In response to the EAT's decision in the conjoined Bear Scotland Ltd v Fulton appeals, the Government has introduced new regulations, the Deduction from Wages (Limitation) Regulations 2014, which imposes a 2 year long stop on claims for back pay from the date of the ET1 and expressly provides that the right to paid holiday is not incorporated as a contractual term in employment contracts. The Regulations come into force on 8 January 2014 and will apply to claims submitted on or after 1 July 2015.
As readers will have seen from our case report on this decision (please click HERE), the EAT held that "non guaranteed" overtime should be included in the calculation of holiday pay for the minimum four weeks of holiday provided by the Working Time Directive. This is a significant departure from the established position in the UK to date, which has been that overtime pay need only be included where overtime is both compulsory and guaranteed. In addition, the EAT limited the potential for claims for arrears of holiday pay, holding that a gap of three months or more between underpayments would effectively break the series for the purposes of an unlawful deductions from wages claim. The EAT had granted permission to appeal to the Court of Appeal, recognizing that the "series of deductions" point in particular was an important issue, although Unite, the trade union which represented some of the claimants in the appeals, has announced that it will not be appealing the EAT's decision. No announcement has yet been made by the employers as to whether they will appeal.
For the time being therefore, a gap of more than three months between underpayments will break the series of deductions, and for claims brought on or after 1 July 2015, there will also be a two year long stop on back pay claims. Whilst both developments will be welcomed by employers, this may incentivise workers with existing claims for arrears of holiday pay to bring claims now, before the two year limitation period take effect. It would be open to them to challenge the Bear Scotland "series of deductions" point and try to argue for losses going back, potentially as far as 1998, although they would have to go to the EAT or Court of Appeal to do so. Therefore, although both of these developments will be welcome for employers, the possibility of substantial claims for back pay has not been entirely removed, and employers should seek advice on their potential exposure, and the options open to them in respect of it.