Many things are uncertain following the outcome of the referendum on the UK’s membership of the EU, including the timing of any exit and the form that it will take. In the meantime, employers still have to grapple with the ramifications of Court of Justice of the European Union (CJEU) decisions on how to calculate holiday pay. The best way to react to those decisions is now more finely balanced in light of the referendum result.
The CJEU decisions, and their domestic application in cases such as Bear Scotland v Fulton and British Gas Trading v Lock, mean that the Working Time Regulations 1998 require employers to take elements of commission and overtime that are part of normal remuneration into account when calculating holiday pay. This does not reflect the way in which holiday pay has historically been calculated in the UK and reflects a potentially significant additional employment cost.
A Court of Appeal decision in British Gas Trading v Lock is pending. However, the Employment Appeal Tribunal decision meant that employers that did not amend the way in which they calculated holiday pay were at risk of having unlawful deduction claims made against them. Subject to the outcome of the Lock appeal, this is still the position while the UK remains a member of the EU.
However, it seems likely that a future UK government might choose to amend the Working Time Regulations, once it is possible to do so, to allow businesses to revert to the historic position. Employers need to balance the current risk of claims for underpaid holiday pay against the possibility of business-friendly amendments about how holiday pay has to be calculated in the future, when deciding how to respond to the recent court decisions.
Elizabeth Slattery is partner at Hogan Lovells