Court rules that overtime should count in holiday pay

Bear Scotland

The Employment Appeal Tribunal has ruled that workers should have overtime included in holiday pay.

While only basic pay has counted when employer calculate holiday pay, the groundbreaking decision means all people working voluntary overtime could now claim for additional holiday pay.

It is yet to be ascertained whether the ruling allows for claims to be backdated as details of the decision are yet to be released but the ruling could also still be appealed to the Court of Appeal, postponing a final decision for years yet.

The tribunal ruled on three cases brought by workers on whether overtime should be included when calculating holiday pay.

One case that the Employment Appeal Tribunal ruled on was Bear Scotland versus Fulton as well as Amec and Hertel.

The case relates to three employees of the roadworks firm who say overtime payments in the past should have been included in their holiday pay.

Brian Gordon, managing director Bear Scotland said: “We are disappointed at the decision of the Employment Appeal Tribunal.

“We believe that we were complying with UK law and common industry practice as some of the employees concerned brought their cases following TUPE transfer from other employers.

“We believe that this interpretation of the Working Time Directive is significant for all UK employers, public and private, and we will reflect on our position before considering how to respond.”

Unite executive director for legal, membership and affiliated services, Howard Beckett said: “Up until now some workers who are required to do overtime have been penalised for taking the time off they are entitled to.

“This ruling not only secures justice for our members who were short changed, but means employers have got to get their house in order.

“Employers will now have to include overtime in calculating holiday pay, and those that don’t should be under no illusion that Unite will fight to ensure that our members receive their full entitlement.”

The ruling is expected to have widespread implications for all companies paying overtime to their staff.

The UK Government estimates that one-sixth of the 30.8 million people in work get paid overtime. This means around five million workers could be entitled to more holiday pay.

The Federation of Small Businesses (FSB) said the decision could impact as many as 30,000 Scottish businesses.

A recent survey of FSB members found that a third of small businesses with employees (31 per cent) paid voluntary overtime. One in 10 (11 per cent) small firms with staff also offered some form of commission. This means the ruling could impact as many as 30,000 Scottish small businesses.

Andy Willox, the FSB’s Scottish policy convenor, said: “This ruling leaves questions unanswered for smalls firms across the length and breadth of Scotland. It has the potential to hurt thousands of Scottish businesses, presenting a real risk of closures and job losses if they face large retrospective claims. Clearly it would be desperately unjust to expect Scottish businesses to pay retrospective compensation for how they calculated holiday pay when they were fully compliant with the law as it was understood at the time.

“The FSB has been appointed to a UK Government taskforce to examine this issue and will be fighting hard for small businesses to be insulated from the uncertainty and legal risks this ruling brings.”

Construction union UCATT have welcomed the decision and will now be working to ensure that construction employers fully comply with the tribunal’s decision.

Steve Murphy, general secretary of UCATT, said: “Construction workers are often reliant on overtime to make ends meet. Workers should not be penalised by having their pay cut when taking holidays.

“UCATT will be pursuing all construction employers to ensure that they fully comply with today’s decision and do not try to short change our members.”

The Department for Business, Innovation and Skills has created a task group that will examine the impact of the decision.

The Civil Engineering Contractors Association is one of seven bodies who will be represented on this group.

CECA chief executive Alasdair Reisner said: “Contractors will rightly be worried about the potential impact of today’s decision on their businesses.

“Having raised our concerns with the Department for Business, Innovation and Skills earlier this year we welcomed its formal intervention as part of the appeal, challenging proposals that any claims could be retrospective.

“Our initial reading of the judgement suggests that this intervention has been noted, with apparent limits on retrospective claims.

“However, it is important that all aspects of the judgement are considered. We will now work with the Government to ensure that both employers and employees are treated sensibly and fairly as a result of today’s decision.”

Given the financial implications for companies, lawyers suggested an appeal was likely.

“The potential financial implications for many employers will be significant,” said Jean Lovett, Employment and Incentives partner Linklaters.

“We envisage that the tribunal’s decision will not be the last word on this issue. As significant sums are involved, we expect the decision to be appealed.

“Due to the costs involved many employers may now look to reduce the availability of overtime, where feasible.”

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