expensive holidays

In August 2013 I asked the question whether holiday pay should include overtime.

In the case of Neal v Freightliner Limited Employment Judge van Gelder, sitting in Birmingham, readily found that holiday pay should equate to “normal pay”, i.e. what the employee normally receives, relying on the European Court decision in British Airways plc v Williams and others. The common sense approach to “normal pay” is that if it routinely includes overtime, commission or bonus payments, then so should holiday pay.

So why is it back in the news? Unsurprisingly, the judgment in Neal is being appealed and the hearing before the Employment Appeal Tribunal is only a couple of months away. If, as many expect, given the comprehensive analysis and convincing rationale in the initial judgment, it is upheld on appeal then, unlike the judgment of Judge van Gelder, this will be a binding authority on how holiday pay should be calculated.

This could lead to much more significant repercussions for employers than might initially be thought. As highlighted in the Daily Telegraph this raises the spectre of retrospective claims. It has been the standard practice of many employers in the UK to apply what is commonly referred to as “basic pay” when calculating holiday pay. If such employees are routinely paid more than basic pay when working then they may well have claims for the difference going back as far as 2008. The potential impact for employers of having to fund substantial back payments for numerous employees is obvious. As highlighted by an article in The Construction Index, employment sectors which routinely pay significant overtime, such as the construction industry, are likely to be severely affected.

Taking into account the value of retrospective claims it is reasonable to assume that, as well as class actions brought by unions and other employee organisations, in a similar vein to misselling claims employees will be notified of their ability to claim “windfall payments” by extensive advertising and claims companies offering no win no fee deals.

So what should employers do?

If you think that this issue is likely to affect you, you should review your holiday pay provisions right away. While you cannot exclude the possibility of retrospective claims and you cannot contract out of the entitlement, since it is based on a European Directive, you should give some thought to what constitutes “normal pay” in your organisation. If employees are routinely paid overtime (presumably at enhanced rates) is this the time to renegotiate contracts so that the standard contractual hours are nearer to those actually worked? It is perhaps also an opportunity to make sure that your contracts and policies are up to date taking into account recent developments concerning the overlap between holidays and sickness absence.

Please do not hesitate to contact us if you need assistance with these or any other employment matters. We will be pleased to deal with your initial enquiries on a no obligation basis as well as offering you our one-to-one employment law services provided exclusively by specialist employment solicitors.