UK Update On Holiday Pay - Implications For Employers In The Construction Industry

The Employment Appeal Tribunal rules that holiday pay should include overtime, but employers gain some relief as the scope for back pay claims is restricted

The UK Employment Appeal Tribunal (EAT) has handed down its decision in the conjoined cases of Bear Scotland Ltd and ors v Fulton and ors; Hertel (UK) Ltd v Woods and ors; Amec Group Ltd v Law and ors.

The position in the UK had been very clear for many years. Workers with normal, basic working hours under their contract have had holiday pay calculated using just those basic hours and basic pay. Overtime pay has not been included. This was confirmed as the correct approach about ten years ago by the Court of Appeal (Bamsey and others v Albon Engineering and Manufacturing plc [2004] IRLR 457) so employers had a high level of comfort that basic pay is the correct approach for holiday pay.

The European Court of Justice (ECJ) in British Airways plc v Williams and Others [2012] ICR 1375 said that holiday pay needed to include "normal remuneration", which includes payments "linked intrinsically to the performance of the tasks which the worker is required to carry out under his contract of employment".

Earlier this year, the ECJ (Lock v British Gas Trading Limited and others (C-539/12)) held that holiday pay needed to include commission payments. It didn't explain how businesses are supposed to do that, and the case has gone back to the UK tribunal to be heard in February.

The EAT has now decided that overtime needs to be included in holiday pay, even though it means that the UK Working Time Regulations have to be interpreted in a different way from how they were by the Court of Appeal in the Bamsey case ten years ago. The EAT decision has been reached because of the need to comply with the European Working Time Directive, as interpreted by the ECJ. Mr Justice Langstaff, in delivering his decision, refused to refer the case to the ECJ on the basis that there was no need - the European position is clear.

The decision applies only to the four weeks' holiday per year that the European Working Time Directive requires, not the additional 1.6 weeks that are given under the UK rules - and also not to any additional contractual holiday employers may offer.

There were fears that the decision could mean claims against employers for a shortfall in holiday pay going back many years. The EAT has said that claims for back pay can only be pursued in a tribunal if there is no more than a three-month gap...