Holiday Pay Entitlement

Holiday pay entitlement has long been a thorny and surprisingly complex area of employment law. Recent cases have centred on extending the calculation of holiday pay beyond reference to basic pay; to include time spent 'intrinsically linked' to the work. This has resulted in understandable business concern at very large back claims, particularly following the much publicised voluntary back-payment by John Lewis of £40 million!

Statutory minimum holiday entitlement is of course an EU-protected health and safety right.  The health and safety context helps explain the purposive approach taken in various EU cases, such as the EU ruling that statutory minimum entitlement should not be lost if a worker becomes sick during holiday.  Also that the worker has the right to take paid statutory holiday whilst off sick (e.g. if sick pay has been exhausted) or to carry forward holiday entitlement accrued during sick leave.  That right extends into the following leave year.

The case law history has therefore produced some surprising rulings, which have sometimes been difficult for employers to manage.  However, the latest batch of cases, on exactly how holiday pay should be calculated, is of even more concern. 

The reason is recent European case law suggesting that not only basic pay, but other pay 'intrinsically linked' to the job should come into the calculation.  This is a departure from a strict interpretation of the UK Working Time Regulations, which specifically state that non-contractual hours of work should be ignored.  However these Regulations have to be interpreted broadly where they otherwise would not adequately implement European Health and Safety Law on Working Time.

That broader interpretation has been followed in a couple of recent Employment Tribunal decisions.  In the Scottish Tribunal last year, following the EU approach, the Judge interpreted domestic law to mean that holiday pay should include various supplements including overtime.  At about the same time an English Employment Tribunal held that holiday pay should take into account regularly rostered overtime, over and above the contractual seven hour shifts, despite the fact that that overtime was voluntary. 

The employers in the English case, Freightliner Limited, are currently appealing this decision to the Employment Appeal Tribunal, and it is possible that it will be referred on to the European Court.  However, in the meantime manufacturers do need to be aware of this, potentially very costly, development.  It is important to stress that these rulings only apply to the four week European statutory minimum holiday period, but nevertheless, because of the rules on claiming back pay in 'unlawful deduction' claims, the sums involved can be very significant, potentially going back over many years.

This is something therefore that all manufacturers will need to watch, and we will endeavour to keep you updated of the significant trend.

If you would like more information in relation to any of the issues discussed in this article, please contact Nikki Duncan, a Partner in the Employment Team, at nikki.duncan@michelmores.com.