What is the ruling on nominal holiday pay on termination?

When an employee’s contract is terminated, employers are legally required to pay any accrued holidays that have not been taken prior to their final day at work (which is known as pay in lieu of holidays).

Some employers may also include a clause in their contract in which they will only offer a nominal amount of pay for holidays if the employee has been dismissed over gross misconduct or failed to provide/serve adequate notice.

However, recent updates in case law have ruled this as unlawful, and employers are expected to still provide the accrued pay entitlement as standard.

In the case of Connor v Chief Constable of the South Yorkshire Police, which involved a dispute over the calculation of pay in lieu of holiday, Connor was dismissed following a long-term sickness absence.

As per their contract of employment, the payment of accrued holidays would be based on “1/365th of annual salary for each day’s leave”, as well as any further statutory deductions.

Connor made a claim of unlawful deduction from wages.

The Employment Tribunal initially ruled against Connor, stating that the calculation was rightly calculated as per the terms of his contract.

However, Connor appealed the decision, and the EAT disagreed with the tribunal, ruling that the payment in lieu of holidays accrued but untaken must follow the legislation outlined in the Working Time Regulations (WTR) 1998, and not fall lower than the statutory amount.

Based on the outcomes of this case, it recommended that employers review their current terms and conditions around holiday pay on termination, and ensure that these meet the statutory minimums, as outlined in the WTR.

However, it is important to note that this rule does not apply to payments of accrued but untaken contractual holidays on top of the statutory 28 days’ entitlement.

Therefore, if holiday entitlement is offered over the statutory minimum, then the contract should outline what happens to any contractual holidays built up prior to their termination date.