The issue of holiday pay is a thorny one for the film and television industries. There is a tradition of engaging freelancers, who are not employees of the production company, and having their agreed rates include an element of holiday pay. It is tempting for production companies to continue this practice and provide for ‘rolled up’ holiday in the agreements they enter into with production staff.
Our early warning in May 2003 reported on the Scottish Court of Session decision in MPB Structures Ltd v Munro. In that case, the Court found that a contractual provision which attempted to roll up a worker’s holiday pay was void. The rate of pay did not discharge the company’s liability in respect of the employee’s holiday pay and could not be off-set against it.
However, a recent decision of the Employment Appeal Tribunal marks a significant departure from this approach. The decision in Marshalls Clay Products v Caulfield and others (24 July 2003) identifies five categories for consideration in this context:
- contracts which are silent as to holiday pay;
- contracts which purport to exclude liability for or entitlement to holiday pay;
- contracts where rates are said to include an amount for holiday pay, but there is no indication or specification of an amount;
- contracts providing for a basic wage or rate topped up by a specific sum or percentage in respect of holiday pay;
- contracts where holiday pay is allocated to and paid during (or immediately before or after) specific holiday periods.
After a careful analysis of the five categories, the EAT held that 1, 2 and 3 breach the annual leave provisions of the Working Time Regulations whereas 4 and 5 were permissible.
In situations where an employer adopts 4 or 5 above, the EAT gave the following guidance:
- rolled up holiday pay must be clearly incorporated into the individual contract of employment and therefore expressly agreed;
- allocation of the percentage or amount to holiday pay must be clearly identified in the contract and, preferably, in the payslip;
- it must amount to a true addition to the contractual rate of pay; · records of holidays taken must be kept;
- reasonably practicable steps must be taken to require the workers to take their holidays before the expiry of the relevant holiday year.
It would seem at first glance that this case means that rolled up holiday pay is permissible in certain circumstances. However, the decision has been appealed and it is likely that only a decision of the Court of Appeal or House of Lords will decide the issue conclusively. The full text of the decision can be found on the EAT’s website.