Overtime to form part of worker’s holiday pay

Lisa Whitelam, partner at Gainsborough-based law firm Burton & Dyson discusses the implications of this morning’s holiday pay ruling at the Employment Appeals Tribunal.

This morning, the Employment Appeals Tribunal has handed down its judgment in the case of Bear Scotland vs Fulton and others; the much anticipated decision has ruled that voluntary overtime payments should be taken into consideration when calculating a worker’s holiday pay entitlement. As a result of today’s ruling it is estimated that approximately five million workers in the UK could be entitled to more holiday pay at a potential cost to companies of billions of pounds.

At the end of 2012 and beginning of 2013, three employees from the road maintenance company Bear Scotland presented claims to the employment tribunal asserting that voluntary overtime pay should have been included in their holiday pay. The employment judge hearing the case agreed with the claimants and ruled that all overtime payments should be taken into consideration when calculating holiday pay. The decision was appealed and the case was heard earlier this year with the Employment Appeals Tribunal upholding the initial judgment.

The decision has centred upon the interpretation of the Working Time Regulations implemented in the UK in 1998. Article 7 of the Working Time Directive states that workers must have the right to paid annual leave, however it does not specify how a worker’s pay should be calculated and this has historically been left to national legislation to determine. Prior to today’s decision, only basic pay has counted when calculating holiday pay.

Today’s result is expected to have huge ramifications for all companies whose workers carry out overtime above their contracted hours. With one sixth of the 30.8 million workers getting paid overtime, a significant number of claims can be expected as a result of today’s judgment.

It is anticipated that the ruling will be appealed to the Court of Appeal or referred to the EU Courts in Luxemburg for clarification on how European law should be interpreted. Interestingly, on previous referrals, the EU Courts have ruled that commission and bonus payments should be included in holiday pay which may provide an indication as to their potential approach should today’s decision be referred.

With either an appeal or referral likely, it may be some years before we have a final decision on whether overtime should form part of holiday pay.