A new case says that employers must make it clear to an employee that their right to payment in lieu of any holiday entitlement at the end of employment applies only to the final holiday year. What is the best way to deal with this?
The recent case of Beijing Ton Ren Tang (UK) v Wang 2009, involved a dispute over how much pay in lieu of untaken holidays Wang should receive on termination of her employment.
l Nothing in writing: When she started, her employer told Wang she was entitled to 30 days’ paid annual leave each year and, if she did not take it, she would be paid in lieu at the end of her employment. But she was never given a written contract of employment.
l All work, no play: Wang only took four days holiday each year, usually when the Chinese herbal medicine shop where she worked was closed. When her employment ended, her employer paid her in lieu of untaken holidays, but only for that final year.
l No rights: the company argued that, under the Working Time Regulations 1998 (WTR), Wang had no rights to be paid in lieu for her earlier untaken leave. This was on the basis that the WTR provides that paid leave cannot be replaced by a payment in lieu, except where the worker’s employment is terminated.
l No such luck: thus, the employer asserted that its own verbal agreement with Wang was rendered void by the terms of the WTR. However, the Employment Appeal Tribunal (EAT) decided that the employee had been granted a more favourable contractual right than those afforded to her by the WTR.
l Have the holiday: So, as Wang had been contractually promised pay in lieu of all undertaken holidays on termination of her employment, it meant she was entitled to over 130 days of outstanding holiday pay.
l Not the WTR: EAT stated that the employee’s claim in this case was in contract and not a claim made under the WTR.
l Clear drafting: The facts of this case are a bit extreme, but it is a lesson on why employers should make it absolutely clear that a contractual right to pay in lieu of holiday entitlement on termination only applied to holiday accrued in the final holiday year.
l Just to be safe: Our Holiday Pay on Termination Clause already stated that an employee would be paid for holiday accrued, but not taken in that holiday year.
We have now amended it to say: “On termination of your employment, you will be paid in lieu for holiday accrued, but not taken, in that holiday year only. Unless required by law, on termination of your employment, you have no right to be paid for holiday accrued, but not taken in previous holiday years.”
l For a free copy of our amended Holiday Pay on Termination Clause and holiday policy, contact the NAMB on 01920 468/061