Holiday pay should include overtime payments

Holiday pay should include overtime payments which employees would have earned while working, says employment appeal tribunal

The Employment Appeal Tribunal has ruled that holiday pay should include overtime payments which employees would have earned while working.

The ruling is good news for many Prospect members, but it is disappointing that the EAT ruled against back pay being paid.

Today’s judgment follows a number of earlier cases which looked at how pay is calculated when a worker is on leave.

Traditionally, many employers have calculated holiday payments on basic pay only and excluded payments like overtime, commission, or stand-by payments which would be paid the rest of the year.

But recent cases have argued that a failure to pay the usual full pay is incompatible with the European Working Time Directive. Workers must be no worse off when exercising their right to take leave.

In 2012, the European Court of Justice held that payments which are ‘intrinsically linked’ to people’s work must be included while they are on holiday.

Earlier this year, the European Court ruled that commission payments should be included in holiday pay. In Lock v British Gas, the worker was due commission payments but was only paid basic pay when on leave. The court found that any reduction in remuneration that may deter a worker from exercising their right to take leave was unlawful. 

In the EAT judgment released today – Bear Scotland Ltd & others v Fulton & others – the workers claimed arrears of holiday pay. They argued they should be entitled to overtime payments which they would usually earn while working. They won their cases in the employment tribunal, but the employers appealed to the EAT.

The EAT upheld their claim that holiday pay calculations should include overtime which the employees were required to work, even though the overtime was not guaranteed. 

However the EAT limited the opportunity to claim back pay. They ruled in favour of the employers who argued that a claim to the tribunal needed to be presented within three months of the payment being made. 

Marion Scovell, Prospect legal officer, said: “This is an important ruling and means a number of Prospect members should have their holiday pay entitlements increased. But it is very disappointing that the EAT restricted back pay being claimed.

“The judgment still leaves a lot of questions on how to deal with holiday pay and there are likely to be further appeals. In the meantime, Prospect members who believe they are not being paid in full during periods of leave should contact their Prospect negotiator.”

Prospect has done a full briefing about the case for members.