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The EAT has ruled that employers must pay workers in lieu of statutory holiday on termination at the normal rate payable for hours worked as per the statutory formula, notwithstanding any contractual provision permitting calculation at a lower rate.
The Working Time Regulations set out a default method of calculating pay for untaken accrued statutory holiday which applies unless a ‘relevant agreement’ sets out the sum required. The Regulations do not expressly place any limits on what sum can be specified, but prior caselaw has established that this cannot be a nil amount, nor can it be a ‘token’ amount (at least in relation to a worker unable to actually take leave due to being on long-term sick leave).
The EAT in Connor v Chief Constable of the South Yorkshire Police has now confirmed that any payment in lieu of statutory holiday which falls below the usual level of pay would not be in accordance with the purpose of the legislation (for any worker). Therefore the reference to a sum set out in a ‘relevant agreement’ should be subject to the proviso that it cannot result in a worker being paid less than the usual amount they would have been paid for hours worked.
In this case the contractual clause provided for pay in lieu at 1/365 annual salary per day’s leave; it was therefore overridden by the requirement to calculate pay in accordance with the Regulations using weekly pay multiplied by unused leave entitlement in weeks (using 5.6 divided by 52 = 0.11 weeks of holiday accruing for each week of employment).
Employers should update any templates to remove clauses which calculate pay in lieu of statutory holiday on termination at a nominal or reduced rate (even where limited to the individual being a ‘bad leaver’), and ensure that any payments in lieu on termination are properly calculated regardless of any such clauses in existing contracts. Contractual holiday in excess of the statutory 5.6 weeks can still be treated differently.
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