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19 January 2015 / by / in

Fulton v Bear Scotland Ltd – The Cost of Holiday Pay – A welcome update for employers?

As reported in our recent blog post, the EAT in Bear Scotland has held that non-guaranteed compulsory overtime (overtime which workers are required to work but which employers are not obliged to offer) must be taken into account when calculating holiday pay for the 20 days of annual leave required by the Working Time Directive.

The decision raised understandable concerns for employers, as employees could potentially bring long term claims for back holiday pay. However, it did not deal with the question of how far back such claims for holiday pay could stretch.

The government has therefore introduced regulations to try and clarify some of these issues (the Deduction from Wages (Limitation) Regulations 2014). These came into force on 8 January 2015 and will apply to claims presented on or after 1 July 2015.

The Regulations do two things:

 1. Subject to certain exceptions, limit all unlawful deductions claims to two years before the date the ET1 is lodged; and

2. State that the right to paid holiday is not an implied (but must be an express) term in employment contracts.

The effect of the Regulations

 

The Regulations remove any chance employees have of bringing long-term claims for back holiday pay, and prevent contractual claims to holiday pay being brought in the civil courts (which could go back up to six years) in order to get round the tribunal claim limits.

Is this the last we will be hearing on this issue?

 

Whilst Unite (the union involved in the Bear Scotland decision) decided that it would not appeal, this does not prevent the point being pursued further in other cases (perhaps including the Lock case, due to be heard again in February 2015).

Further, the EAT decided that employees in the UK are entitled, as a matter of EU law, to overtime as part of holiday pay. Unions might therefore seek to challenge the new Regulations on the basis that they limit the ability of workers to exercise their rights under EU law effectively.

What’s next?

 

The imposition of a six month transition period may merely act as a “call to arms” on employees and Unions to take advantage of the current state of affairs and get their claims in prior to 1 July 2015, especially if seeking to take advantage of a series of underpaid holiday that stretches back some time.

Employers should therefore analyse the potential impact of the Bear Scotland decision in light of the new Regulations, by looking at pay structures, holiday pay records and general workforce awareness of the issue. A central monitoring process will also ensure that any claims for holiday pay (or claims which involve a holiday pay element) are logged, to enable employers to perform an effective assessment of historic liability in July 2015.

The new Regulations should nevertheless be welcomed by employers as providing some relief from the backdated holiday pay problem. However, expect June 2015 to be a busy month for new tribunal claims.

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