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Holiday Pay Ruling - The Key Points

Holiday Pay Ruling - The Key Points

Employment Appeal Judgment rules in favour of significant change to how “holiday pay” is calculated, but limits past claims considerably

At the present time, full time workers in the UK are entitled to a minimum 5.6 weeks of paid annual leave. Recent cases have concentrated on how holiday pay should be calculated. Earlier this year a decision confirmed that in principal commission should be included in this calculation as it was "linked intrinsically to the performance of the task which the worker required to carry out under [their] contract of employment."

Today the law was taken further when cases of Wood & Others v Hertel (UK) Ltd and Fulton v Bear Scotland were decided on the issue of overtime and the calculation of holiday pay.

In a detailed judgment issued today, the Employment Appeal Tribunal has ruled that:-

  • "Normal pay" will include non-guaranteed overtime when calculating holiday pay and the UK legislation should be interpreted accordingly.
  • The judgment only covers the 4 week entitlement under EU law and not the enhanced period (the extra 1.6 weeks) provided under UK law.
  • A worker is entitled to raise a claim but must do so within 3 months of a deduction being made (i.e. the failure to pay them correctly) or within 3 months of the last deduction if there is a series.
  • Payments for travel time which is paid for by an employer (beyond expenses incurred so amounting to taxable remuneration) should also be included in the calculation.
  • In terms of what amounts to a "series" the EAT has decided that where the deductions are separated by more than 3 months then the chain is broken.

The cases dealt with "non guaranteed" overtime, i.e. overtime which an employer is not required to offer but which an employee is not free to refuse so it is unclear whether the same would apply to purely voluntary overtime where neither the employer nor the employee are required to offer or work overtime.

The effect of this judgment is significant for both employees and employers but the biggest relief for employers is the decision to severely limit past claims.

The EAT has decided to close down the possibility of past claims stretching back years by providing that if workers take periods of holiday more than three months' apart this could remove their right to make claims relating to previous holiday periods. In particular employers may want to specify which periods of holiday count towards the 4 weeks i.e. the first 4 weeks in any holiday year.

It's inevitable that this decision will be appealed and so we will have to await the views of the Inner House, in Scotland, and the Court of Appeal, in England, and possibly then the Supreme Court before a final position is known, which could take as long as five years.

But in the meantime, employers who pay their workers overtime must consider how to deal with future holiday pay and may wish to review their overtime policies.

There are currently thousands of claims either going through early conciliation with ACAS or ready to be raised which were awaiting on the outcome of this decision. Businesses may want to take advantage of this decision and seek to settle any historic claims, which will most likely only have a small value, in light of this judgement before an appeal court takes a different view.

For more information on the ruling or how it may impact on you please contact a member of our Employment Law team

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