Holiday pay does not accrue on furlough, tribunal rules

Decision offers ‘much-needed clarity’ on workers’ rights around job retention scheme, as experts urge employers to check contracts to avoid potentially costly claims

A contractor did not accrue holiday pay while on furlough last year, an employment tribunal (ET) has ruled, in a case that promises to offer certainty around management of people placed on the coronavirus job retention scheme (CJRS).

The court found that for the period that the claimant, Mr D Perkins, was on furlough, he was not a worker and therefore did not gain annual leave during that time. 

The judgment is a “significant move that provides much-needed clarity” for UK recruitment agencies, according to the Recruitment and Employment Confederation (REC), which first published the decision.

Perkins brought a claim for unpaid holiday pay while on furlough from May to July 2020. He was seeking £261 in accrued holiday salary and £261 in lost wages. 

The respondent, Best Connection Group Limited (TBCGL), argued that for the period the claimant was on furlough and not working on an assignment, he was not a worker for the purposes of the Working Time Regulations 1998 (WTR) and therefore did not accrue annual leave during that time.

The tribunal also heard that TBCGL engaged the claimant under a contract for services and the contract only existed when the claimant was on assignment with the client and not between assignments.

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During oral evidence, the claimant was reported as admitting that before furlough, when he was not working on assignment for TBCGL, he did not accrue holiday with TBCGL.

The judge said there was no contract between the parties when the claimant was not on assignment and there was no separate agreement confirming the claimant would accrue holiday when on furlough.

They also referred to the fact that the claimant was not permitted to work for the agency while on furlough under his furlough agreement, and as is set out in the rules of the CJRS, and that “by its fundamental nature the claimant therefore was not on assignment whilst on furlough”.

Although the judgment is a first instance decision, meaning that other ETs presented with similar cases could reach a different decision, Lorraine Laryea, director of recruitment standards and compliance at the REC, said the analysis in this case was “compelling and in the view of the REC more accurately reflects how the law should apply in these types of claims”.

“One of the major issues for recruiters in 2020 as they considered whether to engage with the new coronavirus job retention scheme to furlough temporary workers was whether holiday and holiday pay would accrue for those workers who were placed on furlough”, she explained.

Paul Holcroft, managing director of Croner, told People Management that employers who received leave requests from furloughed staff should not assume whether they will have or have not accrued annual leave, but should instead check these employees’ contracts to see if they are eligible to accrue leave. 

“If employers are unsure on this, they should seek advice to avoid costly tribunal claims as the decision in this case does not mean other employers will receive the same judgment”, he added. 

Holcroft also explained that there was a “high chance we will continue to see more coronavirus-related judgments being handed down by tribunals in the coming months. Whether most of these will go in favour of the employer is fact sensitive and is still yet to be seen.”

Paul Seath, partner in the employer department at Bates Wells, agreed with the outcome and echoed Holcroft’s advice that employers should check their contracts. He added that agencies should, if in doubt, “consider asking staff to take any holiday before furlough ends, which of course would have to be on full pay.”

“Many agencies have used furlough to the benefit of their workers but did so on the basis that holiday would not be due on top”, he said. “Therefore this outcome will be welcome.”

However, Seath warned that the tribunal decision “does not bind other tribunals”, explaining that there might be an appeal and “these cases are likely to turn on their specific facts.”

Perkins had also claimed unfair dismissal, but this was dismissed on the basis that he was not an employee and he had not been employed for two years, as is required to bring an unfair dismissal claim.

TBCGL declined to comment. Perkins could not be reached.