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Taking the fun out of holidays

In the 1990s, John Major's government disagreed with the rest of Europe over plans to introduce restrictions on workers' hours, which were part of an overall European plan to create a level playing field of workers' rights across the European Union.

Whilst most of Europe was happy to limit the working week to 48 hours, the overtime-culture UK wanted to keep people working for longer hours if needed or, just as likely, if wanted-workers in the UK did not want to lose their overtime pay.

The solution was that workers could opt out of the 48 hour week, and work long hours if they wished. The EU Working Time Directive arrived and, in 1998, was followed by the UK's Working Time Regulations. The 48 hour week ceased to be a major issue.

Moving forward to recent years, European working time issues have again become a thorn in the side of UK law, but this time the problem is holidays.

A few years ago, the European Court of Justice (ECJ) said that workers could not be made to take their holiday whilst they are ill, and if they could not take it by year end because of illness, they could carry it forward. Yet UK law says clearly they can't.

Holidays and overtime

In July this year, the UK Employment Appeal Tribunal (EAT) considered whether overtime pay needs to be factored in to holiday pay. The decision in the conjoined cases of Fulton and another v Bear Scotland Ltd ETS/4112472/12 and Wood and others v Hertel (UK) Ltd and another (also known as Smyth and others v Hertel (UK) Ltd and AMEC Group Ltd ET/2603803/12) is due at the end of October.

Holidays and commission as part of pay

Earlier this year, the ECJ in the case of Lock v British Gas Trading Limited and others (C-539/12)said that if a worker had an element of commission in their pay, for example if they are part of a sales team, then the worker must be compensated when they go on holiday and lose commission sitting on a beach means they are not closing sales. UK law says in most cases that holiday pay is just basic pay. The ECJ says that could discourage workers from taking holiday.  The case goes back to the UK tribunals in February, to decide how employers are supposed to compensate workers for commission lost whilst on holiday. The ECJ did not specify how this was to be done.

Adam Lambert, Employment Partner at Clyde & Co LLP, says: "having followed the progress of working time laws for over 20 years, my interest in these cases is not just in the legal answers, and the battle between the UK and Europe, but the economic factors. Businesses are affected by the uncertainty. The overtime decision is due at the end of this month but it is possible it will be referred to the ECJ, and we won't have an answer for years. But it is also possible that the EAT will say that businesses that have diligently complied with UK law for years have in fact got it wrong. The CBI has said that if this means claims for backpay for holidays, it could put many employers out of business."

Adam adds: " I do not believe that the EAT decision will be the end of the story – we can expect an appeal to a higher court – but, employers are already planning on how to reduce the impact of an unfavourable decision, and are already having to budget for increased costs.

"At a time when workers and employers are battling over, for e.g., a 1% pay rise, legal decisions on holiday pay could easily amount to a far bigger percentage increase in the annual wage bill.

"Employers will react to protect their business. A decision against employers at the end of October, or even prolonged uncertainty, is likely to result in employers holding back on pay rises and recruitment, as well as cutting down on commission schemes and overtime.

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