Ann Palmer v Surrey & Sussex Healthcare NHS Trust

A rolled-up holiday-pay arrangement is unlawful under Article 7 of Directive 93/104. Payments made under it may nevertheless be set off against holiday pay due for leave actually taken, but only where the employer proves that they were paid transparently and comprehensibly as holiday pay.

Whether that condition is met requires a careful factual assessment of the contractual terms, the creation and operation of the arrangement, and the worker’s understanding. A holiday-pay complaint should not be struck out where those matters disclose a core factual dispute.

The claimant was a healthcare assistant engaged on a zero-hours contract. Her engagement letter provided for an additional payment described as a “Working Time Directive” payment of 12.5% of hourly pay. Her payslips recorded “WTD pay”.

She brought, among other matters, a complaint for holiday pay. The Employment Tribunal struck it out, holding that the respondent operated transparent rolled-up holiday pay and that there was no reasonable prospect of finding the arrangement unlawful or refusing credit for the payments. The claimant appealed. The respondent accepted that any holiday-pay calculation required reconsideration in light of [2022] UKSC 21.

The central issue was whether the complaint could properly be struck out without determining whether the “WTD pay” arrangement was transparently and comprehensibly holiday pay capable of set-off.

1. Appeal allowed. The Employment Tribunal erred in striking out the holiday-pay complaint.

2. Under Article 7 of Directive 93/104, a rolled-up arrangement, under which holiday pay is paid alongside remuneration for work rather than during leave, is unlawful. Nevertheless, Robinson-Steele permits set-off in limited circumstances. The employer must prove that additional sums were paid transparently and comprehensibly as holiday pay.

3. The tribunal therefore asked the wrong question when it held that the arrangement itself was not unlawful. The material question was whether the respondent could set off payments described as “WTD pay” against the claimant’s entitlement.

4. That question required a factual assessment of the vague contractual terminology, the circumstances in which the arrangement was made, its practical operation, and the claimant’s understanding. Although Lyddon showed that payslip entries may in some circumstances establish transparency and comprehensibility, it did not remove the need for that assessment in this case.

5. There was a core dispute of fact. Applying the approach in Ezsias, strike-out was inappropriate. The respondent also accepted that the calculation required reconsideration in light of Harpur Trust v Brazel.

6. The case was remitted for a complete redetermination by a differently constituted Employment Tribunal, applying the principles in Sinclair Roche & Temperley v Heard. The respondent may seek strike-out again or proceed to a merits determination.

• Employment Appeal Tribunal: Allowed the claimant’s appeal and remitted the holiday-pay complaint for a complete redetermination by a differently constituted Employment Tribunal: [2025] EAT 172.
• Employment Tribunal: Employment Judge Fowell struck out the holiday-pay complaint following a hearing on 18 January 2024; judgment sent on 22 February 2024.