Holiday blues – recent changes to the law.

Just when you thought that employment legislation was under control, your handbook/contracts were up to date – sadly you need to think again. On 4 November 2014 the Employment Appeal Tribunal (EAT) handed down its Judgment regarding the case of Bear Scotland v Fulton (and conjoined cases). The law in relation to overtime before this ruling was that voluntary overtime was not typically included when calculating an employer’s rate of holiday pay.

What has the Employment Appeal Tribunal said?

Justice Langstoff of the EAT came to the decision that workers are now entitled to be paid a sum of money to reflect not only normal working hours within the minimum four-week holiday entitlement (it does not apply to the 1.6 weeks of additional annual leave under the UK Working Time Regulations), but also overtime as part of their annual leave payment. The key points of the Judgment are as follows:-

  • Employees should have voluntary and compulsory overtime taken into account when they are being paid annual leave.
  • Any employee making a claim must have had an underpayment for holiday pay that has occurred within three months of lodging an Employment Tribunal claim.
  • If a claim involves a series of underpayments, any claims for the earlier underpayments will fail if there has been a break of more than three months between such underpayments.

The Court of Justice of the European Union (CJEU) has stated that the purpose of the requirement of payment for leave, under Article 7 of the Working Time Regulations 1998, is to put the worker during such leave, in a position which is comparable to the period of time worked.

A distinction was made between employees with ‘normal working hours’ and those with ‘no normal working hours’. Employment Judge Camp in his Judgment held that a week’s pay for those with normal working hours is what they were paid for working those hours for one week; a week’s pay for those with no normal working hours is their average actual weekly remuneration. This could be calculated over a 12 week period, or it would be calculated over the entire working year.

How does this affect your business?

The position prior to this Judgment has led to a series of underpayments in holiday pay. Issues which may now arise from the Judgment are:-

  • Accidental gain or shortfall for the worker;
  • Unpredictable expenses for the employer.

The approach the courts take in minimising these potential issues it yet to be seen and will no doubt develop through forthcoming case law and legislation.

The worrying consequence of this which has the potential to affect businesses of all sizes and capital, is the scope for backdated holiday pay claims under domestic law. As established in the House of Lords case Revenue and Customs Commissioners v Stringer 2009, if an employer has made an unlawful deduction to a workers, wages, contrary to S. 13 ERA, that worker can bring a claim against their employer for such deduction. Limitations have been placed on retrospective claims and under S. 23 to the effect that any claims where there has been a break of over three months from the last deduction will be out of time.

Please note though that the EAT has given permission for the Judgment to be appealed by the Court of Appeal, so a final decision could be some time away.

What are we doing?

Business Secretary Vince Cable is in the process of setting up of a taskforce to assess the possible impact of the EAT ruling on holiday pay. Once this is made available we will be able to review company policies, procedures and contracts of employment to minimise any risk to your company which may result from this recent Judgment.

Employers do have the option of calculating holiday pay going forward to include overtime and other payments directly linked to an employee’s work in order to protect themselves against any potential future claims.

If you have any queries in relation to this or any other employment issue contact Giles Ward or Jodie Hill:
0113 245 0852,  giles.ward@milnerslaw.com or jodie.hill@ milnerslaw.com on a no charge and confidential basis.
This article was first published in Pest Control News December 2014 edition.http://pestcontrolnews.com/pcn-issue-101/

UPDATE

19th December 2014: The Government has announced that holiday pay claims made since the recent landmark judgment on overtime will only be able to stretch back two years.  Click here for more information.

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