Businesses Must Adjust Holiday Pay Calculations To Avoid Claims

In a surprise move, Unite has announced today in WSB magazine that it has not appealed against the Employment Appeal Tribunal’s (EAT) judgment in the case of Wood and others v Hertel and Fulton v Bear Scotland Ltd which limited the extent to which workers can make backdated claims for unpaid overtime.

According to law firm Irwin Mitchell, employers can now rely on this judgment to minimise historic liabilities for underpaid holiday.

There was a real fear by businesses that workers would be able to bring claims going back to 1998 (the date when the Working Time Regulations came into force) which many claimed would bankrupt them.  That fear has been alleviated, although it is likely that other cases will seek to challenge this.

Irwin Mitchell says businesses must now take action and adjust their holiday pay calculations if their workforce or parts of their workforce, work non-guaranteed overtime.

Earlier this month, the EAT listened to the three high profile cases in relation to whether overtime should be included in holiday pay calculations.  It found that non-guaranteed overtime, that a worker was obliged to accept if it was offered, must be included in holiday pay.  However, this was limited to the four weeks leave required under EU law and not to any additional statutory or contractual holiday pay.  Employers can therefore continue to pay these elements at a basic rate of pay (excluding overtime).

It is not yet known if the respective employers have lodged an appeal against the finding that non-guaranteed overtime that is regularly worked must be included in the first four weeks of a worker’s holiday pay, but this is thought to be unlikely.  Any appeal had to be lodged by today. 

However, the EAT indicated that it is did not think that this aspect of its judgment was challengeable in light of earlier decisions in the Court of Justice of the European Union (CJEU) which indicated that workers should receive their ‘normal remuneration’ during periods of leave. 

Unless the employers have appealed, the decision in these cases is binding on businesses which must now make changes to their pay structures to ensure that non-guaranteed overtime is factored into holiday pay calculations for the first four weeks’ leave taken in the leave year.

An employer can still legitimately refuse to adjust holiday pay where overtime is purely voluntary, it is ad hoc or where overtime is subject to an employee being able to “reasonably refuse” it. This point will be determined when the Bear Scotland case goes back to the Employment Tribunal next year.

Expert Opinion

This announcement is surprising as it was widely anticipated that the union would appeal against the limitations imposed in respect of a worker’s right to bring historic claims for underpayments as a series of unlawful deductions, particularly as the EAT itself conceded that this aspect of its decision was ‘arguable’.

“We now have a bit more clarity in relation to the issue of holiday pay and overtime, but there are still plenty of uncertainties and other claims are likely to be raised over the coming months and years. Businesses that do not start to adjust their holiday pay calculations could face claims for underpayment of holiday pay in the Employment Tribunal and should consider taking action now.”
Glenn Hayes - Partner & National Head of Employment Law