The European Court of Justice (“the ECJ”) decided yesterday, Thursday 16 March 2006, that so-called ‘rolled-up’ holiday is not lawful under European Law. However commentators are already divided over whether this matters! Confused? Hopefully this article will make things clearer.

What is ‘rolled-up’ holiday pay?

The Working Time Directive provides that all workers in the EU are entitled to a minimum four weeks paid leave each year. In the UK there are rules explaining how to calculate a week’s holiday pay. However, in industries with complicated shift patterns and/or where workers have irregular and fluctuating days/hours it can be difficult to calculate how much holiday pay is due.

Consequently many employers in such industries agreed to increase their workers’ hourly or daily rates of pay so that they included an element of holiday pay. Workers were thus paid their holiday pay in advance as they were going along. They received no extra pay when they actually took their holidays but, over the year, mathematically the workers would receive an extra four weeks pay above and beyond the hours they were required to work.

Is this lawful?

Legal opinion has been divided! The English Courts have generally accepted ‘rolled-up’ holiday pay, subject to certain safeguards being in place. On the contrary, the Scottish Courts decided that it was unlawful – particularly given that the system, allegedly, encourages workers to skip their holiday entitlement in order to receive extra pay! The Advocate General of the European Union felt the system could be acceptable provided there were steps to ensure that workers actually took their holidays.

However, the ECJ has now held definitively that ‘rolled-up’ holiday pay is unlawful. Instead holiday pay should be paid when a worker actually takes his holiday.

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