Recent days have seen confirmation that employers must include non-guaranteed overtime (overtime which the employee is required to work, but the employer is not required to offer) when calculating holiday pay. However, limits are placed on a worker’s ability to bring backdated claims.
Predictably, employers in hospitality and catering are concerned at the potential cost implications, with the ALMR (Association of Licensed Multiple Retailers) warning against retrospectively penalising employers and the dangers of hindering investment.
Here, Lisa Jinks of Greenwoods Solicitors LLP explains the impact and potential action to be taken by employers.
The decision is taken from the combined cases of Bear Scotland Ltd v Fulton and Baxter; Hertel (UK) Ltd v Wood; and Amec Group Ltd v Law (‘Bear Scotland’).
The judgment was handed down by the Employment Appeal Tribunal (EAT) on 4 November 2014.
Impact
In Bear Scotland, the EAT has confirmed the approach of the European Court of Justice in BA v Williams (2012) and Lock v British Gas (2014). It found that:
- All elements of a worker’s “normal remuneration” (including non-guaranteed overtime) are to be paid during annual leave.
- When considering “normal remuneration”, the payment in question has to be made for a sufficient period of time to justify it being considered “normal”. This test was satisfied on the facts as there was a settled pattern of work. However, where no “normal remuneration” exists, an average over a representative period is appropriate. (Unfortunately, the EAT failed to provide any guidance on what the appropriate reference period might be.)
- On the facts, overtime was intrinsically / directly linked to tasks which the workers were required to carry out. So too were the taxable elements of payments for travelling time.
- Claims for unpaid wages (including unpaid holiday pay) can be brought where there has been a ‘series of deductions’. However, the EAT held that where there was a gap of more than three months between any two underpayments, a worker will normally be out of time. This is good news for employers as it limits the scope for which workers can bring backdated claims.
In response to this significant judgment, the Government announced that it intends to set up a taskforce to consider this decision, and the impact on employers, as a matter of urgency. Permission was given to appeal the cases to the Court of Appeal – it is therefore likely to be some time before a definitive answer on these issues is known.
Note:
- The EAT didn’t give any indication on the appropriate reference period, but other calculations of a ‘week’s pay’ are based on a 12 week reference period.
- This decision is in respect of the 20 days’ holiday provided for under the European Directive; it does not apply to the additional 8 days’ holiday provided for in the UK.
- The issue of commission is yet to be decided – although it is highly likely that this will follow Bear Scotland. The Appeal hearing in Lock is set for February 2015.
Action
Given the complexities of the judgment, employers should now consider with their legal advisors:
- Whether to start paying holiday pay which takes into account non-guaranteed overtime immediately, or wait for a decision of the Court of Appeal.
- Whether other payments such as commission, bonuses, standby payments etc. should also be included (the Lock case is to decide on commission in February 2015)
- The extent of potential liability for any backdated claims.
The EAT’s decision is available here. The Government’s press release on creating a taskforce to consider this issue is available here.
This is a very important decision and you are recommended to take legal advice on how you should act now.
For more information, please contact Lisa Jinks, Professional Support Lawyer
Employment & Employee Benefits, Greenwoods Solicitors LLP
Monkstone House, City Road, Peterborough PE1 1JE
T: 01733 887700
Compass House, Vision Park, Histon, Cambridge, CB24 9AD
T: 01223 785300
2 Mitre Court Buildings, Temple, London, EC4Y 7BX
T: 020 3691 2100