UK: Statutory holiday pay - EAT confirms pay for non-guaranteed overtime must be taken into account

"Non-guaranteed" compulsory overtime pay ("non-guaranteed" in that the employer is not obliged to offer overtime, but it is compulsory for the worker to perform it if offered) should be taken into account when calculating statutory holiday pay for a worker’s 4 week EU-derived holiday entitlement, notwithstanding that UK regulations exclude this. The EAT has this morning handed down judgment upholding the ET decision last year. (Bear Scotland v Fulton, EAT)

The EAT confirmed that the Working Time Regulations can be interpreted purposively to comply with EU law requiring the payment during statutory holiday of “normal remuneration” reflecting both basic salary and remuneration “intrinsically linked to the performance of the tasks” carried out under the employment contract. The ruling confirmed that pay for non-guaranteed overtime was remuneration to be taken into account when calculating statutory holiday pay; this could be achieved by reading the rules on calculating a week's pay as amended so that such overtime pay is included (and presumably applying the provision to average pay over 12 weeks where the amount of overtime varies). A large number of workers who have received only basic pay for holiday potentially now have the right to bring an unlawful deductions from wages claim. However, the EAT gave permission to appeal and the ruling is likely to be appealed to the Court of Appeal.

Holiday pay claims can be brought within 3 months from the last of the series of deductions (or underpayments) and could therefore potentially go back several years. However, there is some good news for employers. The EAT ruled that a gap of more than 3 months in any alleged series of deductions will prevent a claim in relation to earlier deductions.  If this is upheld on any challenge, it is likely to significantly reduce the scope for claims as a number of employees may well have gone 3 months without taking any of their 4 week EU-derived holiday entitlement. Further, the EAT ruled that workers cannot retrospectively designate which holiday was the 4 weeks' EU-derived holiday and which was the additional 1.6 weeks' domestic leave so as to create a longer unbroken series – the 4 weeks' leave will be the first to be taken unless otherwise provided by the contract or directed by the employer.   The judgment is available here.  (It leaves open the position where overtime is voluntary for both parties, in terms of there being no obligation on the employer to offer it and no obligation on the worker to accept.)

The returned ET hearing in Lock v British Gas was postponed from October pending the Bear Scotland v Fulton ruling, and is now due to be heard on 4 February 2015. The ET will consider whether UK legislation can be interpreted in line with the ECJ ruling that statutory holiday pay must include an amount for commission payments.

Business Secretary Vince Cable has announced the creation of a taskforce (made up of government departments and business representatives) to assess the impact of the ruling for business and how it can be limited.

We are preparing a more detailed practical analysis of the impact of the various holiday pay cases, which will be available to clients in due course.