House of Lords rules that employees can claim holiday pay as 'wages'

News

The House of Lords has ruled that claims for holiday pay under the Working Time Regulations can be brought as an unlawful deduction from wages claim. However the House of Lords did not determine the crucial issue of how employers should deal with holiday entitlements for employees who are absent on long term sick leave.

Implications  

Employers need to be aware that this ruling means employees are no longer required to bring a claim in respect of non payment of holiday pay under the Working Time Regulations (WTR). Instead such claims can also now be brought as an unlawful deduction from wages claim under the Employment Rights Act. This means that whereas under the WTR an employee could only bring a claim for unpaid holiday pay in respect of the current holiday year, they can now bring claims based on previous holiday years, if the non payment forms part of a 'series' of deductions. This is particularly relevant where the employee's employment has terminated. However, the House of Lords did not decide whether employees on sick leave can carry over their holiday to the next holiday year or should take their holiday whilst off sick.

Details  

The House of Lords in the case of Stringer v H M Revenue and Customs (HMRC) were giving judgment following the ECJ's decision earlier this year (see Howes Percival Newsflash 22 January 2009).  

This concerns the long running case of HMRC v Ainsworth (re-named Stringer before the House of Lords) which concerned an employee on long term sick leave, who brought a claim for the non payment of his holiday entitlement upon the termination of his employment as an unlawful deduction from wages claim. Although successful before the Employment Tribunal and Employment Appeal Tribunal, the Court of Appeal overturned these rulings and held that claims for unpaid holiday could only be brought under the WTR.  

When Mr Ainsworth appealed to the House of Lords, they referred the case to the European Court of Justice (ECJ) on the question of whether employees and workers on sick leave still accrue holiday under the WTR (because the UK's WTR implement European Law). The ECJ held that an employee who is on sick leave for the whole of a holiday year does not lose their entitlement to paid holiday. However the ECJ went on to rule that it is for the national courts to decide whether the paid holiday can be taken during the current holiday year or whether it should be carried over to the next holiday year.  

Unfortunately the House of Lords did not determine that particular point. Therefore, given the ECJ's ruling that employees on sick leave still accrue holiday and the express prohibition of 'carry over' of holidays from one year to the next under Regulation 13 of the WTR, this may mean that best practice (for the time being) is to allow employees who are on long term sick leave to designate a period of leave as 'holiday'. This will benefit employees who will receive full pay where they may be on reduced or nil sick pay. It will benefit employers in that it will avoid the problem of employees "stockpiling" holiday to use in a subsequent leave year or to be paid on termination.  

However, the position remains unclear until the national appeal courts have an opportunity to re–visit these issues.