The Government announced yesterday that changes will be made to the regulations made under the Employment Rights Act 1996. These amendments will limit claims for back payment of holiday pay to two years. Employees will still need to show a series of deductions or underpayments during that period, and any break in the series of three months or more will break the series of deductions.
Employees will be able to make claims under the existing rules for the next six months as these changes will be introduced for claims made on or after 1 July 2015 only. This change is intended to protect businesses from the impact of large backdated claims arising from the EAT's ruling in the Bear Fulton case in November. In that case the EAT held that non-guaranteed overtime had to be included in the calculation of holiday pay. This legislative change will provide some comfort for employers. However, it is likely that a flood of claims will be made prior to the cut off date of 1 July 2015 for those employees who want to protect their right to claim back pay for a longer period of time.
Of course there's a risk that such legislation may be challenged under judicial review as incompetent retrospective legislation since it seeks to retroactively remove legal rights which have already accrued to employees before the enactment of the legislation.
The changes will also have the effect of preventing employees from bringing holiday pay claims as a breach of contract claim through the ordinary courts. This is because this new legislation will make it clear that the right to paid holiday is not incorporated as a term in employment contracts. This will avoid employees being able to make claims through the courts for back pay for five years in Scotland and six years in England.