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Holiday pay: overtime must be included says EAT

04 November 2014 #Employment

Today the Employment Appeal Tribunal released its judgment in the three conjoined holiday pay cases.

The Bear Scotland case (road construction and maintenance in Scotland) related to non payment of overtime and other payments associated with work in calculating holiday pay.

The Hertel and Amec cases (construction) related to non payment of overtime an calculation of payment in lieu of notice on termination of employment.

The EAT made the following findings:

  • Holiday pay must include “non guaranteed” overtime, meaning overtime not guaranteed to the employee but where the employee is contractually obliged to work the overtime when required to do so. The judgment does not appear to cover voluntary overtime, not in issue in the three appeals. The Freightliner v Neal appeal did relate to voluntary overtime but that case settled before the EAT hearing.

    The decision is based on an interpretation of the Working Time Directive and Working Time Regulations. The EAT found that there was no need to refer the matter to the European Court of Justice.  The employers lost this part of the appeal. They have leave to appeal to the Court of Appeal, if they wish to do so.

  • Although claims can be made under the unlawful deductions provisions, they will be time barred whenever there is a 3 month gap between deductions. This is the good news, the employer’s appeal succeeded on this issue.

    This means that:

(a)   Once holiday pay is correctly paid, if a claim in respect of historic arrears is not brought within three months of the last historic deduction, the claim for historic arrears would be out of time – subject to any argument that the time limit should be extended based on individual circumstances if it was not reasonably practicable to bring the claim in three months

(b)   If an employee has not taken holiday leave in any three month period or been paid holiday pay, and did not bring a claim within three months of the last deduction, that would break the series of deductions such that a claim could not go back any further.

(c)   It is arguable that correcting arrears of holiday pay going back three months would also break the series of deductions and prevent a claim going back further. However, there is EAT authority saying late payment will still count as a deduction. The point was not relevant to these appeals and was not dealt with. Hence, there remains considerable doubt on the issue.

 The EAT found that whether there has been a series of deductions or not is a question of fact. “Series” is an ordinary word, which has no particular legal meaning. Some guidance was provided on the issue. For there to be a series, there needs to be both a sufficient factual link and a sufficient link in time.

  • In the absence of particular provision, the first 4 weeks holiday will be treated as annual leave under reg 13.  Later leave will be treated as additional annual leave (in respect of  which overtime etc need not be taken into account) under reg 13A.

  • In Amec and Hertel, two types of allowance were paid to employees for travelling daily to work at a site more than 8 miles from home (“radius allowance”) and also for other travel time (“travelling time payment”). The EAT allowed the employees cross appeal and found that these elements should also be included in the calculation of holiday pay.

  • The parties in Amec and Hertel have permission to appeal to the Court of Appeal on any point they lost. However, the EAT judge felt that an appeal on the inclusion of overtime issue would not have any reasonable prospect of success. He felt, however, that any appeal on the back pay and 3 month issue would be arguable and would be of public importance.  The claims in Bear Scotland are remitted to the EAT for further procedure in light of the judgment.

It is likely that existing holiday pay claims in the tribunal that have been stayed will likely remain stayed pending further appeal.

It is not known whether there will be any intervention from government in respect of the back pay issue.  However, Business Secretary Vince Cable has today (4 November 2014) announced he is setting up a taskforce to assess the possible impact of the ruling on holiday pay from the Employment Appeal Tribunal.

The taskforce will consist of a selection of government departments and business representative groups. The taskforce will provide a forum to discuss how the impact on business can be limited.

Clarkslegal, specialist Employment lawyers in London, Reading and throughout the Thames Valley.
For further information about this or any other Employment matter please contact Clarkslegal's employment team by email at by telephone 020 7539 8000 (London office), 0118 958 5321 (Reading office) or by completing the form on this page.
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