Holiday Pay Warning – An Update

David-Ward-h&s

David Ward

Further to my earlier blog post uploaded on 28 July 2014 we continue to await the Employment Appeal Tribunal (EAT) judgment in the joined cases of Bear Scotland Limited v Fulton, Hertel (UK) Limited v Wood & Others and Amec Group v Law & Others. My advice to both employees and employers is to read this blog carefully as the law is currently in a state of flux.

Recap – holiday pay legislation and case law

Article 7 of the Working Time Directive (WTD) stipulates that employees are entitled to four weeks’ paid leave per annum. Employees should therefore receive a week’s pay for each weeks’ leave. Employees in the UK are entitled to 5.6 weeks’ paid leave and therefore, the additional 1.6 weeks’ leave represents additional leave for the purposes of this update.

2013

In BA plc v Williams, the Supreme Court held that an employee’s/worker’s normal remuneration includes pay “intrinsically linked to the performance of their tasks”.

In Neal v Freightliner Ltd it was held by the Employment Tribunal that an employee’s/worker’s holiday pay should take into account overtime payments.

2014

In Lock v British Gas Trading Limited the Court of Justice of the European Union held that holiday pay should include commission when that commission forms part of the employee’s or worker’s normal remuneration.

In Fulton v Bear Scotland Ltd, the Employment Tribunal ruled that an employee’s/worker’s pay should include overtime, standby and emergency call out supplements.

Claims for holiday pay could (or should) be imminent

Failing to pay an employee properly for their annual leave is likely to deter them from using their right to take annual leave and this is contrary to the objective of the WTD and therefore the Working Time Regulations 1998 (WTR).

An employee or worker has two claims available to them in an Employment Tribunal if they are paid holiday pay without commission/bonus that is due:

1) A claim that his or her employer has failed to pay sums due in respect of leave which he or she has taken (Regulation 30(1)(b) WTR);

2) A claim in respect of unlawful deduction of wages under Part 2 of the Employment Rights Act 1996 (ERA).

A claim under (1) must be presented to an Employment Tribunal within 3 months of each deduction complained of, meaning that employees are unable to recover unpaid holiday pay that became due any longer than 3 months’ ago.

A claim under (2) may be more beneficial because the time limit for presenting a claim where there has been a series of deductions, is three months’ from the last deduction in the series (s.23(3) ERA).

Clearly if an employee has been denied holiday pay stretching back over a period of time, potentially dating back to the beginning of their employment or the introduction of the WTR in 1998, it is more favourable for the employee to bring a claim for unlawful deduction of wages.

This could present a huge problem for employers, who may face claims dating back over 16 years. The absence of records going back that far could lead employers to think twice about arguing against payment in an Employment Tribunal.

Indeed John Lewis and Waitrose have already bitten the bullet and paid their employees back dated holiday pay going back at least six years (based on the 6 year civil/contractual limitation date under the Limitation Act 1980).

Minimising potential liability

There may however be light at the end of the tunnel for nail biting employers.

Whilst employers continue to fail to pay their employees holiday pay including commissions/bonuses that they normally receive, they will be continuing to make unlawful deductions of wages from their employees’ pay packets. However, as soon as they address this and start paying holiday pay correctly (pursuant to the above case law) they start to limit their liability from that point.

The inclusion of bonus/commission within holiday pay only applies to the four weeks’ holiday employees are entitled to under Article 7 of the WTR. Therefore historical liability will only be for 4 weeks’ paid leave per year and will only consist of the bonus/commission that the employee missed out on. Average bonus/commission is calculated over a 12 week reference period if not already clear from the employee’s remuneration package. Employers should multiply that liability by the employee’s length of service in years (back as far as 1998) to work out total potential liability.

It sounds bad so far, but the light at the end of the tunnel is that, if an employer now starts paying holiday pay correctly, the hard done by employee only has three months’ from their most recent holiday payment in which to realise they have a claim, take advice and lodge it with the Employment Tribunal. As most employees’ last holidays will have been taken during the Summer, they may soon be out of time to claim. The cynical amongst us might think that the EAT are waiting for Autumn to pass before handing down their judgments on Bear Scotland and Freightliner.

Better still is the fact that the historical holiday pay chain or series of deductions can be broken by all sorts of events, including the employee taking a long leave of absence or receiving a new contract with a new pay structure. In such a case the employee will only have a series of deductions from the date of the chain breaking event.

What could be an absolute minefield for both employees and employers could become a level playing field with the right advice at the right time.

David Ward
Solicitor
Employment Department
Dward@LawBlacks.com
0113 227 9262

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