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Service Areas: Employment (for Business)

Payments in lieu of holiday

In a recent case, an employee was allowed to claim payment in lieu for untaken holiday for the full period of her employment, not just the final year.

Employment associate Alison Parker comments:

The employee in this case was dismissed after a period of seven and a half years.  Her claim for unfair dismissal succeeded and she was awarded 131 days’ pay in lieu of her holiday entitlement by an employment tribunal.  The tribunal held that she was entitled to pay in lieu of all her accrued but untaken holiday, pursuant to an oral term of her contract. 

On appeal to the Employment Appeal Tribunal, the employer argued that since the Working Time Regulations 1998 do not permit the carry over of holiday, the employee should only be entitled to payment in lieu of her final year’s holiday plus any contractual entitlement over and above the statutory entitlement in respect of previous years.

The EAT disagreed and upheld the tribunal’s decision to award the full amount of holiday pay.  The EAT held that since the employee’s contractual entitlement to holiday was more favourable than that under the WTR, she was not prevented from being entitled to full payment in lieu of her untaken holiday.  The reason for this was that her claim was based on her contractual holiday entitlement, and was a claim for breach of contract rather than a claim under the WTR.

At first sight this may seem a surprising decision, in view of the limitations under the WTR relating to the payment in lieu of holiday.  However, the employee in this case was employed under an express (oral) term that all untaken holiday would be paid on termination.

It is important for employers to ensure that the position on payment in lieu of an employee’s untaken holiday is set out clearly in the contract of employment. The best way employers can achieve this is by producing a written contract of employment which expressly states that any right to payment in lieu of untaken holiday is limited to the final year of employment.   In addition it would be prudent to restrict the amount of holiday that can be carried forward from one holiday year to the next.

Click here for a copy of the judgment.

Published: 6 November 2009
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