The Employment Appeal Tribunal has today handed down its decision in the long awaited and much debated cases of Bear Scotland Ltd v Fulton and another, Hertel (UK) Ltd v Wood and others and Amec Group Ltd v Law and others. As set out in our earlier article The true cost of holiday pay… these cases centred on whether overtime should be included in the calculation of holiday pay.

The EAT has today confirmed that non-guaranteed overtime should be included in any holiday pay calculation and that the Working Time Regulations 1998 (“WTR”) should and can be interpreted so as to achieve that result. This is on the basis that such payments fall within the meaning of ‘normal remuneration’ and that the pay to be received during a period of holiday should be a natural continuation of the pay received before that holiday began. Whether this principle applies to purely voluntary overtime, however, is, as of yet, uncertain as the cases in issue concerned only workers who were required to work overtime, though such overtime was not guaranteed.

The decision obviously has far reaching implications for employers, with concerns being raised as to the possibility of back-pay claims dating back to the implementation of the WTR in 1998. However, the EAT has made clear in its judgment that where there is a gap of more than three months in a series of deductions (i.e. the dates on which holiday pay has been calculated incorrectly), that passage of time breaks the series of underpayments and effectively backstops any potential claims. Whilst this may provide some comfort, there are calls for government intervention for more to be done to limit the potential impact of the judgment and provide some clarity as to the extent of any resulting liability for employers.

In response, a government taskforce (comprising seven employer organisations) has been appointed to review the judgment and consider its application, with the department for Business, Innovation and Skills expressing extreme concern about the “potential impact on employers”. In addition, the EAT has already granted permission to appeal its decision to the Court of Appeal.  It would therefore appear that this issue is far from settled!

If you have any questions on the above or would like any assistance or guidance with dealing with the calculation of holiday pay, please do not hesitate to contact Matt Huddleson or Sarah Luxmoore.