The Employment Appeals Tribunal gave its key decision on holiday pay back in November 2014. This case confirmed the principle that an employee’s “normal remuneration” and not just basic salary should be included in holiday pay. But the case left a lot of loose ends, as discussed in our article at the time. Nearly five months later, we review the subsequent developments, including the latest Tribunal judgment, and discuss which loose ends remain.
- Last week we received the next judgment in the case of Lock v British Gas. This case was about commission, not overtime. It was held that commission should be considered part of “normal remuneration” so we now have a UK law precedent confirming that commission must be included in holiday pay calculations. In this case, the Tribunal decided that new wording should be read into the Working Time Regulations to give effect to EU law. This new wording effectively says that where an employee earns commission or similar payments, then holiday pay should be calculated as if the employee was a shift worker or piece worker. This would seem to suggest that the correct calculation for holiday pay should be based on average earnings over the 12-week period before the holiday is taken. However, the Tribunal stopped short of making this explicit, and has scheduled a further hearing to specifically decide the correct reference period. So the point remains somewhat unclear until that further judgment is given, which we anticipate to be later this year.
- The biggest concern for many employers was how far back their liability for past underpayments would extend. The government addressed this by introducing the Deduction from Wages (Limitation) Regulations 2014. The regulations impose a two year cap for backdated holiday pay claims. This is only effective in respect of claims bought on or after 1 July 2015, so any claims lodged before that date will not have this cap.
- There was discussion among commentators that employees might try to get around the time limits for Employment Tribunal claims by suggesting that the right to be paid a higher rate of holiday pay was implied into their employment contract. Therefore they could bring a breach of contract claim in the courts with the usual six year time limit. The new 2014 Regulations make it clear that the Working Time Regulations do not confer any contractual right, so such claims are prevented.
- Although the parties in the Bear Scotland v Fulton case were given permission to appeal to the Court of Appeal, they have not done so. Commentators had expected there to be an appeal on the point of what should be considered as a “series of deductions”. The EAT held that any three-month gap without any underpayment of holiday will “break the chain” of a series of deductions and prevent claims extending back any further. This was a novel decision at the time, but seems for the moment to be a settled point of law. This offers employers, especially those facing claims brought before the two-year cap comes into force, some comfort that claims should not be open-ended. But in practice the three-month gap rule can be very difficult to apply and if there is no three-month gap between employees taking holiday, then liability could go back potentially to the beginning of employment (for claims brought before 1 July).
Bear Scotland Ltd v Fulton and others
Lock v British Gas Trading Limited and another