14 August 2003

ROLLED UP HOLIDAY PAY

The issue of holiday pay is a thorny one for the film and television
industries. There is a tradition of engaging freelancers, who are not
employees of the production company, and having their agreed rates include an element of holiday pay. It is tempting for production companies to
continue this practice and provide for "rolled up" holiday in the agreements they enter into with production staff.

Our early warning in May 2003 reported on the Scottish Court of Session
decision in MPB Structures Ltd v Munro. In that case, the Court found that a
contractual provision which attempted to roll up a worker's holiday pay was
void. The rate of pay did not discharge the company's liability in respect
of the employee's holiday pay and could not be off-set against it.

However, a recent decision of the Employment Appeal Tribunal marks a
significant departure from this approach. The decision in Marshalls Clay
Products v Caulfield and others (24 July 2003) identifies five categories
for consideration in this context:

1. contracts which are silent as to holiday pay;

2. contracts which purport to exclude liability for or entitlement to
holiday pay;

3. contracts where rates are said to include an amount for holiday pay, but
there is no indication or specification of an amount;

4. contracts providing for a basic wage or rate topped up by a specific sum
or percentage in respect of holiday pay;

5. contracts where holiday pay is allocated to and paid during (or
immediately before or after) specific holiday periods.

After a careful analysis of the five categories, the EAT held that 1, 2 and
3 breach the annual leave provisions of the Working Time Regulations whereas
4 and 5 were permissible.

In situations where an employer adopts 4 or 5 above, the EAT gave the
following guidance:

· rolled up holiday pay must be clearly incorporated into the individual
contract of employment and therefore expressly agreed;

· allocation of the percentage or amount to holiday pay must be clearly
identified in the contract and, preferably, in the payslip;

· it must amount to a true addition to the contractual rate of pay;

· records of holidays taken must be kept;

· reasonably practicable steps must be taken to require the workers to take
their holidays before the expiry of the relevant holiday year.

It would seem at first glance that this case means that rolled up holiday
pay is permissible in certain circumstances. However, the decision has been
appealed and it is likely that only a decision of the Court of Appeal or
House of Lords will decide the issue conclusively. The full text of the
decision can be found on the EAT's website at
http://www.employmentappeals.gov.uk.

Rachel Urquhart
14 August 2003
176

If you have any comments on this bulletin or would like further details, please contact stephen.hornsby@simkins.com (tel: +44 20 7907 3023).
This update is © The Simkins Partnership but you are welcome to forward it to anyone who may be interested.
This bulletin is for general guidance only. Legal advice should be sought before taking action in relation to specific matters. Where reference is made to Court decisions facts referred to are those reported as found by the Court.
Visit our website at http://www.simkins.com or contact us at earlywarnings@simkins.com for more information about The Simkins Partnership media law services or to subscribe to early warnings on any of the following subjects: Film & TV, Music, Advertising & Marketing, Digital Media, Defamation & Privacy, Sport, Photography or Employment.
Past bulletins can be found on our website at http://www.simkins.com/archive/sim_archive.asp.