A judgment of the Employment Appeal Tribunal today states that overtime should be included in the calculation of holiday pay.
This morning, the President of the Employment Appeal Tribunal, Mr Justice Langstaff, handed down his judgement in the cases of Hertel v Wood, BEAR Scotland v Fulton & Baxter and Amec v Law, ruling that workers are entitled to receive a sum on account of normal overtime as part of their holiday pay.
Background
Holiday pay is calculated by reference to a ‘week’s pay’, which under UK law, has been considered to include basic pay only. There has been a raft of recent case law on the question of whether holiday pay should include more than merely basic pay, including the case of Lock v British Gas, in which the European Court of Justice held that holiday pay should include commission. That case has been remitted to the Employment Tribunal and we expect their judgement to be give effect to the European ruling around March next year.
The three cases were heard together and there was much anticipation among those in employment law about the outcome, which had the potential to open the floodgates to a wave of claims for back-dated underpayments of holiday pay. The Department for Business Innovation and Skills had intervened in the case to make clear its own view that holiday pay should not include overtime.
The judgment
The Claimants argued that their normal pay for the purposes of calculating holiday pay was not merely their basic pay but should include the sums normally received as non-guaranteed overtime. Mr Justice Langstaff held that:
• Non-guaranteed overtime should have been taken into account when calculating the holiday pay due to the workers; • Where travel time payments exceeded the expenses incurred during travel, they were part of the worker’s remuneration, so should also be included in calculations of holiday pay; • The relevant UK legislation, the Working Time Regulations (WTR) must be read in such a way as to give effect to the European Working Time Directive (WTD); • Since the WTD requires only four weeks’ holiday in a year, the additional 1.6 weeks available in the UK under the WTR need not include overtime or travel time payments; and • The workers could not claim underpayment of wages where there was more than three months between the underpayments. This has the effect of substantially limiting claims for back pay.
Impact
The Secretary for Business, Innovation and Skills, Vince Cable, has already announced that a task force has been set up to assess the potential impact of the judgement. There remain some unanswered questions, not least because Mr Justice Langstaff granted leave for the judgement to be appealed to the Court of Appeal. It almost certainly will be appealed and it is possible that the Court of Appeal judgement itself could be appealed, so it could be some time before the courts provide a definitive answer to this question.
• If you are concerned about how this will affect your business, get in touch with our specialist employment team. We can review your contracts and policies and advise on the likely impact of the changes as well as how to limit your risk. • Businesses may wish to consider including overtime payments in their holiday pay immediately or even look at ways of limiting overtime payments. • However, it may be sensible to await the outcome of the appeal before making any positive changes. • If you receive a claim, please contact us immediately. The ordinary rules of limitation will apply but the amount of any liability will depend very much on the facts of the case.
For more information on any of the topics in this article, please contact a member of the team on 01603 281139.
Note: The content of this article is for general information only and does not constitute legal advice. Specific legal advice should be taken in any specific circumstance.
