The Employment Appeal Tribunal (EAT) on 4th November handed down an important judgment on holiday pay that will affect a vast number of employers in the UK. The government is clearly concerned about its potential impact on businesses, and Business Secretary Vince Cable has already announced that a government task force will be set up to look into the implications of the judgment. Jennifer Jones, Partner (Barrister) and Head of Employment at Worcestershire, Gloucestershire, Herefordshire and Thames Valley-based solicitors Harrison Clark Rickerbys, advises local employers what the EAT ruling means, and what steps to take.
What is the case about?
The case is about how much holiday pay someone should receive under the Working Time Regulations 1998. The EAT’s decision only covers the first 20 days of holiday under the Regulations. It does not relate to the remaining 8 days’ holiday under the Regulations or to any additional contractual holiday entitlement.
How has this holiday pay been worked out in the past?
Until a recent spate of cases, holiday pay under the Regulations was based on a calculation of “a week’s pay” in the Employment Rights Act 1996. That had the effect, in many cases, of excluding additional payments such as overtime, commissions and bonuses from that calculation.
What does this judgment say?
The EAT has said that overtime payments in the period leading up to the holiday must be taken into account in the calculation of holiday pay for holiday taken under the Regulations. It will not be enough to have an agreement that only “basic pay” should be paid for periods of holiday. A calculation will presumably have to be made over a 12 week period prior to any holiday.
Does this only have effect from now on?
No. The effect of this judgement is retrospective. It means that many employers will now face claims for “holiday back pay”.
Is there likely to be any appeal?
Yes. Leave to appeal to the Court of Appeal has been granted. That could take many months and employers must expect to receive claims for holiday back pay in the meantime. It is possible that Employment Tribunals will not decide them until there is a definitive ruling, but the EAT judgment has been given by the President of the EAT and is therefore of significant authority unless and until the Court of Appeal overturns the decision.
How far back can these claims go?
Under this judgment this will vary from case to case. There may be no cut-off date beyond which a claim can reach back – there is nothing in the relevant legislation to do this – but the EAT has decided that if there is a gap of more than three months between underpayments of holiday pay, that will break any chain of underpayments. Claims of this kind can be pursued as if they are a series of unauthorised deductions from pay. The time limit for such Tribunal claims is three months from the last in a series of deductions. This ruling could break that chain of deductions but every case would have to be looked at individually. Different employees doing the same job for the same employer might have very different claims.
What about claims through the Courts?
No one has yet run one of these claims in the Courts – as far as we know. They might try to do so if they are outside the normal Tribunal time limit. They would have to argue that the Regulations give them a contractual right to the holiday pay at the higher rate and that failure to pay at that higher rate is a breach of contract. If that argument were to be accepted, many more claims would be possible. Breach of contract claims can only go back six years from the date that they are issued, however.
What should I do?
These cases were mainly about overtime. They also covered what were described as “travel time” where the employer paid the employee for the time spent getting to a job. The EAT has said that they too must be included in the calculation. Commission has already been found to be part of “normal remuneration” by the Court of Justice of the EU, so is also part of the holiday pay calculation. Other types of additional payment have not been considered but more cases are in the pipeline. Employers of all sizes should review now how holiday pay is calculated and paid across their workforces. If it looks like you might be at risk of back-pay claims, take practical, commercial advice on the level of risk and how you can minimise it. Don’t wait for the claims to hit first.
About Harrison Clark Rickerbys
Harrison Clark Rickerbys has 350 staff and partners operating out of offices in Worcester, Cheltenham, Hereford, Ross-on-Wye, the Thames Valley and Birmingham, and by appointment in central London, who provide a complete spectrum of legal services to both business and private clients, regionally and nationwide. The firm also has a number of highly successful teams specialising in individual market sectors, including health and social care, education, agricultural and rural affairs, hospitality and leisure, defence, security and the forces, and construction. For further advice and information (including a fixed fee review of your holiday payment practices), contact Jennifer Jones (Head of Employment) at firstname.lastname@example.org; 01905 746470.
To find out more please contact:
Michelle Whitefoot T: 01886 812779 email@example.com
Kabbie Langford T: 07940 371794 firstname.lastname@example.org