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Holiday pay: EAT provides further details on what to include in statutory holiday pay and how to approach a "series of deductions"

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By Ceri Fuller, Hilary Larter, & Joanne Bell


Published 16 May 2024


Workers in Great Britain (including mobile aviation workers) can claim for underpaid holiday pay under the unlawful deductions from wages legislation, which allows claims to be submitted within three months of the last in a "series of deductions".

This case is one of the first to take into account the recent Supreme Court judgment in Chief Constable of the Police Service of Northern Ireland and another v Agnew and others, where it concluded that a series of deductions is not necessarily brought to an end by a correct payment or gap of three months or more between unlawful deductions. (see our alert here)


The Facts

The six claimants were cabin crew employed by British Airways under different contracts. Their pay consisted of a basic salary and various allowances, such as flying pay, meal allowances, commission on duty free sales, and a "back-to-back" allowance. In this case the claimants were classed as mobile workers in air transport and therefore their leave was covered by the Civil Aviation (Working Time) Regulations 2004 (CAR) rather than the Working Time Regulations 1998 (WTR). However, in most respects the interpretation of the two pieces of legislation is the same. The dispute in this case arose over which allowances should be included in the calculation of statutory working time holiday pay. Following the tribunal judgment the claimant and respondent both appealed some of the tribunal's conclusions.

The key points from the EAT's decision are:

  • Which allowances should be included in holiday pay?: It is established from previous case law that a worker must be paid their "normal remuneration" during periods of annual leave so that they are not discouraged from taking leave. "Normal remuneration" for the purposes of the CAR and WTR includes remuneration intrinsically linked to the performance of contractual tasks, but not remuneration intended exclusively to cover ancillary costs. The EAT set out that correct approach was to consider all the relevant facts and circumstances, and decide whether a payment was intrinsically linked to performance or made genuinely and exclusively to cover costs. However, a payment must be one thing or another – it cannot be categorised as partly performance-based and partly expenses.
  • Series of deductions: It was accepted by BA that, because of the Supreme Court's decision in Agnew, the ET's finding (which had been made before Agnew) that a gap of more than three months between two deductions would break a series, could not stand. The EAT went on to consider whether all the deductions made by the employer were part of a series - the relevant test being whether the deductions were sufficiently similar and whether they were temporally connected. The EAT’s view was that all the deductions from holiday pay should be considered as part of a series of deductions as they all arose from the same approach of not calculating holiday pay based on normal pay.
  • Designation of when different types of leave are taken: The EAT considered whether BA could designate which particular days represented statutory, as opposed to contractual, leave. Since the Agnew decision, there has been uncertainty over whether it is possible for employers to specify the order in which workers take their leave. Under the WTR, employers can stipulate when workers take their statutory leave, subject to providing appropriate notice. There is no equivalent in the CAR. Consequently, the EAT determined that the respondent did not possess a statutory right to designate periods of statutory leave. The claimants were also unable to designate which leave was which. The result was that all leave days were to be treated equally as part of a composite whole.

The EAT acknowledged that the Agnew decision did not rule out the possibility that a contract could allow an employer to specify when statutory leave is taken. However, it expressed the view that the exercise of any such power could not be relied on to make the worker's position in relation to a time point less favourable than it would have been had it not been exercised. In the EAT's opinion, the same principle would apply to the WTR.


What this means for employers

The decision gives us further information, following previous case law, on how to approach what is included in holiday pay and whether there is a series of deductions. It signals that "the same or similar payments" will be given a wide reading, confirming our view of the Agnew case that it will be harder for employers to argue holiday pay claims are out of time.

Employers must carefully consider which allowances or other elements of pay are included in holiday pay calculations, taking into account the normal pay of the employee during a representative reference period. Additionally, employers must be clear about how they designate statutory and contractual leave to be taken (if there is any differentiation) leaving them with a practical difficulty of how they designate Working Time Directive, WTR and contractual leave.

The case has been remitted to the tribunal for further determination on specific points so it will be interesting to see how it applies some of the principles set down by the EAT.

British Airways v Mello