Time to panic about holiday pay?

It is not very often that you see Employment Appeal Tribunal (EAT) cases as widely reported as we did with the Bear Scotland case this week, which is a measure of how far-reaching the implications of the case could be.

Our article dealing with the points found in the case can be found here. I wanted to give my view on the case and the practical position for employers.

The Bear Scotland case was about holiday pay for employees who worked non-guaranteed overtime, but of course similar principles apply to other arrangements. Although a large number of employers do offer non-guaranteed overtime, there are even more who offer payments such as commission, bonuses and other allowances who will be worried that the ruling will involve significantly increased costs for them. According to some reports the implications of the Bear Scotland decision could add 5% to the wage bill for some employers.

The first thing to emphasise is that this is a long way from being the final position (although it seems unlikely that the fundamental position about holiday pay will change, the details of how it will work remain to be established). Not only have the employers been given permission to appeal (and I suspect the employees may also appeal on the time limit point) but the Government has also made it very clear that it will seek to intervene in this tricky area. This could take months if not years (especially if it goes to the European courts, which seems likely) to finally resolve itself, and any claims that employees may seek to bring in the meantime would almost certainly be ‘stayed’ until the outcome of the key cases is known.

The one consolation for businesses in the case was the EAT’s view on back pay, i.e. that employees could only claim back pay for a period where their 20 days’ leave was separated by 3 months or less. However, I think there is a strong risk that the EAT’s finding on the time limit point will be reversed, which would be even more bad news for employers. Looking at the way that holiday pay cases have been dealt with in other situations (such as annual leave during sickness) the three month time limit has not been applied in the same way as it appears to have done in the Bear Scotland case. In Bear Scotland the EAT said that cases would be out of time if there was a gap of more than 3 months which broke the ‘series of deductions’ but in cases of long term sickness the ‘series of deductions’ point has been interpreted much more leniently. The EAT judge admitted that the point was ‘arguable’ so I would expect this to be a point which may change as the case works its way through the higher courts. In any event, employees may still be able to bring their claims as breach of contract, for which different time limits apply.

As we have recommended previously, the best thing for employers to do now (if you haven’t already) is to look at what your potential liability might be. Once you have done that, you can consider the options for dealing with that liability.

We expect that different employers will react differently to the decision. Some may immediately move to change their policies in terms of overtime (for example, stating that holiday pay will be calculated based on the average pay of the 12 preceding weeks), others may decide to use temporary workers instead of overtime, and others may sit tight as the decision is likely to be appealed and will want to wait for any further rulings. There is no ‘one size fits all’ answer and your next steps will depend on a number of factors – and we are of course happy to advise you, please get in touch if we can help.

If you would like to talk through a situation you are dealing with, or if you need advice on any aspect of employment law, please contact any member of the Pure Employment Law team (01243 836840 or [email protected]).

Please note that this update is not intended to be exhaustive or be a substitute for legal advice. The application of the law in this area will often depend upon the specific facts and you are advised to seek specific advice on any given scenario.