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Holiday pay

Adrian Fryer

Adrian Fryer

Regulation 14 of the Working Time Regulations 1998 (WTR) sets out a worker’s right to a minimum of 4 weeks’ paid holiday per year which derives originally from the Working Time Directive (WTD). In a case called Bear Scotland v Fulton, the EAT said that a three-month gap between related deductions in a series will break the chain, meaning anything before the three-month gap cannot be claimed. The Court of Appeal has recently confirmed in Smith v Pimlico Plumbers that a worker’s right to paid annual leave is a single composite right – to leave and to pay for that leave – and strongly challenged the principle set out in the Bear Scotland case.

Mr Smith won his worker status claim in the Supreme Court. He then sought backpay for holiday pay relating to each year he worked for the employer between 2005 and 2011. He had taken holiday but not been paid for it. The employment tribunal and EAT said he could only bring a claim for holiday which had never been taken at all (rather than holiday that had been taken but not paid). The Court of Appeal disagreed. The Court said that if the worker takes leave but isn’t paid for it, he is not exercising his rights under the WTD. The worker only loses the right where the employer can show they gave the worker the opportunity to take the leave, encouraged them to take it and told them they would lose it if they didn’t take it. If the employer does not do this, the holiday carries over and continues to accrue until the end of employment when a payment in lieu of all the untaken and unpaid holiday is due. It is a one-off payment not the combined total of a series of deductions. That meant Mr Smith’s claim – brought within three months of termination – had been brought within time. The judge in this case also gave her ‘strong provisional view’ that Bear Scotland v Fulton was wrongly decided (though it wasn’t key in this case so has not officially overruled that binding case law).

While the Court of Appeal has no ability to change legislation, they have suggested the following wording is inserted into regulation 13 of the WTR:

Where in any leave year an employer i) fails to recognise a worker’s right to paid annual leave and ii) cannot show that it provides a facility for the taking of such leave, the worker shall be entitled to carry forward any leave which is taken but unpaid and/or which is not taken, into subsequent leave years.

This case is another win for workers in the ongoing holiday pay saga. If an employer denies a worker the right to paid annual leave, the entitlement to paid holiday accrues throughout employment and crystallises as a claim on termination. It is a claim for payment of the whole sum owed, not a series of deductions, so the 2-year backstop (brought in by the Deduction from Wages (Limitation) Regulations 2014) does not apply. This could prove very costly for businesses who wrongly categorise workers as self-employed. It’s worth remembering that reasoning in this case only relates to the 4 weeks’ WTD holiday, leaving the 1.6 weeks of domestic leave still subject to the normal rules of unlawful deduction from wages (and a series of deductions). However, whether the three-month gap rule in Bear Scotland is displaced by the Court of Appeal’s ‘strong provisional view’ will be a battle for tribunals, and no doubt appeal courts, in future cases.


Adrian Fryer, Partner & Head of Employment

t: 0151 224 0539