Holiday pay, overtime and other matters

Amid a fanfare of publicity the Employment Appeal Tribunal (“EAT”) has handed down its Judgment (4 November 2014) in the conjoined cases of Bear Scotland Limited and others v Fulton and others, Hertel (UK) Limited v Woods and others and Amec Group Limited v Law and others. The Judgment was given by the President of the EAT (The Honourable Mr Justice Langstaff) sitting alone.

The central issues with which the appeal dealt included those briefly summarised below:

1. should payments in respect of non-guaranteed overtime (that is, overtime which the worker is obliged to work but which the employer is not obliged to provide) be included in the calculation of holiday pay in respect of the four weeks annual leave provided for by Regulation 13 of the Working Time Regulations 1998 (“WTR”)?

2. should payments in respect of the taxable element of a radius allowance (payable to employees who travelled daily between their home and the construction site at which they worked and intended to cover travelling time and fares) and in respect of a travelling time payment (paid at the rate of one hour’s basic pay for the first 30 miles travelled, and half an hour’s such pay for each subsequent 20 miles) be included in the calculation of holiday pay for holiday taken under Regulation 13 WTR?

3. for the purposes of bringing claims in the Employment Tribunal for underpaid holiday pay, and the time limit for doing so, what amounts to “a series of deductions”?

Non-guaranteed overtime

The EAT held that payments in respect of non-guaranteed overtime must be taken into account when calculating holiday pay for the above purposes. On the point the President could “see no scope for any such uncertainty as would persuade [him] to make a reference to the Court of Justice of the European Union” (“CJEU”).

The taxable element of the radius allowance and the travelling time payment

The EAT also held that both the taxable part of the allowance and the payment should have been taken into account when calculating holiday pay for leave taken under Regulation 13 WTR.

Time limits and a “series of deductions”

This is a key issue for employers because of the prospect of backdated claims (thought potentially to be until the date of commencement of the working relationship, but with a “longstop” date of 1 October 1998, the date that the WTR came into effect). An underpayment of holiday pay under the WTR can be brought as an unlawful deduction from wages claim. Any such claim must be brought within three months of the deduction or, if there is a series of deductions, within three months of the last deduction in the series. It had been thought that these provisions permitted workers to rely on repeated (e.g. year on year) historical underpayments of holiday pay so that they could bring backdated claims.

In dealing with this issue, the EAT held that what amounted to a “series of deductions” was a question of fact but that a sufficient factual and temporal link was required between underpayments for there to be “a series”. Crucially, the EAT held that what amounted to a “series of deductions” had to be understood in the legislative context. Accordingly, the President was of the view:

“---that Parliament did not intend that jurisdiction [for an Employment Tribunal to be able to hear an unlawful deductions claim]could be regained [after a previous non-payment or underpayment] simply because a later non-payment, occurring more than three months later, could be characterised as having similar features such that it formed part of the same series. The sense of the legislation is that any series punctuated from the next succeeding series by a gap of more than three months is one in respect of which the passage of time has extinguished the jurisdiction to consider a complaint that it was unpaid.”

In other words, if there is a gap of more than three months between any two deductions, it appears that this will break the chain. Such an interpretation seems to create a large obstacle for backdated claims.

What next?

The claims against Bear Scotland have been remitted to the Employment Tribunal. However, the respective parties in the Hertel and Amec cases have been given permission to appeal to the Court of Appeal on all points on which they lost before the EAT. In granting that permission the President of the EAT expressed the view that an appeal on the series of deductions point was arguable, as well as being of public importance.

How we can help

Given the President’s strong views that the earlier CJEU decisions in the cases of British Airways plc v Williams and Lock v British Gas Trading Limited together represented “a settled view” of the CJEU as to the meaning of the holiday pay obligation in Article 7 of the Working Time Directive and that an appeal on the ambit of the obligation did not have a reasonable prospect of success, it is important for employers to now review their contracts of employment and holiday pay practices in order to identify (and limit, as the case may be) any holiday pay liabilities. Furthermore, the question of whether there is a lurking holiday pay liability will need to be addressed in due diligence exercises on share sales and TUPE transfers. We can help with all these matters.

Further information

For further information about the implications of the above cases, or in respect of any holiday pay issues, please contact employment solicitor Nick Sayer in Cambridge on 01223 411421, Andrew Buckley in Bedford / Sandy on 01234 270600, or Maria Gallucci in Milton Keynes on 01908 202150.