Infologue.com Workplace contributor and labour lawyer of Beers Solicitors, Paul Housego discusses changes to Holiday Pay and Overtime as a result of an Employment Appeal Tribunal, in his latest article. Paul writes:
“The Employment Appeal Tribunal has turned the world of holiday pay upside down in a case called Bear Scotland v Fulton (and others). It has though, not made everything clear.
“In 2003 a Court of Appeal case called Bamsey decided that a week’s holiday pay was to be worked out by using the statutory provision setting out what a week’s pay was. That provision expressly excluded overtime. No one has challenged this case in the UK until now, although there have been cases in the European Court (CJEU) that are relevant.
“The Bear Scotland case changes this. Unfortunately it does not answer all the questions.
“The employees who won had a contract of employment that obliged them to work overtime if the employer asked. Accordingly, the case does not expressly cover the situation where overtime is offered, where doing the overtime is optional.
“However, the judgment does refer to the European directive speaking of “normal” pay. The whole tenor of the judgment is that the employee is entitled to be paid while not at work what he would normally be paid if he was at work. The word “normal” does not have any particular legal meaning, said the judge, and is an everyday word. This indicates that the judgment will apply to voluntary overtime as well as compulsory overtime. In short, if you ask a worker “What do you normally take home each week?” he will say “£x, including overtime” and that is what he may now be entitled to as holiday pay because of this judgment.
“If the employee does not have normal working hours then the holiday pay has always been calculated by looking at the hours actually worked. There is a certain logic, then, in having entitlement to holiday pay being based on the hours actually worked whether or not the hours are variable or are normally the same.
“Another point decided by this case is that if someone is usually paid travel time, then that falls to be included in what is a normal week’s pay.
“Other cases have already decided that workers who are paid partly on commission should be paid holiday pay as if they were earning commission while on holiday, because they are not able to earn commission while on holiday, and the purpose of paid holiday is that it is time off paid as if at work. Again, this leans towards the approach that holiday pay should be the same as would be paid if the worker was not on holiday. It makes it more likely that the case will apply to voluntary overtime as well as compulsory overtime.
“There is a further complexity. The Bear Scotland case was decided by reason of cases in the European Court. Those cases referred to rights conferred by an EU directive. The EU directive gives an entitlement to 4 weeks paid holiday.
“The Working Time Regulations give workers in the UK the right to 5.6 weeks holiday pay. The judgment did not decide whether there is a right to 4 weeks paid holiday based on all income, and the remaining 1.6 weeks on the basis of contractual hours excluding overtime, or whether the whole 5.6 weeks are to be paid on the entire earnings basis. Given the reasoning in the judgment it would be a brave employer who contended that there were two different rates of holiday pay for an individual worker.
“Accordingly, it would be prudent to assume that workers are entitled to be paid holiday pay equivalent to the rate at which they are paid, in total. This is likely to have enormous implications for the security industry where large amounts of overtime are often worked, but where holiday pay is customarily based on the contractual working week.
“There is, however, some good news. The judgment is not retrospective. While it is possible to claim back pay for a series of deductions this judgment decided that the holidays were all stand alone and not part of a series within the meaning of the Employment Rights Act. This means that workers can only go back three months in making claims for holiday pay.
“In planning for the future, it would be as well to budget for holiday pay on the basis that workers get paid the same when not at work as when they do work.
“This changes the obligation to pay holiday pay, and employers should change how they deal with holiday pay now. Of course there will be some employers who are unaware of this, and some who will wait until employees demand it, and save money until then. But the responsible employer will make changes immediately, and seek to review contracts with customers to fund this extra expense.”
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