Court ruling that holiday pay includes overtime

The Employment Appeal Tribunal has given judgment in the three joined together cases of Bear Scotland Ltd v Fulton, Hertel (UK) Ltd v Woods and Amec Group Ltd v Law on whether average overtime should be included in holiday pay.

Previously holiday pay did not include overtime pay unless it was compulsory and guaranteed. The decision confirms that all elements of a worker’s normal remuneration – including payments in respect of non-guaranteed overtime – must be taken into account when calculating holiday pay under the EU Working Time Directive. However, the judgment significantly limits the scope for retrospective holiday pay claims under English law.

Business Secretary Vince Cable has said he will be setting up a task force to assess the impact of the ruling as a matter of urgency.

Langstaff P observed that ‘normal pay’ is simply pay that is normally received by the worker. Payment has to be made for a sufficient period of time to justify that label. Where the pattern of work is settled, however, there is no difficulty in identifying ‘normal’ pay.

Any workers who have an unsettled pattern of work should have their pay calculated as an average. Average pay is limited to the basic 20 days’ annual leave provided by the Directive and not the 28 days’ provided for under the domestic Working Time Regulations.

The other main issue on appeal related to the scope for backdated holiday pay claims. Langstaff P held that a worker cannot make a backdated claim if there is a gap of more than three months between any two underpayments. This aspect of the judgment significantly restricts the scope for workers to claim arrears of holiday pay.

The parties were granted permission to appeal on the grounds on which they had lost.

Tom Redfern