4th November 2014



 Issue No.  2014/17




You may remember our Information Update 2014/09 (29th May 2014) when the European Court of Justice (ECJ) had just decided that, where the amount of commission is fixed in the employment contract, payment for annual leave must include an element for commission.

The issue now before the UK courts is whether non-contractual overtime should be included in the calculation of holiday pay.  In this case, the employees were required to work overtime, but their employer was not obliged to offer overtime as a minimum.  In other-words, the overtime was not guaranteed as part of normal remuneration. 

The Employment Appeal Tribunal has delivered its Judgment this morning and held that:

  • Article 7 of the Directive provides for non-guaranteed overtime to be reckoned as part of normal remuneration when calculating holiday pay; and it is possible for the Working Time Regulations to be construed so as to conform.

However, please note that this only applies to the basic 4 weeks’ leave granted under the Working Time Directive (Regulation 13 of the Working Time Regulations), NOT the additional 1.6 weeks under regulation 13A of the Working Time Regulations.

It is envisaged that there may be a floodgate of claims from workers seeking to recover the series of underpayments to their previous holiday pay payments but claims for arrears of holiday pay will be out of time if there has been a break of more than three months between successive underpayments (subject to the reasonable practicability test).

The Employment Appeal Tribunal refused to grant a reference to the Court of Justice of the European Union, but gave permission to appeal to the Court of Appeal.

Following this morning's ruling, Business Secretary Vince Cable has announced he is setting up a new task force to assess the impact of the ruling.

In light of the above and the fact that this decision may be appealed, you should maintain your current approach to calculating holiday pay until all practical ramifications are understood and any appeals have been concluded.

In the meantime, make a note of any employee’s request for either holiday pay to include overtime or any underpayment from previous holiday pay and explain that you will act appropriately, once the legal position has been definitively determined.

However, you should budget accordingly, in case any subsequent appeal fails and this Judgment stands resulting in you having to pay increased holiday pay (and/or possible claims in respect of previous underpaid holiday pay). 

You might also want to review your current resources and investigate whether you could restructure as to avoid overtime being worked in the future.

We will keep you updated on this rather important subject. We anticipate a significant number of legal commentaries being published in the next few days. Interestingly, already one commentator has focused on the term ‘non-guaranteed overtime’, which this case considered, drawing  a distinction between voluntary overtime:    Non-guaranteed overtime” is overtime which an employee is obliged to work if requested to do, but which the employer is not obliged to offer.  This is different from “voluntary overtime”, which the employer is not required to offer and which the employee, if offered, is not obliged to work.   Wonder when we can expect case law to determine this point?

AArrgghh!!!  The Holiday Pay nightmare continues!!!





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