In the case of Connor v Chief Constable of South Yorkshire Police, the Employment Appeal Tribunal (the EAT) held that, when calculating pay for accrued yet unused statutory holiday pay under the Working Time Regulations 1998 (the regulations), a worker should receive the same amount of pay as they would have received in respect of holiday taken while still employed. Any calculations of accrued yet untaken statutory holiday which falls below the usual rate of holiday pay for workers would therefore be contrary to the regulations.
The claimant, Mr Connor, had been employed by the Chief Constable of the South Yorkshire Police for 18 years until he was dismissed. During his employment he worked a regular 37 hour week and he received a monthly salary which did not vary.
During periods of annual leave, Mr Connor received the equivalent sum for a week of holiday as he would have done if he had been working. At the time of his dismissal, Mr Connor had accrued 40 hours and 42 minutes of holiday due to him having been on sick leave in the year prior to his dismissal.
The regulations provide that the amount paid in lieu of accrued statutory holiday on termination of employment may be set out in a “relevant agreement”, such as within a contract of employment. If no such agreement exists, the regulations provide a statutory formula for calculating such pay.
Mr Connor’s contract of employment included the following term relating to the payment of accrued holiday on the termination of employment: “Employees may, on termination of employment, be entitled to payment for untaken annual leave or for other accrued time off… Payment will be based on 1/365th of annual salary for each day’s leave”.
Case law has confirmed that calculating payment for accrued holiday should be by reference to the number of working days in the year, not the number of calendar days. It was, therefore, clear that this method of calculation would not satisfy the statutory formula under the regulations. The question was whether a relevant agreement could override this.
On the termination of his employment, Mr Connor’s accrued holiday pay was calculated by reference to the formula set out in his contact. As such, Mr Connor received less than he would have been paid if he had taken the holiday during his employment. Mr Connor subsequently brought a claim for unlawful deduction from wages.
The tribunal held that the rate of pay which applied to holiday pay at the termination of Mr Connor’s employment was that set out in the “relevant agreement” which was, in this case, his contract of employment. Mr Connor appealed to the EAT.
The EAT disagreed with the tribunal and held that Mr Connor had been underpaid in respect of his accrued holiday pay.
The EAT confirmed that the starting point for calculating holiday pay is the working week, or proportion of the week, that would be paid if someone was working. The EAT stated that, given annual leave has a health and safety purpose, if the amount paid to workers could differ from their usual level of holiday pay, this would undermine the purpose of the legislation (as it would make workers less likely to take the leave).
The EAT concluded that, the “natural interpretation” of the legislation is that any payment which falls below the usual level of pay received by workers when on holiday would be contrary to the regulations. While employers can alter the approach to calculating holiday pay, any calculation must remain in keeping with the rights provided for in the Regulations.
This judgment makes it clear that, while employers may vary the formula for calculating pay for accrued but untaken statutory holiday on termination, this cannot result in the worker being paid less than they would have received for holiday taken during employment. The formula set out in the regulations should therefore be considered by employers as a baseline for the calculation of such pay.