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EAT rules on calculating accrued but untaken statutory holiday following termination of employment

Connor v Chief Constable of the South Yorkshire Police [2023] EAT 42

The Appellant, Mr Conner, was employed by the Chief Constable of the South Yorkshire Police between 1 November 2002 and 29 May 2020. His working week was 37-hours, and he was paid £29,064 a year in monthly instalments. During his employment, Mr Connor received the equivalent sum for a week of holiday as he would for a week of work.

By the time Mr Conner left the constabulary he had been on sick leave for over a year and had exhausted all his sick pay entitlement.

Mr Connor’s contract incorporated the following term relating to payment for accrued holiday on 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. Any payment will be subject to the usual statutory reductions.”

On the termination of his employment, it was agreed that Mr Connor was entitled to be paid for 40 hours and 42 minutes of accrued holiday, pursuant to regulations 13, 13A and 14 of the Working Time Regulations 1998 (WTR 1998). Using the calculation above, he received less than he would have been paid had he taken the holiday.

Mr Conner brought a claim for unlawful deduction from wages. The Employment Tribunal found for the employer, stating that the rate of pay and calculation were set out in the employment contract and correctly applied.

Mr Conner appealed to the EAT on the grounds that applying calendar days rather than working days reduced the amount of money he was owed and was contrary to the principles of the WTR 1998 and previous case law. His employer countered that, provided there was a ‘relevant agreement’ in place, it could base the calculations on calendar days.

The law

On termination of employment, a worker is entitled to pay in lieu of unused statutory holiday (to which they were entitled to under regulations 13 and 13A of the WTR 1998). The amount paid will be “Such sum as may be provided for … in a relevant agreement“

Where there is no relevant agreement, a sum equal to the amount that would be due to the worker under regulation 16 in respect of a period of leave determined in accordance with the formula (A x B) – C (Regulation 14(3)(b) WTR 1998), where:

(A × B) − C

• A is the period of leave to which the worker is entitled (5.6 weeks per year); 
• B is the proportion of the worker’s leave year that expired before the termination date; and
• C is the period of leave taken by the worker between the start of the leave year and the termination date.

Under regulation 16, workers must be paid at the rate of a week’s pay for each week’s leave, with a week’s pay being calculated in accordance with sections 221 to 224 of the Employment Rights Act 1996 (ERA 1996), subject to certain modifications.

Regulation 14 does not state how a payment in lieu of unused statutory holiday should be calculated under a relevant agreement. However, the WTR it must be read in the light of the Working Time Directive (2003/88/EC) (WTD).

The EAT decision

Finding for Mr Conner, the EAT concluded that he had been underpaid. Generally, it said, any payment made in lieu of untaken holiday that was lower than an employee should receive during employment did not comply with the WTR. A relevant agreement could change the basis of the calculation to avoid the default position set out in regulation 14, but it could not undermine this principle.

This decision makes clear that any employment contract clauses that allows an employer to reduce the amount of holiday pay an employee is entitled to receive upon termination if leave has been accrued are unenforceable. An employee must receive the same daily rate for holiday pay, irrespective of whether or not they have taken the leave by the time their employment comes to an end.