Issues around holiday pay have proved to be a hot topic in employment law for a number of years now, and they do not seem to be going away any time soon. In 2010 and 2011 we had the rulings around employees on long-term sickness absence receiving pay for their holiday entitlement (see our article on this here). Then, in 2014 we had the widely reported case of Bear Scotland v Fulton (and others) which ruled that compulsory and non-guaranteed overtime should be included in holiday pay calculations. In the same year, we also had the case of Lock v British Gas Trading in which it was decided that commission should be included in holiday pay. This decision was upheld by the Employment Appeal Tribunal in 2016 (see our article here).
Following on from these important decisions, we are now seeing case law applying the principles established about what is to be included when calculating holiday pay.
The recent case of White & Others v Dudley Metropolitan Borough Council was heard in an Employment Tribunal, and involved 56 employees bringing a claim against the council. The employees (who were plumbers, electricians and carpenters) were invited to work on a Saturday on a voluntary basis. They also agreed to go on emergency standby every four weeks. This happened regularly and many of the employees came to rely on the additional salary this brought in. However, when they took holiday, they would not receive any extra payment. In this case, the employment judge ruled that voluntary overtime, voluntary standby and voluntary call-out payments should be considered “normal pay” when undertaken with “sufficient regularity”, which means they should be reflected when calculating an employee’s holiday pay.
The decision in this case is from an Employment Tribunal, which means it is not binding on other tribunals or courts. However, it is part of a broader picture when it comes to holiday pay and therefore it seems likely that such decisions will become the norm in the future. The whole ethos around holiday legislation (specifically the EU Working Time Directive) is that employees should be encouraged to take their holiday time as a period of rest and relaxation, and not be in a worse position for doing so. Unfortunately, many well-established types of jobs (for example, those with basic pay and commission on sales, or basic pay topped up with overtime when work is available) have historically tended to penalise an employee when they go on holiday. This is because whilst the employee is away, they cannot reach target sales to achieve commission, or partake in any overtime on offer. Even if their earnings are maintained while they are away, there is sometimes an effect on their commission later on due to the sales they couldn’t make whilst on leave. If you put the recent cases in the context of the overall ethos, you can see in which direction the case law is going.
In this case the Employment Judge referred to overtime being undertaken with “sufficient regularity”. As yet, there is no guidance on what would be considered as “sufficient regularity”. The Claimant’s representative gave his opinion that “once a quarter, or more, would be classified as ‘regular’ work. Once every six months might be pushing it a bit”. However, this is by no means established as the test in law.
The way to address these types of issues, and to hopefully avoid challenges, is to review your holiday pay calculations to ensure that holiday pay is calculated based on an employee’s actual earnings over a reasonable period of time. For many cases, the reference period for this could be the previous 12 weeks’ pay prior to the holiday period (this being taken from the Employment Rights Act 1996 in relation to calculations of pay where a worker has no normal working hours). However, a word of caution here as no tribunal or court has actually confirmed that a 12 week reference period would be considered reasonable in every case – and in fact that could lead to some unfair results – the position may well depend on the individual circumstances of each case so it is best to take advice.
Do you need help with holiday pay issues? We can help! Please contact any member of the Pure Employment Law team (01243 836840 or [email protected]).