Lyddon v Englefield Brickwork Limited (Employment Appeal Tribunal)

The Working Time Regulations state that all workers are entitled to at least 4.8 weeks’ paid annual leave a year. The original EU Working Time Directive, which the Regulations implement, provides that paying workers an allowance in lieu of annual leave is lawful only in the last year of employment. The Regulations, however, permit any remuneration paid in respect of annual leave to go towards discharging the holiday pay obligation. This has encouraged the practice of holiday pay being “rolled-up” and paid together with “normal” salary during times of work and not being paid specifically at the time that leave is taken.

A number of cases in the UK Courts have challenged the lawfulness of rolled-up holiday pay. The case of Robinson-Steele v PD Retail Services made a reference to the European Court of Justice (“ECJ”) in an attempt to clarify the issue. In March 2006 the ECJ stated that it was contrary to the Working Time Directive for a payment for statutory annual leave to be rolled-up and paid together with remuneration for work done instead of being paid at the time that the holiday was taken. However, the ECJ also said that sums already paid under a rolled-up holiday pay scheme could be set off against a worker’s holiday pay, provided that the arrangements were sufficiently “transparent and comprehensible” and that the payments revealed an uplift to the actual sum paid for work done.

The Robinson-Steele case led the Government to issue revised guidelines on rolled-up holiday pay. We reported on the third version of these revised guidelines in July 2007.

It was clear from the revised guidelines that the Government was looking to ensure that rolled-up holiday pay was a practice of the past in order to be consistent with the Directive and ruling of the ECJ.

The recent case of Lyddon v Englefield Brickwork Limited has produced a somewhat surprising outcome. In this case the Employment Appeal Tribunal (“EAT”) upheld the view of the Employment Tribunal in finding that an employer could rely upon the application of rolled-up holiday pay despite having never set out the basis and calculation of the payments in a contract of employment.

Mr Lyddon worked for Englefield Brickwork for 17 weeks. When his employment came to an end, he claimed pay for the two weeks that he had been on leave. Mr Lyddon argued that the payments during employment which the employer claimed to be in respect of “holiday pay” were not contractual payments and that, therefore, the payments were not sufficiently set out to include holiday pay.

For their part, Englefield successfully argued that Mr Lyddon had known that the policy was in place from the outset of his employment and that he had agreed to its application; Mr Lyddon had been told that his pay included holiday pay. Furthermore, Mr Lyddon’s pay statement had included amounts and descriptions that illustrated how holiday pay was calculated.

The EAT decided that the system to calculate the pay and rolled-up holiday pay on top of that could easily have been made available had Mr Lyddon requested a breakdown. Mr Lyddon was aware of the system and did not question the fact that he had not been paid over the period that he took his holiday.

It would appear from this decision that (in the private sector at least) offsetting rolled-up holiday pay is a legitimate means by which an employee may be paid for annual leave. This is despite the ECJ decision in Robinson-Steele and Government guidance. While this is a somewhat muddy picture, one thing is clear, namely that rolled-up holiday pay must not be used by an employer as a disincentive to employees to take annual leave.