Employment Law Update November 2014

Non-guaranteed overtime must be included in calculation of statutory holiday pay.

This week, the Employment Appeal Tribunal (EAT) gave its important judgment in the much publicised conjoined cases of Bear Scotland Ltd and ors v Fulton and ors; Hertel (UK) Ltd v Woods and ors; Amec Group Ltd v Law and ors, which concerned several key issues about calculation of payments for statutory annual leave and primarily whether these should include overtime payments.

In each of the conjoined appeals, workers were required to work overtime when it was offered (i.e. it was not voluntary) and although it was not guaranteed, in practice they normally did work it and regularly so. Overtime was not taken into consideration when calculating holiday pay in respect of the four-week holiday guaranteed by EU and UK legislation. The EAT decided the following key issues relevant to workers’ rights:

1. EU law requires statutory holiday pay to be of “normal remuneration” reflecting both basic salary and remuneration “intrinsically linked to the performance of tasks” carried out under the employment contract. Overtime should be factored into calculations when paying the minimum 4-week statutory annual leave, but only this period;
2. also under EU law, taxable elements of payments made for the time spent travelling to and from work were equally components of normal remuneration, and not expenses. They were directly linked to work and should also be factored in when calculating payments for the 4-week statutory leave; and
3. past claims for holiday pay can be brought as a claim for a “series” of deductions from wages. In answer to the question of what constitutes a “series” of deductions, the EAT held that legislation intended that if a series was punctuated by a gap of more than three months, that would break the series and claims in respect of holiday pay before such passage of time would be out of time.

Comment

The EAT gave permission to appeal and it is highly likely that one will follow, although the Judge indicated that any appeal in respect of points 1 and 2 above would be unlikely to succeed. By way of further bad news for employers, the same cannot be said for an appeal in respect of point 3 which was said by the Judge to be more arguable.

The question of what action employers should take will depend on the impact of the finding to their respective businesses but it is clear that if overtime constitutes normal pay for a worker this will need to be included in the calculation of statutory holiday pay. Employers seeking to minimise the cost to their business would be well advised to reassess the basis on which their workers carry out overtime; potentially phasing out compulsory overtime in favour of a voluntary system, where possible.

This update is for general guidance only.  Legal advice should be sought before taking action in relation to specific matters.

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