February 1, 2013

Zero hours means zero holiday pay

The CJEU has handed down a decision in Heimann and another v Kaiser GmbH IDS 967 page 18 that workers on a zero hours short time working agreement could have annual leave calculated in proportion to the hours they work by analogy to part-time working. However where they did  not work because there was no work available, this was fundamentally different from where workers were unable to work because of sickness, where they must not be prevented from exercising their right to paid annual leave under EU Law. With zero hours workers, the CJEU held that the situation was fundamentally different because the zero hours contracts were agreed for their benefit and they were free to rest and enjoy recreational activities as they chose.

In this situation, the German company which dismissed the Claimants due to financial difficulties extended their employment for 1 year on a zero hours short time working basis, to enable them to benefit from a financial allowance for that year from the German Federal Employment Agency. When the contract ended they claimed compensation for annual leave accrued but not taken. The Respondent argued that they did not have any right to paid annual leave while they were on zero hours contracts. The CJEU commented that, had the company been obliged to pay them a sum in respect of annual leave, it would have been unlikely to have agreed the zero hours contracts at all, which would have deprived the workers of the benefit of the financial allowance.

The difficulty in implementing such a decision in the UK might well be that the Working Time Regulations will not always permit a reduction in holiday pay for workers on reduced or zero hours. Much will depend on the nature of the zero hours and whether this has always been the case or whether it has arisen subsequent to a period of full or part-time employment. If this is the case, it is possible the employee may be able to rely on the holidays that they took on full pay even during zero hours period. A lot would depend on the actual situation. For instance, if a period of zero or reduced hours followed a period of normal working hours, it is possible the zero/reduced hours would not displace normal hours under the contract, with the result that the worker may be able to take holidays on full pay even during zero/reduced hours period. Much will presumably depend on the wording of the contract in these situations, and whether it allows fro a reduction in holiday entitlement on a reduction in hours worked.

If the individual does not have normal working hours at the time the leave is taken, the holiday pay will be calculated by reference to their average remuneration over the previous 12 week period. However if there has been one or more weeks where they have not worked, the period would have to be extended so that there will be 12 weeks of time used for calculation during which they have worked. This is in accordance with section 224 (3) of the Employment Rights Act.

This legal update is provided for general information purposes only and should not be applied to specific circumstances without prior consultation with us.

For further details on any of the issues covered in this update please contact Gemma Ospedale, Partner in Employment on 020 7583 2222.

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