The Employment Appeal Trubunal (EAT) has ruled that overtime pay must be included in holiday pay calculations.
The decision relates to three conjoined cases:
- Bear Scotland v Fulton and Baxter.
- Hertel (UK) v Wood and others.
- Amec Group v Law and others.
Bear Scotland v Fulton focused on whether overtime pay or shift allowances should be included in holiday pay calculations.
Meanwhiile, Hertel (UK) v Wood and others and Amec Group v Law and others appealed an Employment Tribunal decision in February which found in favour of the workers and recent decisions by the European Court that workers should receive normal pay when on holiday.
The EAT has now ruled that claims for backdated holiday pay are likely to be limited to the previous leave year, rather than to 1998 as was previously expected. In many cases, claims will limited to backdated holiday pay for the previous three months.
Andrew Stones, partner at Squire Patton Boggs, who led the case, said: “The entire business community has kept a very close eye on these appeals, given both the range of issues being considered and the shared concern among employers of the potential impact of historic holiday pay claims.
”Those concerns should largely be alleviated following the judgment of the Employment Appeal Tribunal today. The EAT has really limited the scope for different holiday pay periods to be linked together as one ongoing series of deductions for historic claims.
”This finding will significantly limit the scope for such claims in the future and the flowing potential liability for [employers].
“In terms of what employers should be doing now, it seems sensible to wait and see if any of the parties appeal. Nevertheless, employers may wish to begin considering how the findings affect the way in which they are currently calculating holiday pay.”
Paul Callaghan, head of employment law at international law firm Taylor Wessing, added: “This is a hugely important decision; as of now the law has changed, and [employers] will have to include overtime payment when calculating holiday pay.
”This will be a huge concern for employers, particularly smaller businesses, and they will be particularly concerned to see how far back employees will be able to claim.”
Howard Beckett, executive director for legal, membership and affiliated services at union Unite said: “Up until now some workers who are required to do overtime have been penalised for taking the time off they are entitled to. This ruling not only secures justice for our members who were short changed, but means employers have got to get their house in order.
“Employers will now have to include overtime in calculating holiday pay, and those that don’t should be under no illusion that Unite will fight to ensure that our members receive their full entitlement.”
The EAT’s key conclusions:
1. Article 7 of the Working Time Directive requires workers to be paid ‘normal remuneration’ during the holiday to which they are entitled under EU law, i.e., broadly speaking, their typical average pay, not only the basic hours’ pay which has long been understood to be the entitlement of workers with normal hours of work under the UK’s Working Time Regulations (WTR).
2. It is possible to ‘read down’ the domestic Working Time Regulations under the Marleasing principle to achieve compliance with the requirements of Article 7 — potentially giving a very large number of UK workers who have been paid holiday pay representing only their basic hours’ work claims for unlawful deductions from wages. On this, and the Article 7 issue, the employers’ appeals failed.
3. However, the employers’ appeals succeeded on a key issue of limitation: the meaning of a series of deductions from wages. If there is a gap of more than three months in any alleged series of deductions, the Employment Tribunal loses jurisdiction to hear claims for the earlier deductions. Further, workers are not entitled retrospectively to designate which holiday was “EU” holiday under regulation 13 of the WTR and which was additional domestic leave under regulation 13A so as to create an unbroken series. The EAT’s conclusions may thus severely restrict the ability of workers to bring valuable, retrospective claims for underpaid holiday pay.
Source: Blackstone Chambers