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The potential impact of Brexit on holiday pay & working time

Various strands of our legislative framework are derived from EU Directives including, for example, the current statutory entitlement to paid annual…

Various strands of our legislative framework are derived from EU Directives including, for example, the current statutory entitlement to paid annual leave.

In this article we focus on this area and other issues relating to working time, and consider which employment rights, many of which are now viewed by Trade Unions and workers as fundamental, might be subject to change post-Brexit.

Annual leave

The Working Time Regulations 1998 provide for 5.6 weeks annual leave entitlement, 1.6 weeks in excess of the four weeks paid annual leave derived from the EU Working Time Directive. Given the UK’s ‘gold-plating’ of the Directive, this aspect of the Working Time Regulations is unlikely to change, but that is not the end of the matter.

Perhaps more likely are changes to the calculation of holiday pay, and also the treatment of accrual of annual leave, both of which have been and remain sources of frustration for employers, employees and lawyers alike. Following decided cases determined in Europe, which must currently be followed by our own judiciary, workers have the right to continue to accrue annual leave whilst on long-term sick leave.

Similarly holiday pay must be calculated, in certain circumstances, with reference to any commission and overtime being included, rather than just basic pay. We look at each of these issues in more detail below.

Holiday pay

As previously stated, European legislation, in the form of the Directive, entitles employees to a minimum of four weeks per year paid holiday. However whilst the Directive states that leave should be paid, it does not specify the rate at which it should be paid. Under the UK Regulations, a worker is entitled to a week’s pay for a week’s leave, a seemingly simple basis which has proved anything but straightforward.

In summary Bear Scotland Ltd and others v Fulton and others held that holiday pay calculated under the Directive (i.e. the four weeks) must be based on ‘normal’ remuneration which in certain circumstances can include overtime. Further, Lock v British Gas held that commission payments need to be included in the calculation of holiday pay (when considered in the EAT, at the time of writing it is just being heard in the Court of Appeal). Both of these decisions were influenced by the European Court of Justice and were generally unwelcome to employers.

Following Brexit, the Government is, in our view, likely to consider revisiting this issue and to seek to simplify the calculation of holiday pay. However, this is of course easier said than done and the recent authorities, if nothing else, emphasise the myriad of ways that workers receive pay. So, perhaps the simplistic adoption of a basic pay reference point may be unfair to many. What may be considered is the adoption of some form of 12 week average formula applying across the board, rather than employers having to consider which payments should or should not be included in their calculations.

It is also possible that the UK Courts and Tribunals may get there first. If there is no obligation to apply the UK Regulations in accordance with European law post-Brexit, some of the more employee-friendly interpretations of the UK Regulations and how they must operate will be vulnerable to challenge (Louise Singh’s article on how employment law will work contains a more detailed explanation of the Brexit options for employment law, including a look at technically what happens post-Brexit to statutory instruments introduced following EU Directives).

Annual leave and sick leave

The purpose behind the Directive is to enable a worker to enjoy a period of relaxation and leisure, which is regarded as more difficult if one is absent due to sickness. In Stringer and others v HM Revenue & Customs, the European Court of Justice held that a worker on sick leave accrues annual leave under the Directive, despite not being at work even on a long-term basis, and that it is for member states to decide whether a worker can (not ‘must’) take their annual leave during a period of sick leave. Further, at the end of a leave year, a worker on sick leave who has not taken annual leave because of sick leave must be allowed to carry it over and take it at a later date.

When Stringer returned to the House of Lords after the ECJ decision, it held that European statutory holiday entitlement (i.e. four weeks) accrues during periods of sick leave, payments in lieu of untaken statutory holiday on termination are unaffected by sickness absence and the Working Time Regulations should be interpreted as allowing workers to take paid statutory holiday during periods of long-term sick leave (but cannot compel them to do so).

In Pereda v Madrid Movilidad SA, the ECJ held that, where a worker's pre-arranged annual leave coincides with a period of sick leave, the worker must have the option to designate an alternative period for the exercise of the right to annual leave under the Directive, even if this falls after the end of the relevant leave year (i.e. carry-over of statutory holiday to the next leave year in certain circumstances).

Similarly, the ECJ has held that a worker who becomes unfit for work during a period of statutory holiday must, under the Directive, be entitled to reschedule the period of planned leave that coincides with the period of unfitness for work (Asociación Nacional de Grandes Empresas de Distribución (ANGED) v Federación de Asociaciones Sindicales (FASGA) and others).

Free of the constraints of the EU, Parliament or the Courts/Tribunals might wish to revisit the above issues and revert to a more simplified approach that limits the ability to accrue annual leave during periods of long-term sickness absence, as our own Court of Appeal previously set out in Commissioners of Inland Revenue v Ainsworth, that if a worker has no entitlement to take annual leave under regulation 13 because they are absent on sick leave, they are not entitled to payment on termination of employment under regulation 14.

48-Hour average working week

Most workers’ average working time (including all overtime and time spent working for others) is restricted and must not exceed an average of 48 hours per week, although this limit can be ‘opted-out’ of if the employer has "obtained the worker's agreement in writing" to perform work in excess of the limit.

The Government may wish to remove the statutory cap of a 48-hour average working week which some employers view as too restrictive and inhibitive. Some commentators suggest that this is a foregone conclusion. However, in our view given the ability to opt-out which already exists, following Brexit, removal of the statutory maximum is less likely to be high on the Parliamentary agenda.

Summary

It is important to note that any ‘rolling-back’ of workers’ rights must be considered in the context of the current, and future, political climate. For obvious reasons, any changes which would be unpopular with a large proportion of the voting public are unlikely to be pursued before a 2020 general election, and so it is probably safe to say that the current position (and the frustrations that go along with parts of it) is likely to remain for some time. However, it seems likely that we may see an attempt to ease the burden on employers in respect of holiday pay, annual leave and working time issues in the long-term by Government (that is if the UK Courts don’t get there first).

For any comments or further information please email brexit.group@weightmans.com.

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