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Holiday Pay: Appeal Lodged Challenging The Three Month 'Cut Off' Between Underpayments

Outcome Could Have Huge Implications For Businesses


David Shirt, Press Officer | 0161 838 3094

Two individuals at the centre of a landmark employment law case are believed to have appealed an earlier tribunal decision relating to how much money companies should pay employees who have been underpaid whilst on annual leave.

The high profile case focuses on the issue of overtime and Mr Baxter and Mr Fulton who 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. 

According to the judgment, which has not been reported, the Tribunal accepted that the workers had been substantially underpaid over many years but it refused to interfere with a related EAT decision (Wood and others v Hertel) which said claimants can only bring claims if they are issued within three months from the date of the last underpayment and there are no gaps of more than three months between payments. 

Irwin Mitchell understands that Mr Baxter and Mr Fulton have appealed against this ruling. Given the importance of this limitation on this case and many others like it, it is likely that the EAT will be asked to reconsider this point.  If a different decision is reached, this will potentially expose businesses to claims going back many years.

Expert Opinion
“We understand both claimants have lodged an appeal against this decision and are looking to challenge the requirement that deductions will not form part of a series if three months has elapsed between payments.

“The EAT could reach a different decision on this point, but even if it doesn’t, the claimants, who we believe are backed by their union, may appeal to the Court of Appeal, who could reverse this interpretation.

“The Government introduced legislation which came into force on 1 July this year which limited all unlawful deductions claims to two years. However, this restriction does not apply to claims which were issued before 1 July 2015, of which there are thousands. Many of these have been “stayed” to allow lead cases to be heard and appealed.

“The distinctions between different types of overtime payment look increasingly vulnerable to attack. It is still possible to distinguish purely voluntary overtime from these decisions, but the reality is that if overtime is worked regularly (e.g. at certain specified periods of the year) or frequently, payment for it should probably be included in holiday payments.

“Our experience indicates that many employers who offer voluntary overtime, or who pay staff commission are still waiting to see how the case law develops before changing their policies. In many situations there are no easy means of determining what supplement to holiday pay is appropriate and until there is some binding guidance on these issues, that may be a sensible strategy.”
Glenn Hayes, Partner

The latest twist in the long-running issue of how holiday pay is calculated comes ahead of the latest Tribunal hearing in the British Gas vs Lock case which will be heard on the 8th and 9th of December 2015.

This particular case focusses on Mr Lock, a sales employee at British Gas. In 2014 the European Court of Justice (ECJ) ruled that Mr Lock, whose salary included significant commission payments, should not be financially disadvantaged by the fact that he could not earn commission during his holiday.

The ECJ concluded that Mr Lock’s commission was directly linked to the work he carried out and must be taken into account when calculating holiday pay.
The long-running case then returned to the Employment Tribunal to determine whether the UK’s Working Time Regulations can be read so as to be consistent with the ECJ’s decision. This was successful, but earlier this year, British Gas appealed this decision.  If the appeal is successful, it may lead to a declaration that UK law is incompatible with European law and the Government will be under pressure to amend the offending legislation. This will create further delay and widespread confusion for employers who are already struggling to understand how to calculate the holiday pay of those workers receiving commission payments.

If British Gas is unsuccessful, the case will be listed for a further hearing to determine how much Mr Lock is entitled to receive to compensate him for the reduction in his income over his two week holiday.  It could also provide much needed and binding case law as to what should and should not be taken in to account when calculating holiday and specifically how such holiday should be calculated.

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