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The EU has ruled that British workers are no longer allowed to be paid for unused holiday entitlement. European judges said that the so-called "rolled-up holiday pay" system breached the Working Time Directive, which guarantees employees a minimum four weeks' holiday a year.

The issue came to light after a group of British shift workers brought a case to the European Court of Justice in Luxembourg, where they were demanding the right to payment during their holidays instead of notional extra hourly pay.

EU rules state that the minimum period of paid annual leave cannot be replaced by an allowance, except where employment is terminated.

If the legislation allowed payment for annual holidays to be included in hourly or daily pay rates, then it could potentially lead to situations where minimum holiday was replaced by an allowance in lieu. As annual leave is a key entitlement under the Working Time Directive, this loophole had to be closed.

"The entitlement of every worker to paid annual leave is an important principle of community social law from which there can be no derogation," said the judgement." Holiday pay is intended to enable the worker actually to take the leave to which he is entitled."