You may well have seen press coverage last month on the Employment Appeal Tribunal (EAT) decision about holiday pay. The case in question is called Bear Scotland – v – Fulton.  It concerned whether extra pay for working overtime which was not guaranteed should be included when calculating holiday pay.

This decision is of particular importance to the care sector where many staff regularly work overtime. It is also relevant to the question of whether shift allowances and any other payments should also be included in holiday pay.

Unsurprisingly, the EAT decided in Bear Scotland that holiday pay for workers who regularly work overtime should not be based on only basic pay but should include an average of overtime pay as well. That is the case even if the overtime worked is not guaranteed.

The EAT also indicated that pay which is intrinsically or directly linked to tasks which a worker is required to carry out should be included in the calculation of holiday pay as well. This reflects earlier decisions of the Court of Justice of the European Union and opens the way to workers to claim that other elements of their remuneration, in addition to overtime, should be included in holiday pay.

The story does not quite end there. The EAT decision in Bear Scotland applies only to the minimum four weeks’ annual leave to which workers are entitled under the European Working Time Directive. It does not extend to the additional 1.6 weeks’ leave to which workers in the UK are entitled under the Working Time Regulations, or to any additional, contractual leave entitlement over and above that.

Also the decision suggests that the first four weeks’ holiday taken in each leave year counts towards the minimum four weeks’ entitlement under the Directive.

Time limit

The time limit for claiming holiday pay is three months. Where there has been a series of underpayments, the time limit expires three months after the end of the last such underpayment. The EAT held that where there is a gap of more than three months, the sequence of underpayments is broken so that workers cannot claim holiday pay prior to then.

Given that this decision on holiday pay relates only to the four weeks’ minimum entitlement arising under the Directive, and assuming that the four week minimum is taken first at the beginning of the leave year, then it may be the case for many employers that their staff will only be entitled to claim outstanding holiday pay for the current leave year, if at all. This is because more than three months may have elapsed after the last occasion on which staff took their first four weeks’ holiday.

The EAT in Bear Scotland gave leave to appeal its decision to the Court of Appeal. The Law is therefore apt to change, particularly with regard to the time limit for bringing a claim. Given the importance of this issue, further litigation seems inevitable.

In the meantime care sector employers should take urgent advice on the arrangements which they currently have in place for holiday pay.  There may well be scope now to take measures to prevent claims for back dated holiday pay and to ensure that you are properly protected against future claims.

Bond Dickinson is offering a fixed fee review of care sector employers’ holiday pay arrangements.  If this is something which you would like to take advantage of then please contact James Wilders, Partner in our employment team.