Posted on Jun 06, 2017
The Employment Appeal Tribunal’s decision in Fulton and others v Bear Scotland, arising from a long-running dispute over the calculation of holiday pay, has finally been published (following a hearing in December 2016). You may be aware that there have been a number of cases recently considering what sums should be included in the calculation of holiday pay and this decision has been eagerly awaited to provide clarification regarding how far back employees can claim underpaid holiday pay. You can read more about the holiday pay saga in our previous blogs here: Holiday Pay Ruling - The Key Points and Holiday Pay: Two steps forward, two steps back?
What was the decision?
The EAT held that a gap of more than three months between non-payments or underpayments of wages breaks the ‘series’ of deductions for the purpose of bringing an unlawful deduction from wages claim. In the context of holiday pay, if employees have had a series of non or under payments for holiday pay, the employee will be out of time to claim back any earlier payment where there has been a gap of more than three months between non or under payments.
In an earlier decision in the case, the EAT accepted (on interpretation of the Working Time Directive and earlier European Court of Justice decisions) that any pay that is “normally received” by employees should be included in the calculation of holiday pay. You can read more about this decision in previous blogs here: Holiday Pay Update and Holiday Pay: Two steps forward, two steps back?. If an employee regularly receives payment for overtime, this should be included within their holiday pay (in the case of Lock v British Gas, the EAT held that commission should also be included in the calculation of holiday pay). It is still unclear whether purely voluntary overtime should be included although there have been a couple of Employment Tribunal decision which have held that it should. It must be noted that payment of overtime and commission is only factored into holiday payments for the 4 weeks of statutory annual leave required under European law. There is no requirement to do this for the additional 1.6 weeks of statutory annual leave provided under UK law, or for any additional contractual annual leave allowance. The earlier decisions of Bear and Lock were met with some apprehension from employers, as it signalled the potential for employees to raise claims in relation to historical underpayments of holiday pay.
However, the most recent decision in Bear is good news for employers as it confirms the limits on potential claims. The EAT clarified that the three-month time limit for deductions from wages claim runs from the last deduction or the last of a series of deductions being made, unless the presentation of the claim is “not reasonably practicable” within that three-month period.
For example, an employer’s holiday year runs from 1 January – 31 December. An employee does not receive their overtime or commission payable to them when receiving their holiday pay and thus has been underpaid their holiday pay. An employee takes the following holidays during 2016:-
What are the likely implications for employers?
The most recent decision in Bear will undoubtedly have an impact on the value of any holiday claims – many employees’ will have a break of several months between taking annual leave within a holiday year. In the case of Bear Scotland alone, four of the claims were held to be out of time.
In addition, there is now some certainty regarding how far back an employee can claim and it prevents the possibility of workers claiming for holiday pay underpayment dating back years as a series of unlawful deductions. For claims brought on or after 1 July 2015 there is now a limit of 2 years which employees can claim for.
However, as we reported in our earlier blog last year, the case is just one in a series of holiday pay claims, with several thousand cases temporarily paused pending the outcome of this case (amongst others). Now this case has been decided, it is likely some of those cases will be resumed. With so many cases still to be heard, the holiday pay landscape could be subject to change over the coming months or years. While time limits have been clarified, there is uncertainty regarding a whole host of issues, including how holiday pay itself should be calculated. Therefore, while the case of Bear provides some clarification in respect of holiday pay, there is still a long road ahead.
It may also be that the decision is appealed. The scope of appeal however is likely to be very narrow. The EAT acknowledged in their decision that the basic principles about what was to be regarded as holiday pay have been settled in earlier case law and the current Bear litigation was solely concerned with whether the EAT should interfere with earlier decisions limiting the potential for historic claims.
If you have any questions regarding holiday pay, or any other employment query, please contact Noele McClelland in our specialist Employment Law team on 01382 229111, or alternatively contact a member of the Employment Law team.