Until now employers have argued that compulsory, but not guaranteed overtime i.e. where the employer did not have to offer the overtime but, if offered, the worker had to work it, was not to be taken into account when calculating holiday pay.
A landmark judgment in the Employment Appeal Tribunal (EAT), Bear Scotland v Fulton (joined with Hertel, Amec v Wood and others) of 4 November 2014, has specified that payments for overtime that the worker is regularly required to work are part of “normal pay”. They must therefore be included in the calculation of holiday pay under the Working Time Regulations 1998 (WTRs) because the Regulations have to be read to give effect to the European Working Time Directive (the Directive), and apply to private as well as public sector employers.
This judgment also confirmed that taxable elements of payments made for time spent travelling were equally part of normal pay, not expenses, and should therefore be included in the calculation of holiday pay.
Bear Scotland v Fulton: Positive Consequences, But With Risks
Around 5 million workers could be entitled to more holiday pay following this decision, as the Government estimates that over 30 million people get paid overtime.
For many years workers have been losing out on their legal entitlement to full holiday pay, and, in some cases, not taking holiday due to the financial loss associated with doing so. The non-financial loss caused by not taking holiday cannot be recovered, but compensation for the lost money can.
Employers will have been aware from the cases decided by the UK courts and the European Court (CJEU) since the coming into force of the WTRs that it is at least arguable that the Directive required overtime pay to be included in the calculation of holiday pay. UK legislation had to conform to this so there has always been a significant prospect of an appeal on this basis being successful.
In reaping the savings made by not paying holiday pay in full at the time such employers were taking a calculated commercial risk, balancing the possible future costs should they later be found to have been paying at the wrong rate, against the actual savings they were making at the time. They will now need to rectify the position or face legal claims.
For some, the considerable past savings employers sought to make will now cost them more than it would have done, had they included overtime in the first place.
In a few cases this could increase the risk to the employer of going out of business. Obviously in such cases workers and their trade unions will wish to be involved in seeking ways to avoid this. However, the task force the Government proposes to set up, “To properly understand the financial exposure employers face (and) to discuss how we can limit the impact on business” appears to consist only of representatives from Government and business employers’ organisations with no scope for contribution from unions, law centres and employee organisations.
It is expected that the decision will be appealed, meaning this is not the last we’ll hear of this issue.
The Government seem to firmly be on the side of the employers in this case and suggested that “only mandatory overtime should be included in the calculation of holiday pay but of course we would like to see voluntary and mandatory overtime included.”
The judgment’s decision on the time limits for enforcing claims for unpaid/underpaid holiday pay as a claim for unlawful deduction of wages under the Employment Rights Act 1996 (ERA) , while it must be treated as binding pending final appeals, seems to have been based more on policy than on any firm legal basis.
Where there is a series of deductions the 3 month time limit does not start until the date of the last deduction, ‘in the series’ of deductions.
This judgment seeks to introduce a new requirement that the gaps between the deductions must be no more than 3 months apart, otherwise the series is broken so only deductions in the 3 months before the claim is lodged can be claimed for.
The reasoning for adding such a significant and specific addition to the wording of this long standing and well used provision appears to rest on no more than the Judge’s own view that this is what parliament intended. Even if parliament did intend that some gaps between deductions do break the ‘series of’ deductions, it is a step further to say parliament also intended to specify that such gaps must be no more than 3 months merely because 3 months is the time limit for a claim for a single deduction, which this provision is an exception to. In the context of this detailed and important provision, surely the parliamentary draftsman would have included wording to cover it. In any event, courts cannot fill gaps in the wording of legislation by asking (and answering) what would Parliament have done in this case, if the answer is not to be found in the terms of the legislation itself.”
Having said that, pending a successful final appeal, the current position is as decided in this case.
It is therefore very important to seek advice as soon as possible and, if necessary, to apply for compulsory Early Conciliation (which is now required before an Employment Tribunal claim can be lodged) and which, crucially can in some cases extend the normal time limit.