Holiday Reading from the Advocate General

12 Aug 2011

It is August, so the Advocate General to the European Court of Justice (ECJ) has been thinking about the vexed issue of holiday pay before she packs her bucket and spade and jets off to wherever Advocate Generals take their ease.  She has published two opinions which may have significant implications for UK businesses if they are adopted by the ECJ. Williams and Others v British Airways Plc concerns the calculation of holiday pay where a worker’s pay is variable because, for instance, it includes special supplements.


Sally Williams is a pilot employed by British Airways.  She was paid a basic salary plus a flying allowance for time when she was on flying duties.  The question is whether her holiday pay should include an average amount for the flying allowance or be restricted to basic pay alone?


The Working Time Regulations 1998 (WTR) say that holiday pay for workers with variable pay is the average remuneration they have received over the twelve weeks before their holiday.  A normal interpretation of the WTR would be that the flight allowance is part of remuneration so it must be included in the calculation of holiday pay.  However, the WTR contains an exception for some workers in aviation.  Their special regulations give them an entitlement to four weeks paid annual leave and, in a time honoured, EU-inspired fudge, these regulations do not say how the rate for this statutory leave should be calculated.  One might think there is an obvious answer but Employment Tribunals and Courts have grappled with this question and eventually referred it to the Supreme Court, which took the easy way out and, in a 13½ page judgement, referred the matter to the ECJ.


The main question for the ECJ is whether there is a requirement that “…the pay should either (a) correspond precisely with or (b) be broadly comparable to the workers “normal” pay” (following our piece last month about mystifying appeals, it seems that the further you go up the appeal tree, the more you lose touch with reality).


In a clear indication that the Supreme Court was not trying hard enough, the Advocate General’s opinion runs to 25 pages, with 89 footnotes.  Her opinion concludes with this advice:


“3. …in a situation….in which the level of remuneration varies, a worker is entitled to holiday pay corresponding to his average earnings.  The calculation of that average remuneration must be based on a sufficiently representative reference period.

4. The calculation of that average remuneration must take into account both supplements usually due to the worker as part of his remuneration and any restrictions in respect of annual or other limits on the extent to which, or the time during which, the worker can engage in a particular activity rewarded by the grant or supplement.”


The Advocate General also took a swipe at the Supreme Court’s interpretation of the ECJ’s ruling in that old chestnut, Stringer but we will leave that in the “too difficult” tray for the moment and return to it when the ECJ has given its judgment.


In KHS AG v Schulte, the Advocate General opines that member states may limit the accrual of holiday pay, for workers on long term sick leave, to eighteen months from the end of the holiday year in which the entitlement arose.


Winfried Schulte was on sick leave for six years (yes, it really was six years) before he was dismissed in August 2008.  He won a claim in the Dortmund Labour Court for holiday pay which had accrued over the last two years of his employment.  On appeal, the employer argued that Mr Schulte’s entitlement to part of this claim expired with the collective agreement under which it had been negotiated.  The German Appeal Court did not know if accrued holiday pay could expire in this way and referred the issue to the ECJ.


European case law and regulations have previously been interpreted as requiring the unlimited carry-over and accumulation of holiday which a worker is unable to take because of sickness.  The Advocate General disagrees.  She argues that the health and safety objectives of the entitlement to annual leave are most effectively met by ensuring adequate holiday is taken in the holiday year in which it accrues.  She observes that the restorative and recuperative benefits of holiday reduce the more the holiday is distanced from the time when the entitlement arose.  Interestingly, she also argues that the benefit of holiday does not necessarily increase in proportion to its duration and it is in employees’ interests to quickly rehabilitate into work after a long absence.  The Advocate General suggests this process is not helped by tacking a long period of accrued holiday on to the end of a long period of sick leave.  Finally, the opinion notes that the unlimited accumulation of holiday might act as an incentive to employers to dismiss sick workers sooner rather than later.


In short, annual holidays and payments for them should not accumulate indefinitely – but for how long do they accumulate?  The Advocate General sought comfort in a protocol under the International Labour Convention from which she suggests a minimum accumulation period of 18 months from the end of the leave year in which the entitlement arises.


It remains to be seen whether the ECJ will follow the Advocate General’s guidance so when you bump into one of the Judges on the beach at Bognor or doing degustation in the pretty little town of Chablis, you will know that his air of detachment is because he is wrestling with his conscience, as much as the law: should he let this turn of the European merry-go-round push up our holiday airfares and reduce our benefits when Montezuma’s revenge lays us low?


It should be noted that the Advocate General’s opinion is important but it does not have the force of a judgment.  It is usually a good indication of the line the ECJ might take but the Court does not always agree with or adopt the arguments advanced by the Advocate General.