Employment Briefing - August 2014
Published byMartin Stephen
We are devoting the whole of this edition of Employment Briefing to the vexed issue of holiday pay for employees and workers.
Recent cases have made the headlines leaving employers confused as to what should and what shouldn’t be included in holiday pay. And, hanging over employers like a black cloud on a sunny day, there could be the possibility that employers may face substantial claims for holiday pay going back several years.
So what should an employer do? Martin Stephen looks at the story so far.
The Calculation of Holiday Pay
Most employers will have seen the headlines on holiday pay, the media gleefully reporting on a series of recent cases in the Employment Appeal Tribunal.
Of the most importance of these cases are the cases of Fulton -v- Bear (Scotland) Limited and Wood -v- Hertel (UK) Limited.
These cases were heard together in the Employment Appeal Tribunal (EAT) on 30th and 31st July and 1st August 2014 and a decision of the EAT is expected in the coming months. Whilst it is hoped that the decision will clarify matters, there can be no certainty that it will.
It is also possible that, in the light of the decision, those two cases will be settled out of the Tribunal, in which case we will have to await further developments in case law.
Statutory Provisions
The EU Working Time Directive provides that workers must be paid at least 4 weeks annual leave each year. These requirements were enacted in the UK by the Working Time Regulations 1998 which give workers an additional 1.6 weeks paid annual leave. No statutory direction is given as to how a week’s pay should be calculated and historically employers have done this on the basis of basic pay excluding such things as overtime, commission and bonus.
Recent Developments
In the case of Williams -v- British Airways, the European Court of Justice said that the Directive requires workers to receive their “normal remuneration” for the first 4 weeks of their holidays. The Court went further to say that this should include payments “intrinsically linked” to performance of tasks which workers are required to carry out under their Contract of Employment. In the later case of Lock -v- British Gas Trading Limited the Court said that the first 4 weeks holiday pay should include commission as it was intrinsically linked to the work done by Mr. Lock and formed part of his “normal remuneration”.
Consequences
It goes without saying that if employers are required to take account of payments such as overtime, commission and bonus when calculating holiday pay this will have huge financial consequences.
It is likely that claims for past holiday pay will be made on the basis that employees will maintain that there has been a series of unlawful deductions from holiday pay in breach of the EU Directive. Claims could go as far back as 1998 when the Working Time Regulations came in to force. Claims for unpaid holiday pay or unlawful deduction from wages will transfer to new employers who acquire employees following a TUPE transfer and acquiring employers will have to make sure that they obtain appropriately worded indemnities.
Claims by transferring employees have to be brought within 3 months of the last unlawful deduction from wages or salary by their previous employer. Acquiring employers, therefore, need not worry about historical claims resulting from TUPE transfers once a three month period after transfer has elapsed. Acquiring employers will, however, need to be careful that they guard against inertia and do not inadvertently create situations where new claims can be built up through continuing to employ under the same terms and conditions.
What next?
The law is currently unclear and will, hopefully, be clarified when we have a decision in the Fulton and Wood cases.
Many employers have already been approached in relation to claims for holiday pay and many will have been contacted by ACAS with a view to embarking upon the process of early conciliation of claims. Whilst each case must be considered on its particular merits, it would seem premature to embark on early conciliation when we do not have the EAT’s decision in the cases of Fulton and Wood and it is, therefore, unclear as yet how holiday pay should be calculated.
Employers may wish to consider whether they should interrupt the process of alleged unlawful deduction by taking account of payments such as commission, overtime and bonus when calculating holiday pay going forward.
Done properly, whilst this would have the effect of avoiding future claims, it should not be undertaken lightly. At the very least any such arrangement should be entered in to on a strictly “without prejudice” basis and making it clear that such action is not to be taken as acknowledging that employees have a valid claim.
It is understood that employers’ organisations are actively lobbying the Government to take steps to restrict the impact of such claims on business, particularly in relation to how far back employees can claim.
We will, of course, be reporting further developments in relation to this matter as they happen. It goes without saying that the legal issues in this matter are complex. Please contact a member of the Employment Team for advice on specific circumstances.
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