Bear Scotland v Fulton and Baxter, Hertel (UK) Ltd v Wood and others [2014]

The worst-kept secret in employment law is officially out - holiday pay should include normal overtime and similar payments. However, there is a lot of devil in the detail of this 53-page decision from the EAT and leave has been given to appeal to the Court of Appeal on parts of it, so the uncertainty may continue for some time. 

These cases raised five issues:

i) Is it the case that non-guaranteed overtime and the other elements of remuneration which the workers in the present cases received have to be included in pay during and for the annual leave provided for by the Directive? The EAT said yes.

ii) Can domestic legislation on leave and pay be interpreted so as to give effect to the requirement to Article 7 of the Directive on rights to annual leave? The EAT said yes.

iii) Could any underpayments be construed so as to constitute a “series of deductions”? The EAT said unlikely - most will be broken by periods of three month gaps.

iv) In relation to termination payments, including PILON, was the Tribunal entitled or right to find that (i) the Claimants’ normal working hours were those set out at paragraph 95 of its Reasons and/or (ii) that pay in lieu of notice should have been based on the weekly shift patterns they last worked before their contracts were terminated? The EAT said no, based on the facts. 

v) Should two allowances (radius allowance and travelling time payment) have been paid in respect of holiday pay? The EAT said yes. 

The co-joined cases involved employees who were obliged to take overtime, although that overtime needn't have been offered by their employers - these cases do not concern contractual rights to overtime. The overtime worked was regular, 'normal' in relation to these cases. The employers paid holiday pay on contracted hours, rather than making it a reflection of what workers would 'normally' earn when they carried out regular overtime. The employees sought, and received, a judgement that their holiday pay should be paid at a higher rate than basic contracted hours. Shift premia and common travel time allowances should also be factored in - these would normally be paid to the employees in these cases.

So far, so simple, and very much in line with recent CJEU case law on holidays and holiday pay - annual leave is a basic right and nothing, such as employees earning less that they could at work, should discourage employees from taking it (e.g. see British Airways plc v Williams). The EAT found that the domestic legislation, the Working Time Regulations, could be interpreted as being consistent with the original EU Directive, meaning the judgement covers private as well as public sector employers and employees.

However, as with other related decisions, the EAT has found that the right to normal pay applies only to the statutory right to holidays under the Directive i.e. the four week annual leave entitlement and not the domestic right to annual leave under the Regulations i.e. the full 5.6 weeks' leave. 

The EAT also found that this 'Directive leave' is taken first, which means there is normally a gap of at least three months between periods of underpayment for holidays. That gap breaks the employees' rights to claim unlawful deductions, in most cases, to the current holiday year. So, most employers need not worry at this stage about enormous back payments (subject to the reasonable practicality test).

Practical Lessons

It also means that employees often have the right to more pay for the first four weeks of holidays that the remainder and employers have to decide whether they wish to go to the trouble of calculating different rates throughout the year or gross it all up to normal pay, provided they can establish what normal pay is. 

If you make regular payments above basic salary to employees you should take legal advice on what to do about this decision. It is the case that a UKEAT decision is not binding in Northern Ireland. However, the legislative rights on this issue are the same and the logic will apply. 

Longstaff J concludes has reasoning with this intriguing comment:

"The parties to the Hertel and Amec appeals are agreed that each party should have permission to appeal to the Court of Appeal on all points on which they lost. I am content to grant the permission: though I do not consider that an appeal on the first two grounds has a reasonable prospect of success, I recognise that the issues in these cases are of some importance."

Indeed they are - Business Secretary Vince Cable has set up a taskforce to look at the impact. Pending the outcome of their findings, we'd advise our readers to take legal advice on the calculation of holiday pay.
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