Since the advent of the Working Time Regulations in 1998 lawyers have been drafting Contracts of Employment with clauses that say when an employee leaves employment they are entitled to be paid for their pro rata accrued but untaken holiday, save where they are dismissed for gross misconduct, in which event they will be paid £1 for any accrued but untaken holiday.

The rationale for that drafting was that whilst the Working Time Regulations required an employer to pay an employee for any accrued but untaken holiday as at termination, the Regulations provided that the amount of the payment could be provided for in a “relevant agreement”.  A relevant agreement was not defined and it was therefore interpreted by many as an agreement reached through the Contract of Employment which is what resulted in the clauses providing for a nominal payment for accrued but untaken holiday in some circumstances.

The Reading Employment Tribunal has recently determined in the case of Podlasiak v Edinburgh Woollen Mill Limited that to give proper effect to the relevant European Directive, the Working Time Regulations should be interpreted to provide that a ‘relevant agreement’ must, at the very least, provide that payment for accrued but untaken holiday on termination should be of (at least) an amount equivalent to the pay that the worker would have received had they taken the holiday.

In the circumstances, there seems to be no basis on which it could be argued going forward that the position would be different where dismissal for gross misconduct occurs and in the circumstances it does seem that this case has finalised any further debate on the effectiveness of such clauses.

In short, when an employee leaves, whatever the circumstances, they should be paid accrued but untaken holiday on a pro rata basis up to the termination date of an amount equal to the amount they would have received had they actually taken that holiday.

If anyone needs advice they should contact Linky Trott at linky.trott@edwincoe.com.


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