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Employment Tribunal’s Landmark ruling on Holiday Pay

man with hankie on head eating ice cream

Spending his holiday overtime

UK workers have won an important case at the Employment Appeal Tribunal that overtime should count when calculating holiday pay, overturning the current practice by employers that only basic pay counts when making the calculation.

The ruling could result in a significant amount of people claiming for additional holiday pay. The tribunal also ruled that workers can make backdated claims, but only for a limited period. Employees will not be able to claim more than three months after the last incorrect payment.

According to the government one-sixth of the 31million people in work, around five million workers, get paid overtime.

The Tribunal ruled on three cases: Road maintenance company Bear Scotland v Fulton, engineering firm Amec v Law and industrial services group Hertel v Wood.

The employees originally won their claims and the tribunal has now rejected appeals from the companies.

In coming to his decision, Tribunal appeal judge the Honourable Mr Justice Langstaff referred back to a number of cases testing Article 7 of the Working Time Directive (2003/88) that made their way to the Court of Justice of the European Union (CJEU).

In cases including British Airways v Williams and Lock v British Gas Trading, the CJEU laid down the principle that pay to be received during a holiday “is a natural continuation of the pay which has been received before the holiday began,” the tribunal concluded.

The judge then said, “Since the decision is one of the CJEU I must treat it as of the highest authority. Past CJEU decisions clearly define ‘Normal Pay’ as that which is normally received. In my view, therefore, Article 7 requires and required non-guaranteed overtime to be paid during annual leave.”

Spanner In The Works

Vince-Cable

Vince Cable Businesss Secretary

Having made his decision, however, the judge then threw a spanner in the works as he did not give any directions on how holiday entitlements relating to periods of overtime were to be calculated or administered through payroll and HR systems.

However, he did cite precedents from three UK employment tribunal cases (Tarmac, Bamsey and Lotus) where the employees’ contracts stipulated that “normal working hours shall be taken to be 38 hours per week”. While finance and payroll managers scratch their heads about the implications of the appeal decision, we are likely to see a lot of contractual amendments in the near future.

The problem is as the ruling is very recent and has received such wide publicity; I have had a number of calls from employer clients on what they should do. Unfortunately, I’m struggling to find any concrete information as to how this adjusted holiday pay should be calculated, and therefore the financial implications on how it will affect firms, including my own I might add. I know that the backdated claims can only go back three months but after that…….?

The whole thing is looking like an administrative nightmare, which will make the monthly payroll run for employers even more tedious given the extra work due from pension auto-enrolment.

The BCC Point of View

The British Chambers of Commerce took an even stronger stance. BCC executive director of policy and public affairs Adam Marshall said: “The pressure being placed on businesses by both the British tribunals and European courts on the issue of holiday pay is becoming unbearable. After the worst recession in living memory, with many companies working to reverse pay cuts and invest in their employees, giant new pay claims could be a huge blow to their growth prospects.”

Stephen Ibbotson, director of business at the Institute of Chartered Accountants, echoed the Chambers of Commerce by commenting that the ruling has the potential to “seriously impact” growth prospects at a time when business confidence is falling.

He went on to say: “So many businesses that have struggled to survive during the recession and increase headcount will now find that their costs could increase at a stroke, and the increased regulation from the Working Time Directive will not help them along the way.

“There are many questions still to answer – just what exactly constitutes regular overtime? What does this mean for commission-based salaries? We’re at the beginning of a long road of appeals and counter-appeals, which only adds to uncertainty – but in the meantime employers will need to ensure that they make provisions for the increased costs that will undoubtedly occur”.

However, before employers are driven to drink and their employees start planning to spend their windfall, a word of caution. Only this morning Vince Cable announced that because of the huge implications of this ruling, he has allowed the case to be referred to the Court of Appeal.

In my experience, and knowing how quickly the Court of Appeal moves, a final decision on these matters could well be a number of years away and if we’ve left the EU in the meantime well…………………..

 

If any of you would like more detailed information on any aspect of the Holiday Pay Ruling , send me an e:mail and I’ll be pleased to advise further.


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