When an employee leaves employment without taking all their accrued annual leave, they will be entitled to a payment in lieu of the untaken leave. Can an employee contract to receive less holiday pay on termination then they would have received had they been working?

No, held EAT in Connor v Chief Constable of West Yorkshire Police.

In Connor v Chief Constable of the South Yorkshire Police, Mr. Connor had been employed for over 18 years before his dismissal. During that time, he had worked the same hours each week. Whilst he was working, his holiday pay was calculated as the equivalent of what he would have earned during a week’s work when he took a week’s holiday. However, his contract included a clause that where he was dismissed any holiday pay entitlement was calculated as 1/365th annual salary. This calculation resulted in him receiving less holiday pay then he would have received had he been working.

The WTR permits the calculation of payment for accrued but untaken leave to be determined by a ‘relevant agreement’, so the question before the court was can a ‘relevant agreement’ result in less pay to the employee.

On first hearing the case the tribunal held that the 1/365th calculation was a valid ‘relevant agreement’ under Regulation 14(3) and that the Claimant had suffered no unlawful deduction. This was appealed by Mr Connor.

The EAT disagreed. The EAT has clarified the legal position and held that a relevant agreement cannot put the employee in a worse position financially than they would have been in if they had taken the leave during their employment and been paid for it as required by law. Only a term which provides a formula for calculation which is in keeping with the rights provided for in law will be valid.

In Conclusion

The issue here is that Mr Connor appears to have worked regular overtime, such that his average daily wage was not 1/365th of his annual salary. This case highlights that employers will have to take care when calculating payment in lieu of holiday to ensure the correct figures are used.

Don’t forget, this advice is general in nature and will need to be tailored to any one particular situation. As an RMI member you have access to the RMI Legal advice line, as well as a number of industry experts for your assistance. Should you find yourself in the situation above, contact us at any stage for advice and assistance as appropriate.

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