PHI: Holiday is not payable for those who agree to PHI

In Souter v Royal College of Nursing Scotland, the ET found that Ms Souter, who had received an income under a permanent health insurance (PHI) scheme for a number of years, was not entitled to 7 years’ payment in lieu of accrued but untaken statutory holiday when her employment came to an end by reason of her retirement.  

This was broadly for two reasons:  

• On termination, RCN made a payment in lieu of the statutory holiday she had accrued for the current leave year. It followed that the last of any series of deductions in respect of statutory holiday pay occurred at the end of the previous leave year and she had not brought her claim in time; and
• She was found not to have experienced a loss of holiday pay during the period she was receiving PHI.  The ET found that when Ms Souter started receiving PHI benefits, her contract of employment was effectively varied so that she would receive the lower PHI salary level. Therefore, if she had taken any statutory holiday while in receipt of the PHI benefits, her holiday pay would have been calculated with reference to the lower salary level, and as she had received her PHI salary in full each year she had suffered no loss.

This judgment is only a first instance judgment and could be appealed.  However, once again we have seen that employers may frustrate unlawful deduction of wages claims by making payment of the final year’s entitlement to holiday at the termination of employment.