An employment law specialist has said the Government's plan to introduce new legislation surrounding underpaid holiday pay will be welcomed by employers – but warned that with a delay in the new rules coming into force, employees still have six months to make a claim.
Following the recent holiday pay judgement by the Employment Appeal Tribunal, from July 2015, the legislation will cap claims for underpaid holiday pay to two years.
Noele McClelland, partner in the employment team at Thorntons, said: "The law on the calculation of holiday pay has been in a state of fluctuation in the last year, with the current law requiring overtime, allowances, travelling time, some bonuses and commission to be incorporated into holiday pay.
"The legislation change is good news for employers as the case law has prompted more questions than answers, raising concerns that such uncertainty may lead to more case law in the future. It could have exposed employers to claims for holiday pay stretching back to when the Working Time Regulations first came into force in 1998.
"However as the new rules won't come into effect until July, this means that workers can still lodge backdated holiday pay claims that go further back than two years, so businesses are still at risk of being taken to tribunal. If an employee can show that they have a series of underpayments, none of which are broken by more than three months, then potentially claims could date back to either 1998 or the start of their employment, if later."
The Government's introduction of The Deductions from Wages (Limitation) Regulations 2014 ('the New Regulations') follows the decision of EAT's decision in Bear Scotland v Fulton, in November.
The EAT held that non-guaranteed overtime must be taken into account in calculating holiday pay for the minimum four weeks' statutory annual leave required by the Working Time Directive. However, the tribunal also ruled that there will be a break in the chain of any 'series of deductions' where a period of more than three months has elapsed between the deductions.
This part of the ruling appeared to limit the scope to make retrospective claims for underpaid holiday pay. However, it did not rule out the risk altogether of employers receiving claims for back dated holiday pay stretching back 16 years.
Noele added: "The Government has said it is taking action to reduce potential costs to employers and to protect UK business from the potentially damaging impact of large backdated claims.
"The two year limitation rule on unlawful deductions of wages claims will apply to any sums payable to the worker in connection with his employment including any fee, bonus, commission, holiday pay or other emolument, whether payable under his contract or otherwise. This means that other claims, for example for statutory sick pay, maternity, adoption pay and so on will not be affected by the two year limitation.
"The new regulations provide that the two year cap only applies to a statutory claim that does not also confer a contractual right.
"So breach of contract claims are not affected by this new legislation, and employees could still raise claims for back pay under their contract of employment, although claims for holiday pay under the Working Time Regulations are specifically excluded from being a breach of contract. In Scotland, a civil claim is limited to five years from the last deduction of wages."
