The Employment Appeal Tribunal (EAT) has published its long-awaited judgment in the closely-observed case of Bear Scotland v Fulton (and the conjoined cases of Hertel v Woods and Amec v Law).
The conclusion of the EAT is that the calculation of Workers’ holiday pay must take account of normal Non-Guaranteed Overtime*. This is likely to be appealed by the employers in these cases as the EAT has granted leave for appeal to the Court of Appeal and there is much at stake financially.
(*Non-Guaranteed Overtime is where the Worker/Employee has an obligation to work overtime, but the Employer has no obligation to provide overtime.)
In the meantime the decision makes possible multiple successful claims for unpaid holiday pay. The government currently estimates that this may affect up to 5 million people and cost employers billions of pounds in backdated pay.
What the EAT Ruling Means for Holiday Pay Calculation
Central to the case was European Law. Despite the EAT refusing to refer the case to the Court of Justice of the European Union (CJEU), so as to provide the correct interpretation of Article 7 of the EU-wide Working Time Directive, the EAT ruled consistently with previous referrals to the CJEU.
It interpreted the implementing domestic legislation, reg. 13 of the Working Time Regulations 1998,as including payments for overtime which the employer was not obliged to offer as a minimum, as part of normal remuneration to be included in the calculation of pay for holiday leave.
However, the leave for which payments are to be made was held not to be the extended leave as provided for in reg. 13A Working Time Regulations (that of an extra 1.6 weeks) but was held to apply only for the basic four weeks’ leave as provided for in the Working Time Directive itself.
Additionally, the EAT made clear (in the Hertel and Amec cases) that as travel time payments are remunerated by reference to categories of distance and on terms as to working a full day, these could form part of normal remuneration. Where this amounts to additional taxable remuneration as opposed to reimbursement of costs, any calculation of holiday pay should therefore also account for this.
How Far Back Will Claims be Backdated?
Importantly, the EAT ruled that any complaint or claim for arrears of holiday pay will not be considered unless it is brought within three months of the deduction in pay, or the last of a series of deductions made. In effect, this means that if there has been a break of over three months between successive underpayments only the latter underpayments may be claimed for.
Notably, the EAT stated that this limitation period would be the most significant point for the Court of Appeal to consider, in any prospective appeal. It should be made clear however that extension to this period could be granted for a reasonable time if it was not “reasonably practicable" for the complaint to be presented within the three month period.
The Department of Business, Innovation and Skills made it clear prior to the ruling the Government’s objections to such a judgment. That followed a consultation with various business groups which stressed the potentially existential threat a ruling in favour of employees would be to smaller businesses.
Businesses relying on a workforce where pay fluctuates voluntarily or non-mandatorily, where payment is largely commission-based for example, may now incur significant unexpected costs. Businesses must decide whether to change their holiday pay policies following the judgment or wait for the outcome of any appeal and risk claims being brought against them by Employees and Workers.