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At last some good news for employers on holiday pay

The EAT has confirmed that in the overtime case of Bear Scotland v Fulton and Baxter, a gap of more than three months between non-payments or underpayments of wages will break the ‘series’ of deductions for the purpose of bringing an unlawful deduction from wages claim. This means that workers will usually only be able to claim underpayments of holiday in their current leave year even if they can show that underpayments went back many years.


Mr Baxter and Mr Fulton were employed by Bear Scotland as road operatives. They received basic pay plus overtime and standby payments for their work. However, they were only paid basic pay when they took a holiday and, as a result, they each issued eight separate claims alleging that they had been underpaid holiday in each holiday year.

Mr Baxter claimed that he had been underpaid holiday from 2007 until 2014 and that this amounted to £15,170. Mr Fulton claimed that he had been underpaid holiday from 2008 until 2014 and that this amounted to £10,060. Both limited their claims to 20 days in each holiday year, rather than the 30/29 days they were entitled to contractually.

The EAT in Wood and others v Hertel determined that workers who were required to work overtime when it was offered (a process known as non-guaranteed overtime) were entitled to have these payments and other relevant allowances included in the first 20 days of paid holiday taken in each holiday year. Mr Baxter and Mr Fulton’s claims were remitted back to the Tribunal because the overtime arrangements at Bear Scotland provided that workers could turn down overtime requests, but only in limited circumstances.

Employment Tribunal decision

Arguments about whether the slightly different overtime rules operated by Bear Scotland could be distinguished from those in Wood were not raised. Instead, the parties reached agreement on the relevant facts and appear to have accepted that the overtime pay and stand by allowances received by Mr Baxter and Mr Fulton should have been included in their holiday pay and that the claims should be limited to the first 20 days of leave rather than the 28 days minimum holiday allowances provided by the UK or their additional contractual allowance.

Instead, the arguments focused on the new rule imposed by the EAT in Wood, that if more than 3 months had elapsed between successive non or underpayments of the first 20 days of leave, this would break the link and workers would not be able to claim the underpayments as part of a “series of deductions”.

The Claimants tried to convince the Tribunal that it was not bound by this decision and that they could be reimbursed for all of their underpaid holiday. The Tribunal rejected this argument and said that it was bound by the EAT’s decision on this point. This meant that the majority of the Claimants' claims were out of time.

The Tribunal acknowledged that the Claimants’ had suffered significant losses and that this resulted in a “windfall” for their employer. In Mr Baxter’s case, he received only £2,180 of the £15,170 he had been underpaid and in Mr Fulton’s, he received only £2,153 of the £10,060 he had been underpaid.

Appeal decision

The Claimants sought to persuade the EAT that they are entitled to recover all of the underpayments of holiday unlawful deductions as a series of unlawful deductions and that the restrictions imposed on the interpretation of a “series” were wrong.

The EAT rejected the appeal, but largely on technical grounds. Mr Fulton and Baxter had been a party to the original litigation and did not appeal that decision even though the EAT made it clear that its interpretation in respect of limiting a series of deductions was a new one and should be considered by a higher court. The EAT in this case said that the Claimants had missed their chance and could not try and re-open the issue through separate litigation.

Does this mean that the 3 month “rule” cannot now be challenged?

No. Whilst this is effectively the end of the road for Mr Fulton and Mr Baxter, it does not mean that the argument about this issue will not resurface in another case. That said, it may not be particularly easy to do so. This is because Employment Tribunals must follow EAT decisions which means that any similar arguments will fail in the first instance. A Claimant wishing to challenge this will therefore have to apply for that decision to be appealed and if it gets through the preliminary stages, the EAT will have to decide whether or not to follow one of its own previous decisions. There are limited grounds in which it can do so, so it is much more likely that the issue will have to be determined by a higher court (such as the Court of Appeal) before this issue is settled.

This decision will primarily affect cases that were lodged prior to 1 July 2015 (of which there are thousands) which sought to recover underpaid holiday going back many years. Cases lodged on or after 1 July 2015 already limit an employer’s exposure to 2 years provided there are no gaps of 3 months or more between relevant underpayments.

Are you facing holiday pay litigation?

This decision is welcome news and will provide employers with powerful ammunition to defeat holiday pay claims which go further back than a worker’s current holiday year. Put simply, a worker will only be able to link underpayments of holiday if there are no gaps of three months or more between underpayments and the payments themselves are of the same ‘type’. And remember: the first 20 days of holiday are treated differently from the remaining 8 statutory days.

Published: 2 June 2017

Employment Law Update - June 2017

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Glenn Hayes