In November last year, an Employment Appeal Tribunal (EAT) judgment in three joined cases (Bear Scotland Limited & Ors v Fulton & Ors; Hertel (UK) Limited v Woods & Others and Amec Group Limited v Law & Ors) confirmed:
(i) that all elements of a worker's normal remuneration (including payments in respect of non-guaranteed overtime) must be taken into account when calculating holiday pay under the EU Working Time Directive; and
(ii) that the Working Time Regulations 1998 can be interpreted to achieve that result.
(ii) that the scope for retrospective holiday pay claims under domestic law is limited.
The first two elements of the judgment (i) and (ii) were unsurprising and follow the settled view of the European Court of Justice (ECJ). Previous ECJ decisions (in British Airways Plc v Williams & Ors (2012) and Lock v British Gas Trading Limited (2014)) established that "normal remuneration" for the purposes of calculating holiday should include payments supplemental to basic pay such as allowances and commission payments. It is important to note, however, that the first aspect of this ruling (i) only applies to the 20 days statutory annual leave required by the Directive and not to the additional 8 days leave provided under domestic law by the Working Time Regulations.
It was the third element of the EAT judgment in Bear Scotland that was the ground breaking aspect of the decision. This concerned the scope for backdated holiday pay claims under domestic law. Previous House of Lords authority (Revenue & Customs Commissioners v Stringer (2009)) established that a failure to pay holiday pay under the Regulations can be framed as an unlawful deductions from wages claim. A worker can bring a claim in respect of a "series of deductions" provided the claim was brought within three months of the last deduction in the series. Before Bear Scotland, it was understood that this provision allowed claimants to link together a series of underpayments in order to bring a backdated claim, regardless of the length of time that had elapsed between each deduction.
In a surprising twist, the EAT determined that if there is gap of more than three months between any two deductions in the chain, the "series" of deductions is broken. Because the additional 8 days leave (under domestic legislation) does not have to include non-guaranteed overtime (as explained above), this may mean it is easier to show a break in the series of deductions of more than three months because the additional leave will have been paid at the correct rate (in other words, basic salary only). This aspect of the judgment significantly restricts the scope for workers to claim arrears of holiday pay.
The EAT judgment is not being appealed.
Further Developments
Business Secretary, Vince Cable, announced on 5 November 2014 that he was setting up a new taskforce to assess the impact of the ruling in the Bear Scotland case. This was prompted by widespread concern about the likely increase of operating costs and payroll.
In December last year, the President of the Employment Tribunals in England and Wales issued a Practice Direction on the handling of claims of underpaid holiday pay, permitting claimants to apply to amend existing claims to add further complaints of alleged underpayment (arising after the date of presentation of the original claim) without incurring a further tribunal fee.
On 8 January 2015, the Deductions from Wages (Limitation) Regulations 2014 came into force. With effect from 1 July 2015, holiday claims brought in the Employment Tribunal will be limited to a period of two years before the date the claim was lodged. The Regulations also prevent statutory holiday claims being presented as a breach of contract claim by providing that the right to paid holidays under the Working Time Regulations 1998 is not incorporated into the employment contract.
The introduction of this new backstop period is intended to offer some measure of reassurance to UK business. However, the six month transitional period may mean that the amendments do not have the desired effect of limiting the Bear Scotland decision. This is because it is anticipated that any claims which involved deductions going back more than 2 years will be presented before 1 July 2015.
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