Companies Braced For Costly Employment Law Decisions

Almost 40% of senior business managers across the UK believe that their company’s payroll costs will increase as a result of recent and forthcoming legal cases concerning how holiday pay is calculated.

According to joint research by national law firm Irwin Mitchell and YouGov, 36% of senior managers within UK businesses expect costs to increase. 

Out of those businesses, 27% think that the financial impact on their staff overheads will be between six and 10%. One third (31%) were unsure as to the amount.

Significantly, 79% of employees said that they were aware of recent judgments which said that some overtime and commission should be included and 21% said that they would consider making a claim as a result.

Half of those senior managers surveyed, which include chief executives and company directors, said that they do not have a plan for dealing with the issue.

Glenn Hayes, an Employment Partner at national law firm Irwin Mitchell said:

Expert Opinion

The issue of calculating holiday pay is one of the biggest employment law issues affecting businesses at the moment. A number of significant cases were brought last year which provided some clarity, principally in relation to some overtime payments, but there are still significant areas of uncertainty and we expect to see many other holiday pay claims being brought over the next few years.

“Although there are restrictions on historic underpayments for holiday pay, there are still a significant number of employees who will be looking to claim back money that they are owed. Not only that, employers will need to ensure that all future overtime payments are made in accordance with recent judgments.” Glenn Hayes - Partner & National Head of Employment Law

In the high profile case of Lock v British Gas, the European Court of Justice (ECJ) last year found that commission payments which are intrinsically linked to the performance of a worker’s’ contractual duties must be included in holiday pay calculations.  During a two week holiday, Lock received basic pay, plus the commission he had already earned.  However, the ECJ ruled he was disadvantaged by the fact he couldn’t earn commission during his holiday which would impact on his earnings in the following month. 

The case has been resubmitted to the Employment Tribunal on 4 February 2015 to determine if UK legislation can be interpreted in line with the ECJ ruling. If it clears that ‘hurdle’, it could open the floodgates from other employees who have similar commission arrangements at work and believe they have been disadvantaged.

The issue of overtime and holiday pay was also under scrutiny last year via the Bear Scotland v Fulton case. Here the Employment Appeal Tribunal found non-guaranteed overtime that is regularly worked should be included in holiday pay calculations. It also however decided that the opportunity for claims for underpayments would be limited if there was a break of more than three months between one underpayment and another.

Since then, the Government has introduced legislation which imposed a statutory limit on how far back employees can claim underpaid holiday. Claims issued after 1 July 2015 will be limited to deductions which occurred in the two year period before the claim is filed at an Employment Tribunal.

Mr Hayes added: “Millions of employees have variable pay arrangements and the issue of calculating holiday pay can be a complex one. Recent case law has provided some clarity, but there are still a number of uncertainties and financial risks which businesses need to be alive to.”