Holiday pay – an update and some good news for employers (for the time being)
We reported back in June on the Court of Justice of the European Union’s decision that employers must pay employees their normal pay for any statutory holiday taken, and that normal pay must include the commission which the employee would have received if they had actually been working during the holiday.
This week, in the latest development, the Employment Appeal Tribunal (EAT) has, in a widely (albeit not always accurately) reported decision, confirmed that:
- workers are entitled to be paid “normal remuneration” for the four-weeks of their holiday entitlement which flows from EU law.
- normal remuneration must include non-guaranteed overtime – that is, overtime which the employer is not obliged to provide but which the employee must undertake if requested to do so.
The EAT also decided that the Working Time Regulations 1998 are capable of being interpreted in line with EU law, which means workers who work non-guaranteed overtime are entitled to claim holiday pay which includes their overtime pay from their employer (if the decision on this point had gone the other way, workers would have been left with a claim against the Government for a failure to properly implement the EU legislation).
The most important aspect of the decision is that the EAT has restricted how far back in time workers will be able to claim for arrears of holiday pay. Under this decision, workers will not be able claim underpayment for holidays if there was at least three months between successive underpayments.
By way of example if a worker took two weeks’ holiday in February this year and another two weeks’ in September, and was underpaid in respect of both holidays, then he would be able to claim underpayment for the September holidays (provided he submits a claim within three months), but not the February holidays, because more than three months passed between the holiday in February and the holiday in September.
If however that worker had taken one week in each of March, June and September, and had been underpaid in respect of each, he would be able to claim in respect of each holiday because each of the underpayments had occurred within three months of the one before.
The practical effect of this part of the decision is to limit the likelihood of employers facing potentially very costly claims stretching back many years – before this decision it had been feared that workers who were employed when the Working Time Regulations came into force in 1998 and are still employed by the same employer may be able to claim for underpayments of holiday pay going right back to 1998.
One issue which the EAT was not required to deal with was the question of the reference period to be used to assess how much overtime on average has been paid. Under UK law, the reference period for wages related calculations is 12 weeks, whereas the recent European Court decision in Lock and British Gas suggested a reference period of 12 months. We will need to wait for a further case to resolve this point.
What should employers do now?
It seems unlikely that there will be an appeal against either the decision that normal remuneration must include non-guaranteed overtime or the decision that the UK law can be interpreted in line with EU law.
It does seem more likely though that the workers here will appeal against the decision to limit the extent to which they can claim for arrears of holiday pay. So the risk that employers will face retrospective claims relating to periods of annual leave dating back a considerable time remains, and it is unlikely that the outstanding questions regarding calculation of holiday pay will be conclusively resolved soon.
Therefore, employers may want to consider workers’ length of service and holiday patterns as this may help identify how much is likely to be at stake.
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