The Employment Appeal Tribunal decision has in the case of Bear Scotland Ltd v Fulton and another, Hertel (UK) Ltd v Wood and others, Amec Group Ltd v Law and others confirmed that tribunals and courts will going forward follow the principle set out by the Court of Justice of the European Union in Lock v British Gas Trading Limited that payments which are intrinsically linked to the performance of an employee’s duties, such as commission and overtime pay, need to be included when calculating the holiday pay to which the employee is entitled. This gives rise to backdated claims potentially going back a number of years.

In this briefing note we provide a suggestion of how the risk of such claims may be mitigated!

Statutory Holiday Claims

Where an employee is able to show that they have not received the statutory holiday pay to which they are entitled under the Working Time Regulations 1998, they can seek repayment of the outstanding amount by pursuing a claim at the Employment Tribunal. Claims under the Working Time Regulations must be brought within three months beginning with the date on which the entitlement for such a payment arose (i.e. the employee’s payday). Further, in HM Revenue & Customs v Stringer, the House of Lords held that employees can also bring claims for deduction of wages under the Employment Rights Act 1996 in respect of any unpaid statutory holiday pay both during the existing and previous holiday years.

In other words, the employee is simply required to have commenced the Employment Tribunal Claim within three months of the last in what are treated as a series of unlawful deductions. Such a claim could extend to a number of previous years and if the outstanding payments in terms of commission, overtime, standby allowances, bonus and commission payments add up to a significant sum, the employers could be facing a number of high value claims.

This is exactly what was faced by the John Lewis group which recently had to pay out £40 million for unpaid holiday pay.

Breaking a Cycle

If you face such potential high value claims from certain employees, or groups of employees, within your organisation, you may wish to consider looking to break the cycle (or series of alleged underpayments) by erring on the side of caution in terms of the manner in which you calculate entitlement to holiday pay for the current holiday year and making such payments on that basis (be it by making retrospective payments). The payments can be made on a discretionary and one-off basis and need not be publicised.

By doing so, not only are you likely to be successful in protecting yourself from a claim for any underpayment with respect to the current holiday year, but also from any claims with a view to recovering such underpayments in respect of previous leave years.