EAT Ruling: Holiday Pay and Overtime

The Employment Appeal Tribunal (EAT) has
published its judgment in three cases as to whether holiday pay need take into
account non-guaranteed or voluntary overtime. The EAT ruled that it should.
Although the ruling is likely to be appealed, it paves the way for multiple
claims for unpaid holiday pay, with government estimates that this could amount
to up to 5 million people.

Legal
Background

Employees
are entitled to be paid for statutory annual leave which is currently 5.6
weeks per annum. The amount of holiday pay is referable to a week’s pay which
is calculated as follows, either:

– 
the normal
rate of pay, if the employee’s hours or pay for amount of work done does not
vary; or

–  the average remuneration over the previous 12 weeks if the
employees’ hours of work vary; because
hours usually vary for agency workers and this is how holiday pay is commonly calculated for them.
 

Previous
case law has indicated that compulsory contractual overtime should be
included within any calculation, but Bear
Scotland v Fulton and the other conjoined cases now deals with the voluntary
overtime payment and holiday pay. The EAT also indicated that claims
for arrears of holiday pay will be out of time if there has been a break of
more than three months between successive underpayments. The implications of the ruling are so great that
BIS (Department of Business Innovation and Skills) intervened in the cases and provided
representation at the EAT.
 

The defeated
employers have been given leave to appeal the ruling at the Court of Appeal
which may take some time. In the meantime, employers and recruiters paying PAYE
temps will have to decide whether to adopt the revised approach when
calculating holiday pay or whether to take the risk until the final stage
appeal ruling is made.

Business Secretary Vince Cable has announced
the setting up of a taskforce to assess the possible impact of this EAT ruling.