Holiday pay has got more expensive but not ruinous!

CarolineLeaver

As you may have heard, the much anticipated day has arrived. The Employment Appeal Tribunal has given its ruling on whether non-guaranteed overtime must be taken into account for the purposes of calculating holiday pay. Please see our earlier blog – Sun, sea, sand and the ECJ

The EAT has decided that overtime which an employer is not contractually obliged to offer but a worker is contractually obliged to perform if requested, must be taken into account when calculating an employee’s holiday pay.

A transcript of the full judgment has not yet been published and it is anticipated later today but we understand that the EAT has reached 3 key conclusions:

  1. Non-guaranteed overtime should have been taken into account when calculating holiday pay for the purposes of the four weeks’ holiday entitlement that derives from the Working Time Directive. Note: the UK holiday entitlement is 5.6 weeks rather than 4 weeks and this ruling does not appear to apply to those additional 1.6 weeks.
  2. The UK legislation (the Working Time Regulations 1998) must be interpreted so as to give effect to the requirement of the Working Time Directive (EU legislation).
  3. However, the scope for workers to recover retrospectively any underpayment of holiday pay by an unlawful deduction from wages claim is very limited. There has been an expectation that back-payments might be covered from 1998 onwards. But in practice, if there is a gap of more than 3 months between deductions (i.e. the deduction being non-payment of overtime as part of holiday pay) then the Employment Tribunal has no jurisdiction to hear claims relating to an earlier period.

What does this mean? It looks as though a prudent employer should start taking overtime payments into consideration when calculating future holiday pay. However, what was advertised as one of the greatest concerns to employers (backdated holiday claims amounting to significant sums of money) may have been averted since a break of three months between holiday dates puts a stop to claims accruing. Some employers may feel justified (in order to crystallise any potential liabilities) in imposing a holiday ban for a set period of time but this may well play badly in terms of industrial relations.

However, this is the first appeal and there are three more possible appeal stages (Court of Appeal, Supreme Court and ECJ). It is quite possible that the employees and employers involved in these cases may look to appeal this judgment.

Expect more blogging on this soon.