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07th November 2014

Overtime and Holiday

The Employment Appeal Tribunal’s (EAT) decision in Bear Scotland v Fulton (and conjoined cases) on the implications of working overtime on holiday pay is out.

The Employment Appeal Tribunal’s (EAT) decision in Bear Scotland v Fulton (and conjoined cases) on the implications of working overtime on holiday pay is out. These cases stemmed from the European Court of Justice’s decision in Lock v British Gas that commission which is directly and intrinsically linked to an individual’s work must be included in their holiday pay. A tribunal is expected to rehear that case in February 2015 to decide whether our domestic legislation - the Working Time Regulations 1998 (WTR) - can be interpreted accordingly and, if so, how much holiday pay is owed to Mr Lock. The cases concern 'non guaranteed overtime' - that is, overtime which the employer does not guarantee but which employees are obliged to work when it is required. The EAT decided that where such overtime must be worked with a 'sufficient degree of regularity', overtime payments form part of 'normal' remuneration and must therefore be included when calculating holiday pay. The reference to some form of regularity in working overtime suggests that arguably where (compulsory) overtime is only worked on an ad hoc basis, it can be disregarded for holiday pay purposes. Situations where an employee can refuse to work overtime were not the subject of this decision, though it may not be too surprising if there is another decision in the future that truly voluntary overtime should be treated in the same way as non guaranteed overtime. The EAT also considered the scope for backdated holiday pay claims, determining that such claims should be framed as unlawful deduction from wages claims under section 13 of the Employment Rights Act 1996, which requires that - where a series of deductions has been made - the claim must be brought within 3 months of the last deduction in the series. Charting new territory regarding what 'series' of deductions means, the EAT decided that where there has been a gap of more than 3 months between any two deductions in a chain, the 'series' of deductions is broken. This severely restricts the scope for workers to claim backdated holiday pay. Further points to note include the following: the decision only applies to the 4 weeks’ leave to which workers are entitled under the Working Time Directive, not the full 5.6 weeks’ leave to which they are entitled under the WTR; and holiday pay should also reflect taxable travel time payments which exceed expenses incurred. Permission to appeal to the Court of Appeal has however been granted, the EAT noting not only that its decision on the meaning of 'series' of deductions was arguable, but of public importance. Only when any appeal (which seems likely) has been decided will the position be certain. In the meantime, employers need to gauge the extent of their risk by considering their existing pay systems, records of holiday pay and workforce awareness of the matter. They must then decide on their approach. This could include doing nothing pending the outcome of the likely appeal, or – based on the current decision – try and work out what arrears of holiday pay are due and either earmark this sum in their accounts to cover possible claims, pay out the full sum to staff, try and settle potential claims (for less than might be due pending final clarification of the law) and/or pay correctly from now on. There are of course pros and cons with each of these options. For further information contact Elizabeth Swinburn on 01223 461155 or click here to email Elizabeth. For more information on our employment services click here.

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