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Holiday Pay Briefing - New judgments to be aware of


Employers should be aware of a number of recent judgments relating to holiday pay which may leave them open to collective claims from their workforce.

The way in which employers are required to calculate holiday pay derives from European law. Recent European judgments have suggested that the way in which the European requirements have been interpreted and brought into force in the UK is incorrect.

The issue relates primarily to those employees and workers who, in addition to their pay for working during their normal working hours, receive commission, paid overtime, standby and/or emergency call out payments for tasks which are intrinsically linked to the performance of their duties or their status.

Previously, in most cases, employers have not been required to include such variable elements of pay when calculating such an employee or worker’s holiday pay. However, following the European judgments, a number of UK cases have interpreted UK law so that those variable elements of pay should be included.

Two of these cases which relate to overtime pay, standby and emergency call out payments have been appealed and are currently being decided by the Employment Appeal Tribunal. We hope to receive that judgment before the end of the year.

However, given the European judgments (which we are required to follow), it is likely that such variable elements of pay for salaried employees and workers will need to be included when calculating holiday pay at some point.

The judgment of the Employment Appeal Tribunal will hopefully clarify a crucial issue for employers, namely whether:

  1. the UK law as currently written, can be interpreted in line with European requirements; or
  2. the UK law must be re-written in order for the UK to comply with European requirements.

If the Employment Appeal Tribunal decides that UK law can be interpreted in line with European requirements without the need for it to be re-written, employers will need to comply immediately and probably retrospectively.

In such circumstances, employees and workers could potentially bring back pay claims for the difference between what they were paid and what they should have been paid had the variable elements of their pay been included.

There is currently significant uncertainty in respect of such potential claims as it is unclear for what time period employees and workers could claim for. It could be from the beginning of their employment or engagement, from 1998 when the UK law was introduced, the last 6 years or just the last year.

It is also unclear what variable elements of pay should be included, how it should be calculated and whether it would affect all holiday entitlement. In addition, the Employment Appeal Tribunal’s judgment could be further appealed.

If the Employment Appeal Tribunal decides that UK law must be re-written, the re-issue of the legislation is unlikely to happen before the next election. Also, when the legislation is re-issued it will hopefully provide a date from which employers will be required to comply. This may prevent employees from bringing back pay claims for the difference in their holiday pay and allow employers to avoid potentially significant liabilities.

However, in either case, employers are likely to have increased wage budgets moving forwards and the uncertainties relating to the calculation of holiday pay will need to be clarified to enable employers to comply.

Unfortunately, this means that employers and their workforce are likely to be in a state of uncertainty for some time. Employers should carry out a broad assessment of their potential liability for back pay claims and contact us to consider the best strategy for their business to deal with the uncertainty as we can assist employers to budget for and mitigate against the potential costs.

It should be noted that the position with regard to the application of European law to public employers is different to private employers and is not addressed in this note.

Any questions?

If you have any questions please contact Sarah Tahamtani partner in the employment law team:

Sarah, 0113 336 3314 - sarah.tahamtani@clarionsolicitors.com


Disclaimer: Anything posted on this blog is for general information only and is not intended to provide legal advice on any general or specific matter. Please refer to our terms and conditions for further information. Please contact the author of the blog if you would like to discuss the issues raised.