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17 May 2010
Contractual pay in lieu of untaken holiday on termination was not limited to the final year
EAT rule in employees favour.
In the recent case of Beijing Ton Ren Tang (UK) Ltd v Wang the EAT upheld a Tribunal's decision that an employee had the right, under her oral employment contract, to pay in lieu of untaken holiday entitlement for the whole period of employment and not just the final leave year.
Ms Wang had amassed a total of thirty days per year under her contract; however she had hardly taken any of her holidays during the seven and a half years' that she had been employed. She claimed unfair dismissal.
Under the Working Time Regulations (“WTR”), an employee should be paid in lieu for statutory holiday accrued in their final leave year. They cannot carry over holiday from one leave year to the next. However, it should be noted that Ms Wang's oral contract did not specifically prevent holiday being carried over, nor did it limit the payment in lieu to holiday accrued in the final year.
On termination, the Tribunal decided that she was entitled to a payment in lieu of holiday which amounted to one hundred and thirty one days' pay.
On appeal by the employer they argued that the effect of the WTR is that, only untaken holiday accrued in the final year of employment (plus previous years' holiday to the extent that it exceeded the minimum WTR entitlement) could be paid in lieu. They further claimed that Ms Wang's oral employment contract was void, as any attempt to contract out of the WTR principles is void.
The EAT upheld the Tribunal's decision on the basis that the WTR set minimum terms in relation to leave but does not prohibit more favourable contractual terms. Therefore, the more generous terms in Ms Wang's oral employment contract were enforceable. Her claim was not a claim under the WTR, but under her employment contract and therefore she was entitled to pay in lieu of her untaken holiday for the whole period of employment.
It is important that employers are aware that the ‘use it or lose it’ principle under the WTR does not apply to holiday provided in a contract of employment.
If Ms Wang's contract had included within it, an express limitation restricting her right to payment in lieu of holiday, or her right to take holiday, to the holiday accruing in the leave year in which it arises the outcome may have been different.
Does your staff contracts of employment contain an express limitation restricting an employee’s right to payment in lieu of holiday? Why not call us today to organise a review of your staff contracts and handbooks on 01244 357 211.
