Overtime should count in holiday pay, Tribunal rules

The EAT has confirmed the European Court of Justice’s view that holiday pay must be based on ‘normal pay’ and, in these cases, that normal pay included overtime and paid travelling time.

Paul Scope, Partner of Ward Hadaway’s Employment Unit says: ​”The ECJ had already decided that holiday pay should be based on the pay that a worker would actually get, if they were at work.  That meant the direction from Europe was clear – all payments that would normally be paid to a worker must be included in holiday pay.

“On this basis, the EAT was very likely to rule in accordance with the ECJ case.  However, there are some important aspects to the decision:

1. The EAT had to work out how to implement the ECJ ruling into UK law – effectively, it did that by applying an amendment to the Working Time Regulations.
2. The upshot is that ‘normal’ pay is what a worker actually receives, including overtime.
3. If necessary, normal pay needs to be averaged over 12 weeks.

Importantly however, the EAT also ruled on how far back employees can claim for holiday pay.

In a detailed technical section of the judgment, the EAT suggested that an employee is unlikely to be able to claim holiday pay as unpaid wages beyond this holiday year – however this ignores potential breach of contract claims.

Additionally, the Judge indicated this part of the decision was ‘arguable’ and of ‘public significance’, meaning this is a likely area of appeal.

The decision is very likely to be appealed.  The current position, however, is that overtime should be included in holiday pay but that an employee will find it difficult to claim historic losses.  It is difficult to see how an employer could avoid including other amounts (for example commission).  We are working with a number of clients to assess and limit their liability.

The Department for Business, Innovation and Skills has already announced that Vince Cable is setting up a task force to look into ‘limiting the impact of the ruling’.”

What happens now?
Due to the publicity the decision has already attracted, businesses can expect to be presented with queries from staff regarding their entitlement to holiday pay.

More sophisticated employees and those supported by Trade Unions, external lawyers and claims management companies are likely to make detailed requests for disclosure.

It is important that the manner in which you respond to those requests does not expose your business to unnecessary cost.

What should you do in light of the EAT decision?

• The most important thing is not to panic or react hastily.  While the decision today has gone in favour of the employees, it is likely to be appealed and the matter may not be resolved for a number of years.
• A number of unresolved issues remain and the merits of each individual case will need to be decided on its own circumstances.
• Decide who is going to deal with this issue internally and limit information to that person or persons.
• Avoid open internal correspondence, preparing reports and/or collating any data on the issue without legal counsel.  It is important to maintain legal privilege.
• Open communication regarding potential liability, financial exposure or plans to deal with the issues will be subject to disclosure if and when claims arise.  As a result, employers need to ensure communications now do not undermine any future defence that you may have to a tribunal claim.
• Plan how you are going to strategically deal with internal and external issues and take legal advice.

How can Ward Hadaway help?

We have extensive experience of advising employers in the public and private sectors on defending mass equal pay litigation and other mass claims.

We also have the resources and experience to advise employers on the strategy to adopt and the options available to minimise historical and future financial exposure.

In addition, we have developed an audit product which will assist your business in determining risk and potential financial exposure.  This will allow us to help you develop a strategy which minimises your legal risk and liability for historical holiday pay shortfall over previous years.

​For further information, please contact Paul Scope.