael regularly appears in the Tribunal across the North East and further afield. He has a particular interest in contractual disputes in an employment context.

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