Holiday pay lessons for employers: a costly tribunal warning
Holiday pay may seem like a routine HR issue, but a recent Employment Tribunal case shows just how expensive holiday pay mistakes can be for employers who fail to follow the rules.
This case is a clear reminder that poor holiday management, unlawful carry-over, and failure to encourage staff to take leave can result in substantial backdated holiday pay claims.
Holiday pay tribunal case: the background
The case involved Mossadek Ageli, who worked for Sabtina Limited from 1987 until his dismissal in 2024. For much of his employment, the business was extremely small and understaffed, leaving Mr Ageli with significant responsibility and an excessive workload.
As a result, he regularly did not take his annual leave.
When he joined the business, Mr Ageli was entitled to 30 days’ holiday per year, later rising to 45 days. Over time, he requested to take more than 200 days of annual leave, but these requests were repeatedly refused by the company’s directors.
Payment in lieu of holiday – where it started to go wrong
Instead of taking leave, Mr Ageli asked whether he could receive payment in lieu of untaken holiday. The managing director agreed, and Mr Ageli received two payments.
He was later told that he did not need to make annual requests, as his unused holiday would roll over automatically. On that basis, he stopped submitting formal requests but kept his own records of accrued leave.
Notably, the company did not provide a pension scheme, and Mr Ageli was effectively saving his holiday entitlement to fund his retirement.
Dismissal and refusal to pay accrued holiday
In 2022, a new board of directors took over and questioned whether any agreement on holiday pay had ever existed. Mr Ageli was asked to provide proof, and he said his duties were gradually reduced thereafter.
In 2024, he was dismissed for gross misconduct. He strongly disputed the allegations, said he had never been warned about his conduct, and was not given the right of appeal.
Crucially, the company refused to pay for 827 days of untaken holiday that Mr Ageli said he had accrued over many years.
Employment Tribunal decision on holiday pay
Mr Ageli brought claims for unfair dismissal and unpaid holiday pay and succeeded.
The Employment Tribunal awarded:
- £392,000 in unpaid holiday pay
- £105,000 compensation for unfair dismissal
The Tribunal found that the directors did not genuinely believe that Mr Ageli had committed gross misconduct and that the employer had fundamentally failed to meet its holiday pay and annual leave obligations.
What does UK law say about holiday entitlement?
Under UK employment law, workers are entitled to a statutory minimum of 5.6 weeks’ paid annual leave per year. For full-time employees, this equates to 28 days.
This statutory entitlement is made up of:
- 4 weeks of leave derived from EU law
- 1.6 additional weeks linked to UK bank holidays (which do not have to be taken on bank holidays themselves)
Holiday carry-over and payment rules explained
The legal rules on carry-over and holiday pay are strict:
- Employers must actively ensure employees take their first 4 weeks of statutory holiday within the relevant holiday year.
- Carry-over of these 4 weeks is only allowed in limited situations, such as long-term sickness absence or family-friendly leave.
- Payment in lieu of statutory holiday is only lawful on termination of employment.
- The additional 1.6 weeks of statutory holiday may be carried over by agreement, but again can only be paid on termination.
- Any contractual holiday above the statutory minimum may be carried over or paid in lieu, depending on the employment contract.
Key takeaway for employers
This case shows that holiday pay claims can go back many years where an employer has failed to comply with its obligations.
To reduce risk, employers should:
- Actively encourage staff to take annual leave
- Keep accurate and transparent holiday records
- Regularly remind employees of unused entitlement
- Intervene where employees fail to book holiday
If an employee still does not take leave, employers can require them to take holiday, provided they give at least double the length of the holiday as notice.
Getting holiday pay wrong can result in significant financial exposure — as this case clearly demonstrates.