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Holiday Pay - Is This an Employers PPI?

So is holiday pay to employers what PPI is to bankers......well it might very well be!

In the case of Lock vs British Gas the ECJ ruled that commission must be included when calculating holiday pay as it was intrinsically linked to the performance of tasks under the worker's contract. Mr Lock's pay during holiday periods generally included commission earned on previous sales (which was paid in arrears), but he suffered a financial disadvantage after a holiday as a result of not having earned commission during that time. The ECJ ruled that his holiday pay must include an element to offset this disadvantage.

Earlier today the EAT (Employment Appeal Tribunal) handed down its judgement in the Bear Scotland vs Fulton case and the two conjoined cases - Amec vs Law and Hertel vs Wood.  

The Bear Scotland vs Fulton Judgement

In the Fulton case the EAT ruled that " Article 7 of the Working Time Directive is to be interpreted such that payments for overtime which the employees in two appeals before it were required to work, though which their employer was not obliged to offer as a minimum, is part of normal remuneration and to be included as such in the calculation of pay for holiday leave taken under regulation 13 of the Working Time Regulations 1998. Those Regulations could be interpreted so as to conform to that interpretation."

In considering the cross appeal in the Hertal and Amec cases, the EAT ruled that taxable remuneration for time spent travelling to work did fall within “normal remuneration” for the purpose of calculating holiday pay.

Prior to today's judgement there was much speculation as to how calculations would be made and in the Lock vs British Gas case it is believed that the calculation will be left to national courts to determine under national law, and that it must be based on average commission earned "over a reference period which is considered to be representative’ however the definition of ‘reference period’ is not particularly clear in law.   In today's judgement, however, the EAT stated that this ruling only applies to the basic 4 weeks leave granted under the Working Time Directive and not the additional 1.6 weeks granted under the Working Time Regulations 1998 (section 13A) and that if there has been a break of more than 3 months between successive underpayments, claims will be out of time.  

Permission was given to appeal to the Court of Appeal and undoubtedly appeals will follow, especially in consideration of the ruling that if there has been a break of more than 3 months between successive underpayments, claims will be out of time.  On the 'out of time' argument, there does not appear to be any limitation in the ERA 1996 as to how far back a claim for a series of deductions can go. This can be compared with, say, the equal pay provisions in the Equality Act 2010 which impose a six-year limit on back pay in equal pay cases and England and Wales, and five years in Scotland. This might suggest that there is no limit in unlawful deductions claims. If that is the case, claims could in theory go back to the start of employment, with a longstop date of 1 October 1998 (the date the WTR 1998 came into force).

What Employers Should Do About Holiday Pay

Employers concerned about how these rulings might impact them can take advantage of EmployEasily's free consultation service - contact us today to arrange your free consultation.

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