Today, the EAT will embark on a three day hearing which represents a significant stage for the cases which will determine the fate of overtime in relation to holiday pay, and whether, both for the future and historically, employers should pay – and should have been paying - workers holiday pay based on their earnings including overtime.
Under current UK law certain categories of worker have their holiday pay calculated without taking account of any overtime they might work. For others, overtime is only taken into account if it is compulsory and guaranteed. For others, it is included.
The Court of Justice of the European Union (CJEU) has decided that the Directive which gives workers the right to 20 days’ paid holiday requires that workers should receive any supplements, such as for performing a role; allowances, which are intrinsic to their role or which reflect their status; and average commission earnings when they take their holiday (see our previous e-brief). In applying these CJEU decisions, several employment tribunals have decided workers should be paid average overtime earnings whilst they are on holiday. Some of these cases have been appealed to the EAT. One of the main cases, Neal v Freightliner, has settled, but three other cases listed for the same hearing are still going ahead. Those three cases are: Bear Scotland Ltd v Fulton and Baxter; Hertel (UK) Ltd v Wood and others; and Amec Group Ltd v Law and others.
One possible, and perhaps most likely, conclusion of the EAT hearing is that the overtime issue will be referred to the CJEU to decide. This will result in further delay and uncertainty before the issues can be resolved.
Other issues which remain are:
- whether the Working Time Regulations 1998 (which implement the Working Time Directive) can be interpreted so as to give effect to the CJEU decisions referred to above;
- if so, the period of time over which average pay should be calculated; and
- whether the average pay is limited to the basic 20 days’ holiday allowed under the Directive or also applies to the 28 days’ leave provided for in the Regulations.
If the UK courts do allow the Regulations to be interpreted so as to give effect to the CJEU decisions, then this new interpretation will have retrospective effect, which means that employers could be liable for the difference between normal pay and average pay historically as well as in the future. If the UK courts do not allow the WTR to be interpreted in this way, then the historical element of those claims might instead become the liability of the Government for failing to implement EU law properly, though employers which are “emanations of the state” could face claims based on the Directive itself.
Unions are already filing claims for backdated holiday pay. Though these claims are likely to be stayed pending the outcome of the appeal cases, there have already been high profile settlements. As such, now is the time for employers to evaluate their potential exposure and to consider whether any provision should be made for backdated claims. Looking ahead, employers may want to consider which elements of pay might need to be included when calculating holiday pay in future.