Paid annual leave: EAT hears cases on inclusion of overtime in holiday pay

Holiday pay overtime

The Employment Appeal Tribunal (EAT) has heard three important holiday pay cases on the significant issue for employers of whether or not they should include non-guaranteed overtime in holiday pay calculations.

In Bear Scotland Ltd v Fulton and another, Hertel (UK) Ltd v Wood and others, Amec Group Ltd v Law and others, the claimants successfully argued in employment tribunals that their employers should have included regular, but non-contractual, overtime in their holiday pay.

Road maintenance firm Bear Scotland Ltd, industrial services provider Hertel (UK) Ltd and engineering consultancy management company Amec Group Ltd appealed on the basis that the employment tribunal decisions are contrary to the orthodox view that the Court of Appeal confirmed as far back as 1973 that holiday pay does not have to include payment for overtime that the employer is not contractually required to provide to the employee.

The Secretary of State for Business Innovation and Skills has intervened in the case and was represented in the EAT. This case could result in the UK Government having to amend the annual leave provisions in the Working Time Regulations 1998 to make clear how employers should treat non-contractual overtime pay when calculating paid annual leave.

A number of recent claims for unlawful deductions from wages have been brought by claimants on the basis that their employers have not included payments for overtime that is not guaranteed in holiday pay. Tribunal case Neal v Freightliner Ltd was expected to be appealed, but settled. In contrast to the other employment tribunals, the tribunal in Elms v Balfour Beatty Utilities Solutions Ltd found that a worker’s holiday pay should be calculated by reference only to basic pay, excluding overtime pay, discretionary bonuses and standby allowances.

If the EAT upholds the tribunals’ approach in Bear Scotland Ltd v Fulton and another, Hertel (UK) Ltd v Wood and others, Amec Group Ltd v Law and others, the case would affect all UK employers because it would mean that the UK has failed to implement the Working Time Directive properly and Parliament would have to amend the Working Time Regulations 1998. Employers could be required to include non-contractual overtime in holiday pay.

A ruling against the employers in this case could even lead to employers that have followed UK law in good faith facing retrospective claims from workers for a series of unlawful deductions from wages dating right back to the start of the worker’s employment.

XpertHR senior employment law editor Stephen Simpson, who attended the EAT hearing, said: “Employers should look out for the decision in this case in a few months since it is one of the most important UK employment cases for many years.”

“The employers’ and Government’s arguments in the EAT were centred around how far tribunals should go to interpret UK law to fit with EU case law on holiday pay calculations; if it is possible for the EAT to add words to the Working Time Regulations 1998 (normally a job for Parliament), while still maintaining a workable statutory scheme; and the public policy and economic implications of a finding that employers that thought that they were complying with working time legislation could have to pay out for past non-payment of overtime in holiday pay, and change their approach in the future.”

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