The Bear Scotland Case
Recently the EAT in Bear Scotland and others held that non-guaranteed compulsory overtime (overtime which workers are required to work but which employers are not obliged to offer) must be taken into account when calculating holiday pay for the 20 days (4 weeks) of statutory annual leave required by the Working Time Directive.
Failure by employers to account for such overtime, and other payments which are “intrinsically linked to the performance of the employee’s tasks” (e.g commission) in the calculation of holiday pay, could amount to an unlawful deduction from wages for the purpose of the Employment Rights Act 1996 (“ERA 1996”), provided that an employee makes such a claim to the Employment Tribunal, generally within three months of that ‘unlawful deduction’ (underpaid holiday pay) taking place.
Furthermore, employees could argue that that there has been a “series of deductions” for the purpose of the ERA 1996, if a period of less than three months has elapsed between each ‘unlawful deduction’. However, there will be a break in the chain of any "series of deductions" where a period of more than three months has elapsed between each ‘unlawful deduction’.
This may well scupper many substantial retrospective claims for underpaid holiday, but is not a “magic bullet” for employers to rely on, as some employees may have the “good fortune” of a long, unbroken chain of deductions, stretching back, leading to potentially large retrospective claims.
Vince Cable to the rescue?
In light of the above, the government announced that it was setting up a "taskforce", led by Vince Cable M.P, to assess how the impact of the Bear Scotland and others decision on businesses could be limited. The taskforce consists of government departments and seven business representative groups including the CBI, EEF and the Institute of Directors.
No Unions or employee groups were invited to take part in the taskforce.
On 18 December, 2014, the government announced that it has laid draft regulations before Parliament to amend the ERA 1996 to impose a two-year limitation on certain unlawful deductions from wages claims. The Department for Business, Innovation and Skills (“BIS”) noted that it was ‘taking action to protect UK business from the potentially damaging impact of large backdated claims’ following the Bear Scotland and others decision by introducing a cap of two years on such claims for unlawful deductions from wages.
The changes apply to claims made on or after 1 July 2015, but workers can still make claims under the existing regime for the next six months which will act as a transition period before the new rules come into force.
Whilst some may see limiting retrospective claims for underpaid holiday pay to two years as an early Christmas present for employers, others will cry “Bah! Humbug!” at why this important limitation will not come in to effect for another six months(!)
We consider that the imposition of a six month transition period may merely act as a “call to arms” on employees and Unions alike to take advantage of the status quo and get their claims in early in the New Year, and certainly prior to 1 July, 2015, leading to a potential New Year “hangover” of large, retrospective claims. This is especially so if employees are trying to take advantage of the “series of deductions” link, and there is a potential risk that there will be a gap of more than three months from the last ‘unlawful deduction’ in respect of underpaid holiday pay.
So, as we usher in a New Year, for employers at least, the strains “auld lang syne” may well be replaced by the potential sounds of employee battle cries of “unlawful deductions”, come January 2015, if employees themselves can overcome the hurdles of bringing such claims, including the very real risk of the ‘chain of deductions being broken’ by more than a three month gap between each such ‘unlawful deduction’. Time will tell as to how many employees will be able to get such claims off the ground.
If not done so already, employers should analyse the potential impact of Bear Scotland and others decision by looking at pay structures, holiday pay records and general workforce awareness of the issue.