CJEU clarify the basis of holiday pay calculations under European law for short-time workers

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28 December, 2018

Hein v Albert Holzkamm GmbH related to a construction worker in Germany working under a collective agreement providing that holiday pay would be paid on the basis of a 13-week average calculation in accordance with national law in Germany. After a 26-week lay-off, his holiday pay was calculated on the basis of this 13 week average, excluding overtime, meaning that it was lower than his normal pay.

The Court of Justice of the European Union (CJEU) held that this breached EU law in respect of the 4 weeks' paid holiday guaranteed under EY legislation. As a result, the national legislation allowing for collective agreements to take into account reductions in earnings due to short-time working for calculating holiday pay was incompatible with EU law. The CJEU also held that, despite many years of national law allowing employers to calculate holiday pay in this manner, its ruling could not be limited to avoid retrospective effect due to any legitimate expectation of employers of legal certainty.

The CJEU clarified a number of interesting additional points in relation to holiday pay and annual leave. Where overtime was exceptional and unforeseeable, it did not have to be taken into account in calculating minimum holiday pay. Additionally, the right to accrue annual leave arises from actual work undertaken. As a result, annual leave did not accrue during period when the employee was not actually working.

Calculating holiday pay can be a complex task for employers, particularly where employees work irregular hours or shifts, or are subject to seasonal variations in the demand for work. The confusion is compounded by the recent indication by the government that the reference period for the calculation of holiday pay may be changed further to the Taylor Review. It is important that employers take comprehensive legal advice if they are unsure if their calculation mechanisms are in compliance with national and European legislation to avoid any future claims for unlawful deductions.

If you have any queries regarding the calculation of holiday pay, or would like further advice regarding the proposed changes to employment law following the government's "Good Work Plan" please contact our Employment and HR Team by telephone on 0333 207 1135. Alternatively, send your enquiry to us through our online contact form.

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