Holiday Pay: Bear Scotland Ltd v Fulton & Others
The recent landmark Employment Appeal Tribunal case relating to holiday pay has the potential to affect millions of workers and employers, are you one of them?
The decision comes following a group of workers’ argument that under the Working Time Regulations and in line with European rulings, holiday pay should be a reflection of their normal pay rather than only basic salary. It was held that both guaranteed and non-guaranteed compulsory overtime (that required by the worker’s contract) should be included within holiday pay, as this constitutes part of their normal pay. It is also likely to be successfully argued, although not contained within this judgment, that voluntary overtime, which the worker is not contractually obliged to perform, should also be included within holiday pay. This would be in line with European case law.
Although this judgment is likely to have a huge effect going forward, employer’s fears of receiving vast numbers of backdated claims for underpaid holiday dating back over a number of years were somewhat eased. The judgment made clear that any backdated claim for unlawful deductions from wages would be limited by the three month limitation period. Although this is remarkably less that the time period dating back to 1998 as reported in the press, it could still have large financial consequences to employers. It is still to be seen how many workers will take up the opportunity of such claims.
A further implication for the employer arising from this ruling is the fact that the decision only applies to the worker’s basic four weeks holiday entitlement under European Legislation. The Working Time Regulations entitle UK workers to an additional 1.6 weeks of holiday pay and the recent judgment does not apply to that entitlement. This could therefore lead to employers calculating two separate holiday pay rates for workers, applying to the two different entitlements. There would of course be considerable administrative difficulties with this and it will need to be considered whether the administrative burden outweighs the financial difference between the two rates.
This is a ground breaking decision made by the Employment Appeals Tribunal, but further clarity and certainty is however needed and the law currently stands in a state of uncertainty. We are also waiting until February 2015 for the UK hearing of the case relating to the inclusion of commission payments within holiday pay (Lock v British Gas Trading Ltd). The final outcome on this matter is therefore not likely to be clarified for some time in to the future and the true financial implications on employers will be unknown until then. This is an area for both employers and employees to watch!
Should you wish to discuss any issues arising from this case, or require any other advice relating to employment issues please contact Michael Scutt in our Employment Department.