With holiday pay back in the EAT this week, employers are visited again by the ghost of Christmas past…

Written on 7 Dec 2015

At the end of 2014 we were writing about overtime and holiday pay following the Employment Appeal Tribunal (“EAT”) decision in Bear Scotland (see here), the new government holiday pay taskforce and draft regulations the government had issued which limited historic holiday pay claims under the unlawful deduction of wages provisions to two years (see here).

Employers looking forward to Christmas 2015 will have hoped for some clarity on their holiday pay commitments, but the spectre of holiday pay still lingers in the EAT which hears the appeal in Lock v British Gas this week.

So why is holiday pay still on employers’ agendas as we end 2015?

Since its launch at the end of 2014, the holiday pay taskforce has remained silent. Whilst the government’s new regulations which limited holiday pay claims to two years’ back pay came into force on 1 July 2015, there has been no indications of any further legislative action. Indeed, it may be that the holiday pay taskforce is now defunct with matters being left in the hands of our courts.

Turning to case law developments during 2015, the two key outstanding issues were whether or not voluntary overtime, (the EAT in Bear Scotland only dealt with non-guaranteed overtime), and commission payments should be included in holiday pay – and, if so, how. There has been some litigation on these issues, but unfortunately the cases heard have moved the position on very little:

  • June saw a decision from the Court of Appeal in Northern Ireland that “appropriately permanent” voluntary overtime payments should be included in holiday pay (see here). This decision is not binding on our tribunals in England and Wales but is of persuasive authority. The relevant reference period was left for the Northern Ireland Industrial Tribunal to determine. However, employers are still left with tricky questions, particularly regarding whether voluntary overtime worked at certain times of the year, such as Christmas or summer sales, is sufficiently permanent to constitute normal remuneration and the reference period over which a holiday pay calculation should be based.
  • Whilst February saw the Employment Tribunal in Lock v British Gas rule that commission should be included as part of holiday pay calculations where it is directly linked to the work carried out by the employee (see here), this decision was appealed to the EAT. The hearing is this week (8 and 9 December). Employers operating commission schemes are still therefore haunted by the European Court of Justice decision in 2014 that commission which forms part of normal remuneration should be included as part of holiday pay, but with no clarity as to whether or not this is in fact required under our Working Time Regulations 1998 and if so how.

Sadly, holiday pay is an issue which looks unlikely to be resolved with any speed. We now await the outcome of the EAT decision in Lock v British Gas, but it may well be that Christmas 2016 sees us reporting on the matter coming before the Court of Appeal, or awaiting yet another Employment Tribunal decision.

So, should employers who have not yet adjusted holiday pay to reflect any additional payments continue to play Scrooge? The simple fact is that, whilst the European Court of Justice has made it clear that holiday pay should reflect any payments such as overtime and commission that form part of an employee’s normal remuneration, how employers should go about this in practice is still unclear. For some, including additional payments in holiday pay now is the right course of action. For others, it will not be.

All employers should audit their current situation, and where holiday pay is not adjusted, make sure a contingency fund is set aside to meet any historic and future liabilities.

Please click here to access our holiday pay hub containing all our latest holiday pay alerts, and contact either your usual OC contact or Catherine or Kath with any questions.