Holiday Pay for workers – overtime now overdue

In the case of Bear Scotland v Fulton and Baxter (and two other cases), the EAT has ruled today that non-guaranteed overtime (where an employee has no right to the overtime, but the employer has a right to impose it) should be included in employers’ calculations of holiday pay. The majority of employers usually calculate holiday pay according to basic salary only. Recent European case law (Lock v British Gas among others) has disapproved of that approach due to the hardship caused to workers during holiday periods when their pay can be dramatically reduced. The European Court of Justice has pointed to this leading in turn to workers being put off from taking their full statutory entitlement.

Whilst the EAT’s ruling today appears to be a resounding victory for the workers, the Institute of Directors and the Federation of Small Businesses (among others) have all already warned as to the consequences for large numbers of businesses should workers be permitted to lodge backdated claims.  However, it appears that backdated claims will be limited to a chain of unlawful deductions where there are fewer than 3 months between each such deduction.  Once there’s a break of more than 3 months between underpayments, the chain will be broken and no more can be claimed.  We also wait to see what the correct reference period should be for calculating an accurate measure of an individual’s overtime during a period they are not actually at work.

So businesses may well be reassured to an extent by the limits on a worker’s ability to backdate a claim and that the ruling only applied to the first 4 weeks’ holiday (as this is all that is required to be given under the Working Time Directive).  Beyond the issue of overtime, we will also wait – with slightly less baited breath than before – to see what happens with other elements of pay, such as commission (the leading case on commission, Lock v British Gas is due to be heard in the Employment Tribunal in February 2015), but it seems highly improbable that different approach will be taken.

In the meantime, employers will no doubt look to re-evaluate how they allocate overtime and whether there is a more cost-effective way of dealing with requirements for extra work.