The Edinburgh Employment Appeal Tribunal (EAT) has confirmed, in a decision in the case PJ Cary (Contractors) Ltd v Denis Greene & Others, that a complaint of non-payment of holiday pay can properly be brought under the unlawful deduction provisions of the Employment Rights Act 1996 (ERA).

The Appeal was against the decision of an Employment Tribunal that had considered conflicting arguments as to whether an award could be made in respect of holiday pay that had been due to the workers but not paid over a number of years.

On the one hand, Regulation 13 of the Working Time Regulation 1998 (WTR) states:

"Leave to which a worker is entitled under these Regulations may be taken in instalments, but-

1. it may only be taken in the leave year in respect of which it is due, and
   
   
2. it may not be replaced by a payment in lieu except where the worker's employment is terminated."

In Scotland, in the case MPB Structures Ltd -V- Munro, the employment tribunal and, subsequently, the Edinburgh EAT and Court of Session decided that, to satisfy the requirements of Regulation 13, with respect to leave, and Regulation 16, with respect to payment for that leave, have a "close association" and the worker must be paid not only for annual leave but also in association with the taking of that leave. In other words, payment for holiday leave under the WTR should be made at the time that the leave is taken. For this reason, in Scotland, the practice of "rolling-up" holiday pay with the rate of pay is not lawful.

The argument presented to the EAT was that, if holiday pay is not taken at the time it is taken, Regulation 13 restricts the recovery of any unpaid holiday pay to a worker's final leave year. As a result, holiday pay is inextricably linked to the time that the holiday is taken and does not become an accrued right. The counter argument is that, because "holiday pay" is included within the definition of "wages" under the unlawful deduction provisions of the ERA and there is no time restriction on the period for which recovery can be awarded, an award is not restricted to unpaid holiday pay in the final leave year. In the case List Design Group Ltd v Douglas & Others, the London EAT held that, although the later WTR imposes a specific time limit in order to determine how that right should be enforced, that does not replace the provisions of the ERA. The original employment tribunal in the current case found that that the unlawful deduction provisions of the ERA, as in the List Design decision, clearly applied and that there was nothing in the MPB Structures decision that contradicts that. The EAT agreed with the employment tribunal's interpretation of the legislation and precedents and, accordingly, dismissed the appeal. The implications for employers are, therefore, that, if a "worker", as defined in the WTR is not paid holiday pay, as is often the case with contractors, the worker may have a claim for unpaid holiday pay that goes back to October 1998 when the WTR became law. This principle was demonstrated in the case Canada Life v Gray and Farrar.

The background to the cases referred to above are to be found in our news items of 23 January 2004, 5 March 2004 and 23 April 2004.

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Sources:
www.employmentappeals.gov.uk/uploads/EATS00440417112004/index.htm