Member Article

Holiday pay ruling - The facts

The UK Employment Appeal Tribunal (EAT) ruling - your questions answered by Christopher Davies, Associate for Gateley LLP.

What are the cases of Fulton v Bear (Scotland) and Wood and Others v Hertel and Amec about?

These cases involved claims in respect of holiday pay under the Working Time Regulations 1998. The claimants had regularly carried out overtime but were paid only basic pay during their holidays. They argued that this breached the European Working Time Directive which the Working Time Regulations were meant to implement

Why are these judgments in the news?

It was held that the claims succeeded in relation to the 4-weeks paid leave prescribed by the Directive. It has been in the news as it’s a decision that could impact on the calculation of holiday pay for an estimated 5 million workers who regularly do overtime.

Will it impact all employers?

It will have an impact on all employers who pay their workers more for carrying out regular overtime but only give them basic pay during their holidays.

Will employers need to change holiday pay arrangements immediately?

The decision is likely to be appealed so it may not be the end of the story yet. However there may be some advantages in planning to start off the New Year including regular overtime payments in the amount of holiday pay. Tackling the issue at this point at least draws a line in relation to when claims would have to be brought.

How would an employer calculate the amount due?

Prior to the holiday being taken the worker’s ‘normal pay’ would have to be established. If they have been paid for working regular overtime this should be taken into account. It is likely that this will be done by looking at the average pay in the 12 week period immediately before the holiday.

What if the appeal court reverses the decision about overtime?

There does not appear to be any realistic prospects of the Court of Appeal finding that regular overtime should not be included in the calculation of holiday pay. However in order to retain some flexibility the more generous calculation could be described as discretionary pending the resolution of the matter in the courts.

What are the potential claims that could be brought?

The claims being brought are for ‘unlawful deductions from wages’. Unlike breach of contract these types of claim can only be brought in the Employment Tribunal. The worker asserts that a payment was due from the employer which has not been paid. The time limits for bringing a claim are relatively short as it has to be submitted within 3-months of the last ‘deduction’ i.e. payment for holiday taken or from when payment in lieu of the holiday was made at the end of their employment.

How much compensation could be awarded?

Claims can be made for an ongoing series of deductions and the biggest concern for employers had been that this could extend back as far as 1998 when the Working Time Regulations were implemented. However it was surprisingly held that where there is a gap of more than three months between deductions it will break the series and so limit what can be claimed. In practice this should substantially reduce the extent of any claim. Although it is possible this could of course change if the decision is appealed.

What about extra holiday over and above the 4 weeks?

The Working Time Regulations provide for a further 1.6 weeks additional entitlement and many employers provide even greater amounts of holiday. Payments in respect of these holidays are not affected by the decision. Distinguishing which holidays attract protection may appear to be administratively difficult although the judgment suggests that it is possible to regard the protected holidays as those that fall first in the leave year.

Could the recently announced Government task force change the law?

It does not appear possible that it could reverse the principle that regularly worked overtime has to be taken into account for calculating holiday pay going forward. However it might be possible for it to give backing to the conclusion that a 3-month gap would break any series of deductions.

This was posted in Bdaily's Members' News section by Gateley LLP .