This year has seen a revolution in the law on what should count as holiday pay. These unwelcome developments for employers could result in a number of Tribunal claims being pursued by employees across the country.
The Employment Appeal Tribunal (EAT) yesterday delivered its Judgment in cases of Bear Scotland Ltd v Fulton; Hertel (UK) Ltd v Woods; Amec Group Ltd v Law. Its decision confirms that all elements of a worker’s normal remuneration – including payments in respect of non-guaranteed overtime – must be taken into account when calculating holiday pay under the EU Working Time Directive. The EAT also found that the Working Time Regulations 1998 can be construed to achieve that result. However, the Judgment limits the scope for retrospective holiday pay claims.
This case follows the decision earlier this year by the European Court of Justice in Lock v British Gas Trading Ltd that commission payments that were directly and intrinsically linked to an individual’s work must be reflected in the worker’s holiday pay.
In Hertel and Amec, overtime was compulsory (although not guaranteed by the employer) and, on the evidence, was required with a sufficient degree of regularity for overtime payments to count as ‘normal’ remuneration. In addition, the taxable element of certain payments for travelling time also formed part of the workers’ normal remuneration and should be included in their holiday pay. In so far as they were taxable, such payments did not represent a reimbursement of expenses but were directly linked to work.
Previous case law has established that a failure to pay holiday pay under the Working Time Regulations 1998 can be brought as a claim for unlawful deduction from wages . A worker can bring a such a claim in respect of a ‘series of deductions’; in such a case, the claim must be brought within three months of the last deduction in the series. The EAT held that if there is a gap of more than three months between any two deductions in the chain, the ‘series’ of deductions is broken. This is a potentially controversial finding.
This Judgment should only apply to calculating holiday pay in respect of the minimum 4 weeks’ holiday required by the Working Time Directive and not the extra 1.6 weeks’ holiday entitlement arising under the Working Time Regulations 1998.
The Judgment will almost certainly be appealed to the Court of Appeal.
Meanwhile, the Business Secretary Vince Cable has announced that he is setting up a taskforce to assess the possible impact of the Judgment. The taskforce will consist of a selection of government departments and business representative groups. The taskforce will provide a forum to discuss how the impact on business can be limited. Business Secretary Vince Cable said:
“Government will review the Judgment in detail as a matter of urgency. To properly understand the financial exposure employers face, we have set up a taskforce of representatives from government and business to discuss how we can limit the impact on business. The group will convene shortly to discuss the judgment”.
It is difficult to see what options the Government has other than through the usual appeal process. It is possible that some kind of emergency legislation could be passed but this would likely put the Government on a collision course with the EU since yesterday’s Judgment of the EAT is seeking to give effect to previous Judgments of the European Court of Justice.
Please get in touch if you require advice on the implications of this Judgment for your organisation.
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