A helping hand with holiday pay

Thursday 11 December 2014

Justin Govier, Partner Jonathan Bruck, Senior Solicitor Erica Humphrey, Solicitor

Recent case law Jonathan Bruck Senior Solicitor

Working Time Directive (2003/88/EC) Article 7: 1) Member States shall take the measures necessary to ensure that every worker is entitled to be paid annual leave of at least four weeks in accordance with the conditions of entitlement to, and granting of such leave laid down by national legislation and/or practice. 2) The minimum period of paid annual leave may not be replaced by an allowance in lieu, except where the employment relationship is terminated.

Working Time Regulations 1998 Right to leave: - Reg.13: the “Euro Right” to 4 weeks’ leave - Reg.13A the Domestic Right to 1.6 weeks’ leave Right to paid leave: - Reg.16 - Right to a “week’s pay” for each week of leave

Employment Rights Act 1996 and a “week’s pay”

A week’s pay is defined in Employment Rights Act 1996: 1. Fixed hours of work – “the amount which is payable by the employer under the contract of employment ...if the employee works throughout his normal working hours”. 2. Variable hours of work – “the amount of a week’s pay is the amount of remuneration for the number of normal hours in a week calculated at the average hourly rate of remuneration…” [12 week average]

What should be included in holiday pay?

• British Airways v Williams

• Lock v British Gas

• Bear Scotland & others v Fulton and others

British Airways v Williams

• Purpose of payment is to put the worker taking holiday in a position where remuneration is comparable to periods of work

• Remuneration for holiday must in principle be determined so as to correspond to the normal remuneration received

British Airways v Williams (cont) ‘Normal remuneration’:

• Includes any aspect linked intrinsically to performance of required tasks for which monetary amount provided which is included in calculation of total remuneration, and/or aspect related to personal or professional status

• Does not include components intended exclusively to cover occasional or ancillary costs arising at time of performance of required tasks e.g. expenses

Lock v British Gas Holiday pay includes:

• Commission –‘directly linked’ to work i.e. intrinsic link

• Calculation based on average commission earned over reference period considered to be representative

Bear Scotland & others v Fulton and others

Does the Directive require that overtime be taken into account when calculating holiday pay? Types of ‘overtime’:• Guaranteed overtime - employer is not obliged to provide the

overtime, but the worker is obliged to work it if requested.• Non-guaranteed overtime - employer is not obliged to provide

the overtime, but the worker is obliged to work it if requested.• Voluntary overtime - no obligation on the employer to provide

it and worker can choose whether to work it.

Bear Scotland & others v Fulton and others (cont)

• Involved non-guaranteed overtime• Non-guaranteed overtime was directly/intrinsically linked to

tasks which a worker was required to carry out.• Non-guaranteed overtime should be taken into account for

the purposes of calculating holiday pay.

Bear Scotland & others v Fulton and others (cont) Retrospective claims:• Right to claim unlawful deductions (historic underpayments)

• Can back claim for series of deductions (i.e. underpayments);

• BUT any series of deductions punctuated from the next series by a gap of more than 3 months – out of time.

Problem areas Erica Humphrey Solicitor

Problem areas: reference period for calculation

• 12 weeks (as with those with irregular working hours)?• Attorney General in Lock case suggested 12 months

(commission on a monthly basis)• NB: Representative normal period and reflect normal

working

Problem areas: what should be included?

• Concepts: - “intrinsically linked to the performance of the duties” - “pay that is normally received” “normal remuneration”

• Commission: yes

• Overtime: - Guaranteed (employer is obliged to provide overtime) – yes - Non-guaranteed (employer is not obliged to provide, but employee is obliged to do) – yes - Voluntary (no obligation on either side) - possibly

Problem areas: what should be included?

• Allowances: possibly - “intended exclusively to cover occasional or ancillary costs ” - no - bonus for performing certain tasks/or under certain conditions – yes

• Standby and emergency call-out payments: yes

• Productivity, attendance or performance bonuses: probably

• Annual bonuses: possibly

Problem areas: what should be included?

• Always look at contract/policy• Analyse what the payment is being provided for• Consider frequency and regularity of the payment• Will the employee be disincentivised from taking their holiday

if not included?

Problem areas: 5.6 weeks or 4 weeks?

• Working Time Directive – 4 weeks’ holiday• Working Time Regulations - 5.6 weeks holiday• Practical implications for drawing a distinction

What to do now? Justin Govier Partner

What to do Now?

• Policy design• May well be different for each employer• Do nothing?

What to do Now?

• Bear Scotland appeal?• Trade Union position• Employer decision• Is the outcome mutually acceptable for both?• Or will someone appeal principle or claims limitation?• Further certainty needed in points Erica raises in any event

Audit

• Effect of the three month ruling• When holiday last paid• Remuneration entitlements• Contractual wording and practice (e.g. type of overtime)• Regularity of voluntary overtime• Holiday and workflow patterns (inc. shutdown)• Effect of different reference periods

Other Considerations

• Culture• Industrial relations• Risk profile

Options - Claims

• Latest or live• Attempt to settle – reference period, what in/out?• Will employee wait for development on three month ruling• Unionised work forces• Quid pro quo going forward• Individual or collective views• Deal with employees differently?• ET claims stay lifted• Pay and move on• Wait until more clear• Communication

Going Forward

• Try to agree with unions• Communication• Do nothing?• Keeps claims alive• Employees likely to bring claims• Lose potential to trade off• Not sensible