News from IDS Brief – Token sum on termination for untaken holiday was not permissible
In Podlasiak v Edinburgh Woollen Mill Limited an employment tribunal has held that the ECJ’s decision in Stringer and ors v Revenue and Customs Commissioners; Schultz-Hoff v Deutsche Rentenversicherung Bund (Brief 871) requires Reg 14 of the Working Time Regulations 1998 SI 1998/1833 to be interpreted so as not to permit an employer to pay a token sum on termination in lieu of untaken leave. Any payment in lieu made under a ‘relevant agreement’, as permitted by Reg 14, must be equivalent to the pay the worker would have received had he or she taken the leave during employment.
P was employed on a zero-hours contract which provided that, on termination, she would be paid £1 in lieu of any untaken holiday. When P left her employment she had three days’ untaken leave, for which she would have been paid £176 net if the leave had been taken during her employment. P lodged a claim that she had not been paid in lieu of her untaken leave.
The tribunal noted that the Working Time Regulations entitle workers to four weeks’ paid annual leave, and where, on termination, some of that leave is untaken, the worker is entitled to a payment in lieu of the leave. Reg 14(3) states that this payment may be such as is provided for in ‘a relevant agreement’ or the amount the worker would normally be entitled to as paid leave.
The tribunal considered that on a literal reading of Reg 14(3) it would seem permissible for a relevant agreement, in this case P’s contract, to provide for a token payment. However, the ECJ’s decision in the combined cases of Schultz-Hoff and Stringer showed that pay in lieu under the EU Working Time Directive (No.2003/88) has to be calculated to reflect normal pay in order to put the worker in a comparable position to that which he or she would be in if he or she had exercised the right to paid annual leave during employment. In the tribunal’s view, Reg 14 should be construed as far as possible to give domestic effect to the Directive. Thus, a payment under a relevant agreement is only permitted if it is an amount equivalent to the pay the worker would have received had he or she taken as leave the period in respect of which the payment in lieu is made. P’s complaint was therefore upheld and she was awarded £176.
This first instance decision is not binding on any other court or tribunal. However, it is consistent with a recent trend of tribunals adopting purposive interpretations of the Working Time Regulations so as to give effect to the Directive. Employers may decide to err on the side of caution and ensure that payments on termination in lieu of untaken leave are at least equivalent to what the worker would have been entitled to had he or she taken the leave during employment.