£1 Holidays: Our Survey Said ….. UH-UHHHH

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.

Please note that this blog is provided for general information only. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content of this blog.

Edwin Coe LLP is a limited liability partnership registered in England and Wales (No. OC326366) and is authorised and regulated by the Solicitors Regulation Authority. A list of members of the LLP is available for inspection at our registered office: 2 Stone Buildings, Lincoln's Inn, London WC2A 3TH. "Partner" denotes a member of the LLP or an employee or consultant with the equivalent standing. Our privacy notice which we are obliged to give you under the GDPR is available here.

Please also see a copy of our terms of use here in respect of our website which apply also to all of our blogs.