We all know holiday pay is not straight forward, the case of Conner v Chief Constable of the South Yorkshire Police has highlighted a holiday pay issue which you may have overlooked! 

Key learning point 

• Payment in lieu of holiday accrued but not taken at the end of an employment contract must be no less than the holiday pay the worker/employee would have received had they been working. 

The case

Under Regulation 14 of the Working Time Regulations 1998, pay in lieu of holiday accrued but not taken on the termination of an employment contract is calculated in the same way as pay for leave taken. But, if an employer has a 'relevant agreement' in place they can pay in accordance with that agreement. In this case, Mr Connor a salaried employee was paid in lieu of accrued but untaken holiday when he was dismissed following a lengthy period of sickness absence. His contract of employment contained a clause providing that this payment in lieu would be calculated at the accrual rate of 1/365th of his annual salary for each day’s leave. This resulted in him being paid less for holiday accrued than he would have been paid had he been at work and taken holiday.  Mr Connor argued that this 'relevant agreement' was not compliant with the WTR and subsequently brought a holiday pay claim against his employer for the difference between what he would have been paid had he been working and the sum calculated using the 1/365 formula. The amount was the princely sum of £53.90!

The case went to the EAT surely demonstrating that sometimes it’s the principle, not the cash that matters! The EAT rejected the employment tribunal’s ruling that the 1/365 clause was a relevant agreement for the purposes of the WTR. The EAT noted that an agreement calculating holiday pay where the terms are less favourable than the paid holiday rights provided under the WTR is not a relevant agreement for the purpose of the WTR. 

Practical Points? 

Check your contracts – Do you have a relevant agreement in your contracts – it can be no longer than a sentence or a short clause. Does this have the potential to mean that on termination an employee would receive less than they would under the WTR calculation? If so, and you rely on it you may be leaving yourself vulnerable to a holiday pay claim.

Do the maths!  If there is any doubt, do both calculations and use the more favourable version. The calculation in the WTR is to be seen as a minimum, you can agree higher but not lower! 

Beware the accumulating costs of a mistaken clause - in this case, the claimant was compensated with the difference, £53.90. It doesn’t sound like much but there are other costs to consider if you get this wrong including costs of legal proceedings. Further, and especially for employers with high turnover who may have consistently got this wrong, the claims could soon add up. 

If you would like any further information on this case or holiday pay issues, please do contact any member of our team. This is a complex and ever-moving area so we would always encourage you seek specific advice on issues that arise.