BTGuy: Why not?
A happy holiday is a happy holiday. He’s saying “I wish you a happy holiday, whatever you may celebrate” and you’re saying the same. He’s saying it (rather than “Merry Christmas”) because he doesn’t want to step on any toes- don’t make him feel like he is, despite his best efforts.
As far as wishing him a happy holiday, say just that- “Have a great holiday”. Focus on the family part, the food part, whatever, but you can be cheerful and nondenominational at the same time.
However, I don’t see where avoda zara comes into play. Please explain this to me.