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If an employee hasn’t taken all of their holiday at the point they leave you, they’re entitled to be paid in lieu of that untaken holiday. But what if there’s a clause in their contract that says they lose it all?

A recent Employment Appeal Tribunal decision (EAT) has confirmed that employees must receive at least their statutory minimum holiday entitlement up to the point they leave, or payment in lieu of that leave. 


In this case, the employee brought a successful claim for unlawful deduction from wages. The employee’s contract allowed the employer to calculate payment in lieu of holiday on termination at a lower rate than had they taken the holiday whilst they were working.

Despite this, the EAT said this practice was unlawful as it allowed the employer to pay less than the statutory minimum holiday (5.6 weeks per year) to which the employee was entitled.

Practical takeaway 

The Working Time Regulations allow a ‘relevant agreement’ between employee and employer (such as an employment contract) to set out how payment for any accrued untaken holiday will be calculated on termination. However, this case makes clear that any such contractual provision must ensure that the employee is entitled to at least statutory minimum holiday in the holiday year they depart (whether taken or paid in lieu).

The key takeaway from this case is to ensure that your employment contracts don’t go further than this. You’re entitled to say that employees don’t receive payment in lieu of any enhanced holiday on termination, but employees must still receive that all-important statutory minimum holiday.

Contact me here if you need our support to review your contracts or any ‘relevant agreements’. We’ll ensure they’re in line with this decision in order to help you avoid similar claims for unlawful deductions from wages. 
This update is accurate on the date it was published, but may be subject to change which may or may not be notified to you. This update is not to be taken as advice and you should seek advice if anything contained within affects you or your business.