Have your cake and eat it?

Getting the answers wrong on holiday pay can cost individual firms thousands, even hundreds of thousands, of pounds. But getting them right is far from easy and remains something of a gamble.
Firstly, the regulations say workers are entitled to four weeks' annual paid holiday. The term "worker" is a new concept in UK employment law. Its definition has added a dimension to the long-standing and contentious issue of just who should be classified as an employee and who is genuinely self-employed.
A new guide to the regulations published by the Department of Trade and Industry is not particularly helpful. It defines a worker as:
<F06E> Someone who has a contract of employment, or;
<F06E> Someone who is paid a regular salary or wage and works for an organisation, business or individual. Their employer normally provides the worker with work, controls when and how the work is done, supplies them with tools and other equipment, and pays NI contributions. This includes part-time and temporary workers and the majority of agency workers and freelancers.
Here the word "normally" leaves plenty of scope for debate.
Recent court cases suggest that, in defining a "worker", much may depend on whether an operative can, in practice, send a substitute to carry out the work - regardless of any written contractual terms. They equally suggest that an operative can be self-employed for some purposes but also a worker within the Working Time Regulations terms. Cases are determined largely on their individual merits.
It is nonetheless widely accepted that the vast majority of CIS 4 labour-only subcontractors are "workers" within the meaning of the regulations.
The question of how holiday money is paid is even more fraught. It centres on whether it is lawful for it to be part of an inclusive, or rolled-up, hourly rate or whether it should be paid as and when the holiday is actually taken.
Here, conflicting court rulings (see box) have led to what Andrew Hogarth QC has described as "judicial schizophrenia".
Current advice from the Construction Confederation to its members is that the position regarding rolled-up holiday pay for CIS 4 subcontractors "remains uncertain", but the confederation "continues to advise that holiday pay should be paid at the time holidays are actually taken".
Perhaps the most fundamental objection to rolled-up holiday pay is the allegation that it is simply phoney. It is claimed it is just a means of evading holiday pay requirements, and any inclusive element is said to be purely notional.
This case is supported by examples of employment contracts that make no reference to holiday pay at all or fail to specify an amount.
Other contracts do state an hourly, weekly or daily rate of pay and include a specified percentage of holiday money generally set at 8% or 4/52 of the standard rate.
But it is contended that this defeats the purpose of the regulations, which seek to impose a limit on working hours in the interests of health and safety. Supposedly, a rolled-up rate acts as a disincentive to the worker to actually take his holiday. This argument was accepted by the Scottish Court of Session in the MPB Structures case.
That Scottish decision is the highest legal authority ruling on the issue to date. Legal representatives of UCATT subsequently insisted that all employment tribunals were bound by decisions of employment appeal tribunals (EATs) and that, equally, EATs were bound by High Court rulings - whether they emanated from the English High Court or its Scottish equivalent. Hence the MPB ruling should be regarded as definitive.
But the English EAT has not accepted this point.
Meanwhile, on the employers' side, rolled-up holiday pay is claimed to be, administratively, the most convenient way of fulfilling WTR obligations rather than a means of evading them. For example, it avoids the burdensome procedure of working out the rate of average weekly earnings that is to be paid.
In the MPB case, the court accepted there was no intention by the contractor to evade his obligations. Nor was the question of self-employment - bogus or otherwise - an issue. The MPB workers were all on PAYE.
Contractors further point out that it is often the operatives themselves who demand their holiday entitlement as part of a rolled-up rate. Failure to offer a rolled-up rate can put them at a competitive disadvantage in securing labour.
In the case involving Marshalls Clay Products, the EAT was told that the brickmaker had an unusual work pattern which meant that a rolled-up rate was the only practical way of meeting the WTR requirement and "no satisfactory alternative could be suggested".
Finally, it is argued that tribunals that rule rolled-up rates are not legal and then go on to make an award in favour of the claimants are effectively creating a situation in which the operative gets holiday pay twice over - once as part of a specified rolled-up rate and again as a subsequent tribunal award.
Indeed, consultant Tom Gallagher has asserted that this can mean not double but treble pay for the operative - once by being awarded the basic rate in respect of his holiday period, once by having already received holiday money included in earlier pay, and once by receiving the holiday pay enhancement as part of a tribunal's award of the total rate.
A further financial risk for the contractor is the possibility that a tribunal award can be backdated five years to the date of the WTR introduction.
It will be said then that operatives have everything to gain and nothing to lose by putting in a claim to a tribunal. Even when they have knowingly accepted a rolled-up holiday payment, they can still have their cake and eat it.
Given the existing and conflicting decisions of the Scottish Court of Session and the English EAT, one reading of the current position is what is sauce for the Scottish goose is not sauce for the English or Welsh gander. Some are consequently working on the basis of paying holiday entitlement as and when the holiday is taken in Scotland, while continuing to offer a rolled-up rate to workers in England and Wales.
Adding to the confusion is the fact that an appeal is being launched in the English High Court against the latest EAT decision, which says rolled-up pay can be legitimate.
In the light of that EAT decision, there would seem, in turn, to be a strong prima facie case for an appeal to the House of Lords against the Scottish MPB ruling. However, such an appeal would take at least a year before the case is heard and the legal bills could easily top six figures. So it may be assumed that MPB finds itself in a no-win situation.
The cost of a House of Lords "victory" would simply not be worthwhile. Only a very large company or trade association could afford to take up the legal challenge.
However, there is already the immediate prospect of a review of the Working Time Regulations leading to an end to the opt-out from the maximum 48-hour week. That spells further WTR problems ahead. The lawyers can be pleased that they will not be short of work.<F0A8>