We reported in November 2014's Law at Work on the implications of the Employment Appeal Tribunal’s decision in the case of Bear Scotland v Fulton, and subsequently discussed the implications at a subsequent client webinar.

In that case, the EAT decided that non-guaranteed overtime should be included in calculations of holiday pay but that this requirement was limited to the mandatory four weeks’ holiday required by the European Working Time Directive. Any claim for unpaid holiday pay must be brought within three months of the last failure to pay the correct amount (or the last in a series of underpayments). The EAT also went on to decide that claims for alleged underpayment of holiday pay as a series of unlawful deductions will be time-barred if there is a break of at least three months between successive underpayments. Therefore, although it would still be possible for claims to go back years if their claims were made in intervals of less than three months, this part of the decision was seen as helpful to employers in limiting substantial retrospective claims for underpaid holiday. Neither party to the case is appealing.

Government is to limit backdated holiday pay claims to two years

Following the decision BIS set up a taskforce composed of representatives from government and business to look into limiting the effect on business. The press release just before Christmas is the result of the findings in which BIS announced that it was ‘taking action to protect UK business from the potentially damaging impact of large backdated claims’. It announced that it will impose a cap of two years on claims for back pay. This will provide certainty to workers on their rights to holiday pay, and to businesses too.

The government has now also published the Deduction from Wages (Limitation) Regulations 2014 which came into force on 8 January. They  will apply the two year limitation to unlawful deduction from wages claims made to the Employment Tribunal on or after 1 July 2015. They will also prevent claims for underpayment of holiday pay being brought as breach of contract claims.

So, employees can still make claims under the existing arrangements for a transition period before the new rules come into force. However from 1 July 2015 employees will lose any potential of bringing long term claims or back holiday pay. Broadly speaking though, most claims would be unlikely to extend back beyond a two year period in any event.

Employment tribunals practice direction also issued

The EAT’s ruling in Bear Scotland that a ‘series of deductions’ is broken by any gap of more than three months would ordinarily mean that workers who suffer continued underpayments would have to submit a new claim every three months in order to avoid breaking the chain. Currently this would mean paying a further tribunal fee on each occasion to take account of holiday pay accrued since the original claim was presented.

Last month the President of the Employment Tribunals issued a Practice Direction permitting a claimant to apply to amend an existing holiday pay claim to add further complaints of alleged underpayments arising after the original claim was presented. This is of benefit to claimants because if new claims are added by amendment then no further fee need be paid.

These developments by both the government and the courts to clarify the effects of the Bear Scotland decision are welcome. With a further hearing in the Lock v British Gas Trading Ltd case on the role of commission in holiday payments listed for early February, calculating holiday pay remains complex and further challenges remain.