This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.
On 4 November 2014, the Employment Appeal Tribunal ("EAT") ruled that compulsory non-guaranteed overtime should be included in the calculation of holiday pay, but limited the scope for backdated claims.
In the joined cases of Bear Scotland Ltd & Others vs Fulton and Others; Hertel (UK) Ltd vs Woods and Others; and Amec Group Ltd vs Law and Others, the EAT issued its judgment confirming that compulsory overtime payments (whether or not they are guaranteed) are part of a worker's normal remuneration and should be included in the calculation of holiday pay. This is a change to the current custom and practice of the production industry which has been NOT to pay holiday pay on overtime payments, on the basis that the overtime payments were not guaranteed payments.
Given its importance, the EAT has given permission for this decision to be appealed, but the principle seems difficult to argue with given recent European case law highlighting that the entitlement to holiday pay is based on the fundamental principle under the European Working Time Directive of encouraging workers to take their holiday entitlement as a matter of health and safety. If the mechanism for calculating holiday pay left a worker financially disadvantaged by taking holiday as compared to working, the argument is that they may be discouraged from taking their holiday entitlement.
This decision doesn't open the floodgates in terms of backdated claims in respect of production engagements as, generally speaking, claims will be out of time if they are brought more than three months from the date of the last incorrect holiday payment from the same legal entity.
Practical Advice
- This judgment only applies to the minimum four week holiday entitlement applicable under European law: it does not apply to the additional 1.6 weeks under the UK Working Time Regulations, which are unaffected.
- On a going forward basis, for any projects in production or about to start production, overtime (unless it is genuinely voluntary) should be included when calculating holiday pay due.
- Any claims for backdated holiday pay should be considered on a case by case basis.
- Our Employment Team will be exploring this area in more detail at their upcoming Employment law update seminar on 12 November in London and 19 November in Reading. Please contact Tom Errington if you would like to attend this event.
