ECJ Rules on Rolled Up Holiday Pay

Following conflicting decisions in the Scottish and English courts, the issue as to whether or not it is a violation of workers’ rights to pay a ‘rolled up’ rate of pay, whereby the normal salary includes an additional element to cover holiday pay and workers are not paid when they are on leave, was referred to the European Court of Justice (ECJ) for an interpretation of Article 7 of the EC Working Time Directive.

The Advocate General gave a preliminary opinion on the subject, indicating that such arrangements could be lawful if they were properly structured and there was a genuine increase in the rate of pay to cover the holiday element. The central requirement of Article 7 of the Directive is that guaranteed annual leave is actually taken.

The ECJ has now handed down its ruling. This varies from the opinion given by the Advocate General, but this makes little practical difference. In the Court’s view, it is essentially unlawful for an employer to roll up holiday pay rather than to pay it during the specific period when a worker takes leave. However, provided the sums paid are clearly identifiable as additional amounts paid in respect of holiday pay, over and above payment for work done, and the employee recognises them as such, Article 7 does not preclude such payments from being set off against payment for specific leave which is actually taken by the worker.