Given the importance of paid annual leave for the health and safety of workers, the EAT has held in Connor v Chief Constable of the South Yorkshire Police that any holiday payment which falls below the usual level of a worker’s pay will fall foul of the Working Time Regulations (WTR).
Basic facts
Having been signed off ill with depression and anxiety in February 2019, Mr Connor was dismissed from his job in May 2020. On termination, it was agreed that he was entitled to receive holiday pay for five and a half days of untaken leave that had accrued.
Throughout his employment, Mr Connor had worked a regular number of hours each week and so received the same amount of pay when he was on holiday as he did when he was working. However, his contract contained a term which stated that on termination of employment, his holiday pay would be paid on the basis of 1/365th of his salary for each day of leave to which he was entitled.
As this was less than he would have been paid, had he taken the holiday during the course of his employment, Mr Connor lodged tribunal proceedings for unpaid holiday pay.
Relevant law
Regulations 13 and 13A WTR state that workers are entitled to a total of 5.6 weeks paid holiday each year.
Regulation 14(3)(a) WTR states that any holiday pay due to a worker is “such sum as may be provided for the purposes of this regulation in a relevant agreement”.
Regulation 16 WTR states that a worker is entitled to be paid in respect of any period of annual leave “at the rate of a week’s pay in respect of each week of leave”.
Section 221 of the Employment Rights Act 1996 (ERA) states that if the employee’s pay does not vary with the amount of work they do, then a week’s pay is the “amount which is payable by the employer under the contract of employment in force on the calculation date”.
Tribunal decision
The employment judge found that Mr Connor was bound by the contractual term that applied to holiday pay entitlement on the termination of his employment and that it was part of a “relevant agreement” for the purposes of regulation 14(3)(a). He appealed against that decision.
EAT decision
Emphasising the importance of the health and safety aspects underpinning the purpose of the WTR legislation, the EAT accepted that working out how much people should be paid when taking annual leave was not its prime objective.
Equally, however, it recognised that it would undermine the purpose of the legislation if the amount paid for annual leave was less than the worker’s usual level of pay. “That must … mean that the natural interpretation is that any payment which falls below the usual level of pay will not be in accordance with the WTR”.
So, although the purpose of regulation 14 is to provide a method for calculating paid holiday entitlement, it follows that a reference to “such sum as may be provided for the purposes of this regulation in a relevant agreement” must refer to an agreement that offers a formula underpinning the rights set out in the WTR.
As such, a “relevant agreement” could not cover a situation in which a worker was paid less than the usual amount when they were on holiday as opposed to when they were working.
The EAT concluded, therefore, that the employment judge was wrong to apply such a literal understanding of the phrase “relevant agreement” and allowed Mr Connor’s appeal.