Holiday Pay and Overtime: Finally some good news for employers?

A GROUNDBREAKING decision made at the end of last year ruled that non-guaranteed overtime must be factored into a worker’s holiday pay entitlement and that they should be able to file backdated claims, potentially going back many years.

The employment appeal tribunal (EAT) ruling left employers extremely concerned that they could be faced with expensive - possibly crippling - claims.

However in December 2014, following the setting up of a taskforce by the department for Business, Innovation and Skills (BIS) to look at the issue, the government passed regulations which mean that claims for backdated pay will be limited to two years with effect from July 1, 2015.

 

*How did we get here?

IN November 2014, the EAT held that pay for EU holiday - in other words the four weeks annual leave granted under European law - should include overtime which is not guaranteed by the employer, but which the worker is required to work if it is offered to them.

It was estimated that this ruling affects around five million workers in the UK who work overtime and left the door open to backdated holiday pay claims, making it a real concern for employers.

The EAT had nonetheless made efforts to limit the scope of the claims, ruling that a gap of three months between periods of underpaid EU holiday would “break the chain”, and no shortfall could be recovered in respect of holidays prior to that gap. Whilst this may have provided some comfort to employers, it nevertheless left them exposed to potentially hefty claims.

 

*What do the new regulations say?

THE regulations brought in by the government in December bring about a change to existing employment rules for claims for unlawful deductions from wages.

From July 1, 2015, any claim for backdated holiday pay, or any other claim for unlawful deduction from wages, will only be able to be claimed for two years (with a few exceptions involving statutory sick pay and maternity/paternity pay).

In addition, the regulations say that the right to be paid holiday is not implied into an employee’s contract by operation of law. This confirms that workers are not able to by-pass the two year back pay restrictions by bringing a breach of contract claim – which could go back up to six years - in the High Court.

 

*What does this actually mean for employers?

AS the law stands at the moment, the rules on time-related restrictions on unlawful deductions from wages claims are.

1 A claim for unlawful deductions from wages must be brought within three months of the deduction. If a series of deductions over time apply, the claim must be brought within three months of the last deduction.

2 A series of deduction is broken by there being a three month gap at any time, thus preventing claims for deductions that occurred before that gap. This is the effect of the decision in November 2014, but it may be challenged in future case appeals.

3 From July 1, 2015, following the regulations passed by the government, even if there is an unbroken series of deductions going back many years, a claim can only cover the two years up to the date the claim was presented to the employment tribunal.

These new regulations are good news for businesses as it considerably reduces the scale of potential backdated holiday pay claims.

However, employers should remain cautious as we expect to see a flurry of back pay claims prior to July 1, 2015, from workers and employees who are trying to avoid the two year restriction imposed upon them by the regulations agreed in December.

For more information on this issue, contact Sarah Driscoll, employment specialist at Clarke Willmott LLP (Sarah.Driscoll@clarkewillmott.com) on 0845-2091834.