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A ‘relevant agreement’ on holiday can’t result in a lower payment than you would get under the calculations set out in the Working Time Regulations 1998

Adrian Fryer

The Working Time Regulations 1998 set out the key rules regarding holiday rights in the UK, including holiday pay. The Regulations include a provision (Regulation 14) which states that the amount of holiday pay due on termination of employment is either that which would be prescribed if the formula set out in the Regulations were applied or such other sum which is stated to be payable on termination of employment pursuant to a ‘relevant agreement’. There had been much debate amongst employers about what such a ‘relevant agreement’ could include.

There was a trend of including a provision in employment contracts for the payment of a nominal sum for accrued but untaken holiday in the event of a gross misconduct dismissal. Many contracts of employment also calculate a day’s holiday pay on termination by taking a 1/365 day average rather than a 1/260 day average (working days only).

The Employment Appeal Tribunal, in the case of Connor v Chief Constable of West Yorkshire Police, have held that a ‘relevant agreement’ on the payment of holiday on termination of employment cannot result in a payment which is lower than that which would be calculated using the method set out in the Regulations. The Claimant’s employment contract included a clause which stated that holiday pay on termination of employment would be calculated by taking a 1/365 day average. This resulted in a lower payment for holiday than that which he would have received if the calculation under the Regulations had been used. The EAT held that this clause could not be relied upon as a ‘relevant agreement’ and that the Claimant was entitled to receive, at least, payment in line with the calculation method set out in the Regulations.

Employers whose contracts of employment contain a provision permitting a nominal holiday pay payment on termination of employment for gross misconduct or who calculate holiday on termination based on a 1/365 average should, in light of this case, be careful before relying on these terms in the future. Consideration should also be given to removing them from any new contracts which are issued going forward.

Adrian Fryer, Partner & Head of Employment

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