The Employment Appeal Tribunal (EAT) gave an important ruling on 4 November 2014 in Bear Scotland v Fulton (and conjoined cases). This decision was reported extensively in the media, and has caused considerable concern to employers and the Government (the Government has already announced a special taskforce to assess the impact of the decision). Our focus here is on the key legal points decided in the case, their potential impact on employers and possible next steps for employers to take.

1. Effect on holiday pay and overtime

The EAT held that payments for overtime which a worker is required to work, but which an employer is not obliged to offer to the worker (‘non-guaranteed overtime’), count as “normal remuneration” for the purposes of the EU Working Time Directive. The effect is that non-guaranteed overtime should be factored in when calculating holiday pay for the purposes of the minimum four weeks statutory annual leave required by the Directive.

This does not apply to the additional 1.6 weeks' leave granted by the Working Time Regulations 1998 (“WTR”). For this period, only compulsory, guaranteed overtime is taken into account in respect of workers who work normal hours. Travel time payments which exceed expenses incurred should also be factored in.

2. Limits on retrospective claims

The EAT held that workers cannot use each shortfall in holiday pay as part of a ‘series of deductions’ (for the purposes of unlawful deductions claims) where more than three months has elapsed between the deductions. For example, if a worker took holiday in March, then in May and then no further holiday until October, the only claim which could potentially be made now would be that the worker was not paid correctly for the October holiday – as there has been more than 3 months between May-October.

Remember also that the additional 1.6 weeks' leave under the WTR does not have to include non-guaranteed overtime – so it could be easier to show a break in the series of deductions of more than three months.

There does not seem to be any specific cap or limit in the ruling covering how many years retrospective claims can go back in time for a ‘series of deductions’ – but the likelihood of a three month gap in “deductions” does provide some practical reassurance for employers. Also, the deductions must be factually linked.

3. What should employers do next?

Although Unite, the union which funded the case, has indicated the workers will not be appealing, it is quite likely that this decision will be challenged in another case.  It may also be that an attempt is made to litigate similar claims in the civil courts, where the limitation period will be 6 years, despite the indications to date that this is not permissible.  For the time being, however, employers will have to start factoring this type of overtime into holiday pay.