Calculation of Holiday Entitlement on Termination

[SHOKE]

On the BIS.gov.uk website the relevant section relating to holiday entitlement on termination contains the following paragraph:

 

"If a worker's employment is terminated, they have the right to be paid for leave accrued during the time of employment, no matter how short a period of employment. In such cases, holiday entitlement is based on the date they would have left if they had worked the full notice period, unless the worker agrees otherwise."

 

Is anybody able to confirm, with regard to the second sentence that I have emboldened above - does this actually have a basis in law and, if so, where is it to be found - employment act, working time regulations or specific case law?

[Atlas01]

It will be a mixture of era s86 and also holiday pay legislation and case law, As i know the advice is correct i'm not going off digging

 

The only exception i know of apart from contractual wavers is summary dismissal (on the spot, no notice e.g. punching boss in the face in a staff meeting meaning no notice)

 

It would be a guess from me to say holiday accrual would also stop immediately and ignore notice periods but i expect it to be correct

 

The better question is why do you ask?

[SHOKE]

djutch,

 

Thanks - quite a story behind this which I had originally typed live but lost when attempting to post (timed out?) - basically I have a claim to holiday entitlement through redundancy where the Company that I had served for over 9 years ceased trading and has subsequently entered a CVA. Prior to cessation the business was on the verge of being sold and whilst the sale process was in progress the board acting in hast gave all staff notice of 1 month - this not only ignored contractual entitlements as to notice but in several cases contravened the statutory requirements determined by length of service.

 

To cut a long story short - I have received statutory entitlement to redundancy payments via the RPO although in so far as holiday pay is concerned this is based on the fact that the Company ceased at the end of August and pro-rated at 8/12ths of the annual entitlement, which I accept. However, I believe that the balance of my claim for holiday pay within the CVA ought to be based on my contractual notice period as is suggested within this paragraph although the Supervisors are adamant that this is not the case and that I have misinterpreted the passage in question?

[elche]

I am not 100% sure on this (and would be happy to be corrected / hear other CAGGER's views) but would have thought that statutory holiday entitlement would be calculated from:

 

a) The EE's start date of employment, to

b) The Effective Date of Termination.

 

It is point (b) where this point can get a bit complicated. It is effectively a statutory construct [ERA 1996, s97(1)]

 

But my understanding is that:

 

The period of continuity ends at the EDT... The EDT can vary according to whether notice is given or not. Remember notice begins to run from the day after notification; so the EDT is defined as,

 

a) the date the notice period expires, if the employee is given notice (whether or not all the notice is worked and whether or not the correct notice was given); or

 

b) the date of dismissal, if the employee is summarily dismissed (i.e. dismissed without any form of notice); or

 

c) the date of dismissal, if the employee is dismissed with PILON; or

 

d) the date a fixed-term contract expires without being renewed - not relevant here

 

Thus we need to know the date you received the letter and the precise wording - but it could be that point A (in bold) applies and thus the EDT is 4 weeks from the day after you were told that you would be dismissed and thus you could only be entitled to holiday pay calculated to this date.

 

Sorry that I can't be more definitive but do consider that this could well be correct - but as said above am happy to be corrected.

 

Can you not get a quick bit of professional advice from a Law Centre, CAB or Community Legal Advice on this one point as I would agree that the RPO are not independent as they are the body making the payment.

 

Che

[SHOKE]

Che,

 

Thank you, albeit that what you have to say does not look promising from my point of view and leaves me wondering the purpose of the sentence on the BSI website.

 

The provision of notice to the staff was given by the CEO in an email on Friday 31st July 2009 at 19:41 (NB after the office had closed for the weekend) - the email began by confirming that the Company will cease trading as 31st August but that discussions leading to the sale of the business are now well advanced. It continued as follows:-

 

"Naturally you want to know how this transfer of ownership will affect your employment. The first step is that, as the Company will cease trading on 31st August, you employment will cease at that date and you should accept this notification as formal notice to that effect. However I now believe, with some considerable confidence, that the business will be acquired as a going concern..............."

 

There was much controversy about this form of notice; which a.) seemed inappropriate at a time when the sale of the Company was in progress and it was necessary to keep the staff "on side" and b.) there was doubt expressed by one of the Directors in discussion with staff on the Monday morning that the CEO had actually meant to give notice to the extent that some of the staff believed that the notice had been verbally withdrawn. It also became clear that the notice had been given in haste without regard for the contractual agreements with the staff and without any thought to what would happen in the event of the sale not being concluded and the need for some staff to be retained to effect the closure of the Company. Also since there was not provision within the contracts for PILON the Company was in breach of the contracts and had effectively wrongfully dismissed several of the staff.

 

Keith

[elche]

Hi Keith,

 

I have found the website which you refer to - http://www.businesslink.gov.uk/bdotg/action/detail?itemId=1074415038&type=RESOURCES

 

It makes no sense to me - it doesn't seem to be a paragraph that is ambiguous in any way, and for that reason I was so unsure about the earlier post. Unfortunately as I'm not working in this area right now, so I can't check with a colleague as I used to.

 

I'll ask another member of the site team to have a quick look at this thread so we can get another opinion, and would be grateful if you can update us on progress.

 

Che

[SHOKE]

Che,

 

Thank you - as you say the paragraph does not appear to be ambiguous, although the Supervisors maintain that I have misinterpreted it, albeit they have yet to tell me what they believe it to mean.

 

Strange! You asked some further questions according to the CAG email but these are not visible in the post above? However, to elaborate, I received a payment from the RPO which was for holiday outstanding up to the EDT paid at the statutory weekly rate and with TAX and NIC deducted. Subsequently, I have received a balancing payment from the Supervisors of the CVA again for holiday outstanding up to the EDT and again with TAX and NIC deducted. I have argued that this payment ought to have been paid Gross since it is effectively part of a compensatory payment for BOC although they have advised me that they have a duty to deduct TAX and NIC.

 

There was very little information given to staff by the Company either pre or post cessation as to their entitlements in respect of redundancy payments, which is because they were unsure of their ground. However, subsequently the Company did instruct a firm of lawyers to look at staff entitlements and the lawyers delivered a schedule to the Solvency Practitioners in advance of the CVA which detailed the amounts owing to staff in respect of Wages, PILON, Holiday Pay and Bonuses. I believe that schedule was in effect confirmation of the staff claims for BOC and ought to be seen in this light by the Supervisors, although the payment thus far received for Holiday Pay is far less than was detailed in that schedule.

 

It was because of the existence of that schedule and the tacit agreement by the Company (not to mention the Supervisors) that I and my colleagues did not raise claims for BOC at tribunal, which in hindsight perhaps we ought to have. The question now is what grounds might we have to raise a claim against the Supervisors?

 

Keith

[SarEl]

Not a member of the site team - but I would concur with your original post in relation to the legal definition of an EDT. I think the problem here is the CVA. I don't deal with insolvencies very often, and usually only as a side issue when I do and in no great amount of detail; but as I understand the legislation supporting CVA's, they make it possible for employers to avoid legal liabilities upon termination of employment contracts, shifting the responsibility to the RPS in the same way as if the company had been made bankrupt. My understanding is that the termination of contracts under a CVA means that the employer can terminate the contracts at no cost to themselves, leaving the RPS to pick up, basically, whatever they will pay under their rules. So I think the advice required here isn't employment law - it is insolvency law. And unfortunately that isn't something I do - but I will see if I can find soemone at the local union office who does, as they deal with such things far more often than I do (heaves great sigh of relief - it isn't something I'd want to!)

[SHOKE]

SarEL,

 

Thank you - I realise that the purpose of the CVA is to remove the indebtedness of the Company rather than to satiate the creditors. However, the Supervisors have a responsibility to ensure that preferential claims are dealt with correctly before determining the balance of the funds available to distribute as a dividend to unsecured creditors. Holiday pay is classed as preferential and, therefore, I want to make sure that my claim and those of other employees have been correctly dealt with before the Supervisors proceed to distribute the balance of the funds.

 

I have just been re-reading the latest communication from the Supervisors and it seems that not only are they denying that I have any more entitlement to Holiday pay (preferential) but that I also have no entitlement to PILON, which makes me wonder whether they are actually going to deny my claim as an unsecured creditor as well. This is despite the fact that the RPO have already made a compensatory payment in lieu of notice. I have asked for them to confirm my unsecured claim many times but to no avail.

 

It seems that our best bet would have been to get a ruling from a tribunal which would then have carried more weight with the Supervisors.

 

Keith

[elche]

Strange! You asked some further questions according to the CAG email but these are not visible in the post above?

 

Hi Keith, (and thanks for the input Sarel) yeah sorry I should also have stated that from the wording as you give it your letter giving you notice EDT was the 31st August and notice ran from 1st August to 31st August.

 

I have argued that this payment ought to have been paid Gross since it is effectively part of a compensatory payment for BOC although they have advised me that they have a duty to deduct TAX and NIC.

 

I was looking at an old schedule of loss that I had prepared for a claim in the Central London ET in which I had claimed, " The Claimant did not have a ........ Pay in Lieu of Notice Clause. Thus to pay in lieu of notice is a breach of contract and the Claimant is entitled to this sum gross.

 

However, last night I was looking at this point in more detail and discovered an interesting pdf, "Until recently it was considered that unless the employees received the PILON under an express contractual term they would benefit from the exemption on the £30,000 tax-free element, as payment for notice was regarded as compensation for breach of contract or simply as an ex gratia payment. However, there have been a growing number of cases in which the HMRC have argued that in fact such payments derive from employment and are therefore taxable in their entirety." http://www.ibblaw.co.uk/downloads/brochures/2010-05-27-15-52-10-to_tax_or_not_to_tax.pdf

 

But as SarEl helpfully points out above the matter in your case is complicated by the fact that the ER has gone into a CVA and as such you are dealing with the IP / RPO and it does indeed 'stray' into insolvency law also.

 

I was thinking from a common law perspective how damages are calculated - i.e. to put the claimant in the position as if the contract had been performed. Hence the clear claim for Notice Pay. BUT I was also thinking that it could have been possible that you had used your holiday during your notice period thus you would not have left at the end of the notice period with no untaken holiday to claim for.

 

 

You seem to have a good understanding (from how you write) and I would re-iterate my advice to see if you can get some professional advice for free on this one narrow point.

 

Che

[SHOKE]

Che,

 

Thank you - I will try to get some further legal advice.

 

BUT I was also thinking that it could have been possible that you had used your holiday during your notice period thus you would not have left at the end of the notice period with no untaken holiday to claim for.

 

Yes I suppose we could have used up our holiday entitlement during the period of notice, although the situation was that as we had prospective buyers descending on us to perform due diligence all of the staff were actually putting in extra (unpaid) hours during that last month since the best result for us would have been the sale of the business as an ongoing concern.

 

The Company actually had a firm and reasonable offer on the table at an early juncture but decided to instruct an agency to produce a prospectus and indeed at one stage there were 14 prospective buyers although at the end of the day the only firm offer was that from the original Company. However, having waited patiently whilst our Company went through this process, the other Company decided to reduce the offer albeit that it was still a reasonable offer. Suicidally the board decided to try and negotiate to get them to review their offer upwards and at the 11th hour this offer was pulled altogether.

 

Keith

Edited February 7, 2011 by SHOKE
Incorrect Formatting of Quote

[SarEl]

Yes, I would agree with the need for some professional advice. I did understand that normally employees are considered preferred cerditors, but I am led to also understand that the structure of a CVA does allow employers escape some of the normal obligations of a still solvent employer - but as I said, I don't know all the ins and outs of it, and I am certain you will know more. If I can find out anything else I will obviously pass it on. But it does seem that this is what the supervisors are relying on in their advice (which may in itself be a flawed understanding!), because in employment law terms, you are, of course, quite correct, and contractual obligations should be honoured unless the company is entirely unable to do so through insolvency.

 

Elche - I think the article you were looking at is now quite old as it describes what is now generally accepted as the tax situation, and it is a few years since HMRC have made many attempts at further inroads into PILON - although there has been speculation that they will try to go further, they have not yet done so. But it does point out the pitfalls, and the need to be very sure of what you are doing when agreeing such a payment.

[elche]

Elche - I think the article you were looking at is now quite old as it describes what is now generally accepted as the tax situation, and it is a few years since HMRC have made many attempts at further inroads into PILON -

 

Yeah, could be it was late last night when I was looking at this. I know when I represented Claimants (which wasn't for long) we attempted to claim the payment gross in the schedule (as per the wording above) where there was no PILON clause in the contract.

 

I prefer the argument that if this is truly liquidated damages for BOC then how can it be taxable, but I can also see the argument that had the Claimant have received this (i.e. had the contract been performed) they would have got it net.

 

A coin with two sides me thinks!

 

Che