Holiday Pay and All-Inclusive Package: When the Employer Must Pay Twice

Imagine: you own a small building in Hyères, and you hire a caretaker with a monthly package including holiday pay. When he leaves, he claims compensation in lieu for untaken holiday. You thought you had settled everything with his salary, but the judges order you to pay a second time. This situation, experienced by many employers, was decided by the Court of Cassation in a judgment of 14 November 2013. But what exactly does it change?

This decision, based on European law, recalls that contractual clauses must be 'transparent and comprehensible' for the employer to be able to attribute holiday payments to the termination indemnity. In short, a simple 'all-inclusive' package is not enough. For landlord owners in La Seyne-sur-Mer or small businesses in the Var, this is a trap to avoid at all costs.

How to react? What does the law actually say? And above all, how to draft a contract that holds up? This article dissects judgment no. 12-14.070 and gives you the keys to avoid paying twice.

The facts: a story that happens every day

Mr X, an employer from the Toulon area, had hired an employee with an employment contract providing for 'global remuneration including holiday pay'. For several years, the employee received his monthly salary, without the amount of holiday pay being itemised. In January 2009, the contract was terminated. The employee then claimed outstanding untaken holiday pay, i.e., compensation in lieu. The employer refused, arguing that the package already included holiday pay.

The employee brought the case before the Toulon industrial tribunal, which ruled in his favour. The employer appealed. The Aix-en-Provence Court of Appeal upheld the decision, considering that the clause was 'neither transparent nor comprehensible'. The employer appealed to the Court of Cassation. The Court of Cassation dismissed his appeal, validating the reasoning of the lower courts: the employee was entitled to compensation in lieu for untaken holiday days, despite the package clause.

The twist? The Court relied on a 2006 judgment of the Court of Justice of the European Union (C-131/04 and C-257/04) which requires that sums paid in respect of holiday be 'transparent and comprehensible'. In this case, the mere vague mention in the contract did not meet this criterion. Result: the employer must pay a second time.

The reasoning of the court — broken down

The Court of Cassation recalls that, under European law (Article 7 of Directive 93/104/EC), every worker is entitled to paid annual leave of at least four weeks. This right is fundamental. Holiday pay must be paid at the time the leave is actually taken, unless a clear and transparent clause allows for spreading.

In this case, the contract clause stated: 'the global remuneration includes holiday pay'. For the judges, this wording is insufficient. It does not allow the employee to know how much he receives in respect of his holiday. However, to be valid, the mechanism must allow the employee to 'actually take his leave' and receive a separate remuneration during that period. In other words, the employer cannot simply use a global package; he must detail the holiday portion.

What few people know is that the Court of Cassation goes further: even if the clause were transparent, it would still be necessary for the employee to have actually taken his leave. In the event of termination, compensation in lieu is due for days not taken, regardless of the clause. In short, the 'all-inclusive' package can never exempt the employer from paying for untaken holiday upon termination.

However, note: this judgment does not completely condemn the package including holiday pay. It only imposes conditions of transparency. But in practice, few employers manage to comply. That is why the Court of Cassation has a very protective stance towards the employee.

What this means for you — concretely

For employers: you must review your employment contracts. If you use a package clause including holiday pay, ensure it explicitly states the amount or percentage allocated to holiday. For example: 'The monthly remuneration of €2,000 is broken down into €1,850 base salary and €150 holiday pay (i.e., 10%).' Without this transparency, you risk having to pay compensation in lieu upon termination, as experienced by an employer in La Seyne-sur-Mer who had to pay an additional €3,500 to his former employee.

For employees: if you are on a contract with an 'all-inclusive' package, you can challenge the amount of your holiday pay. If your contract does not detail the holiday portion, you can claim compensation in lieu when you leave, even if you received a flat salary. However, note: you must prove that you did not take all your holiday. An employee from Hyères thus obtained €2,800 after three years of service.

For landlord owners employing a caretaker or concierge: the same rules apply. An employment contract must comply with the Labour Code, including for holiday pay. If you are in this situation, you must check your contract. An owner in Toulon had to pay €1,200 in compensation to his caretaker for untaken holiday, because his contract was too vague.

Four tips to avoid this type of dispute

• Draft a transparent clause: in your contract, clearly indicate the amount of holiday pay, either as a percentage (10% of gross salary) or as a fixed amount. Example: 'The employee receives a monthly remuneration of €2,200, including €200 in respect of holiday pay.'
• Have a receipt for final settlement signed: upon termination of the contract, have the employee sign a receipt mentioning the payment of compensation in lieu of holiday. This protects you in case of subsequent challenge.
• Keep records of holiday taken: each time the employee takes holiday, have them sign a document indicating the dates and amount paid. This proves that the holiday was actually taken and paid.
• Consult a lawyer lawyer: before signing an employment contract, have it reviewed by a labour law lawyer. This will save you costly disputes. undefined, I have seen cases where a poorly drafted clause cost the employer several thousand euros.

Further analysis: related case law and developments

This decision is part of a consistent line of the Court of Cassation. Already in a judgment of 13 June 2007 (no. 06-41.099), it had held that a package clause including holiday pay must be 'express and unambiguous'. The CJEU, in its 2006 judgments (C-131/04 and C-257/04), established the principle of transparency. Since then, the courts have been very strict: any vague clause is nullified.

However, note: this case law concerns only statutory holiday pay (4 weeks). For contractual or additional holiday, the rules may differ. But in practice, judges apply the same rigour.

Recent developments: with Directive 2003/88/EC (replacing Directive 93/104), the right to paid leave has become a fundamental social right. French judges are increasingly protective. Thus, in 2022, the Court of Cassation extended this principle to employees on a flat-rate daily basis (judgment of 13 April 2022, no. 20-21.923).

In practice: what to do

If you are an employer:
1. Check your current contracts. If an 'all-inclusive' clause appears, make an addendum to make it transparent.
2. In case of termination, calculate the number of untaken holiday days and pay the corresponding compensation in lieu (10% of the gross remuneration received during the accrual period).
3. Keep payslips detailing the holiday portion.

If you are an employee:
1. Check your payslips: if the line 'holiday pay' does not appear, your employer is in breach.
2. Upon your departure, request in writing payment for untaken holiday. If the employer refuses, bring the case to the industrial tribunal (you have 2 years from the termination).
3. Gather evidence of your untaken holiday (emails, schedules, witness statements).

FAQ:

Can I include holiday pay in a flat salary?
Yes, provided the clause is transparent (precise amount) and the employee actually takes his holiday.

What if my employer refuses to pay me for untaken holiday?
Send a registered letter with acknowledgement of receipt, then bring the case to the industrial tribunal within 2 years of termination.

What is the amount of compensation in lieu?
It is equal to 1/10th of the gross remuneration received during the reference period (usually from 1 June to 31 May).

Can I challenge a receipt for final settlement?
Yes, within 6 months of signing, if the receipt does not detail the sums paid.

What are the time limits for action?
You have 2 years from termination to claim compensation in lieu. After this period, your claim is time-barred.

Are you in a similar situation? A first 30-minute consultation with Maître Zakine (€45) can save you months of proceedings — and often much more. Book an appointment →