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EAT Ruling: Holiday Pay and Overtime

The EAT ruled that it should. Although the ruling is likely to be appealed, it paves the way for multiple claims for unpaid holiday pay, with government estimates that this could amount to up to 5 million people.

Legal Background

Employees are entitled to be paid for statutory annual leave which is currently 5.6 weeks per annum. The amount of holiday pay is referable to a week’s pay which is calculated as follows, either:

-  the normal rate of pay, if the employee’s hours or pay for amount of work done does not vary or

-  the average remuneration over the previous 12 weeks if the employees’ hours of work vary because hours usually vary for agency workers and this is how holiday pay is commonly calculated for them.  

Previous case law has indicated that compulsory contractual overtime should be included within any calculation, but Bear Scotland v Fulton and the other conjoined cases now deals with the voluntary overtime payment and holiday pay. The EAT also indicated that claims for arrears of holiday pay will be out of time if there has been a break of more than three months between successive underpayments. The implications of the ruling are so great that BIS (Department of Business Innovation and Skills) intervened in the cases and provided representation at the EAT.  

The defeated employers have been given leave to appeal the ruling at the Court of Appeal which may take some time. In the meantime, employers and recruiters paying PAYE temps will have to decide whether to adopt the revised approach when calculating holiday pay or whether to take the risk until the final stage appeal ruling is made.

Business Secretary Vince Cable has announced the setting up of a taskforce to assess the possible impact of this EAT ruling.

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