Bear Scotland – appeal tribunal decides that overtime must now be included in holiday pay

In light of recent case law, the UK farming industry should review the way it makes annual leave payments to workers. In early November, the Employment Appeal Tribunal (EAT) changed the way holiday pay is calculated for many workers. The decision gained the attention of the national press and has raised many questions for employers.

What is the issue?

Following two European decisions, the UK Court had to determine if workers should gain more holiday pay rights. The case focused on overtime but has wider implications for employers. “Intrinsic payments” (payments relating to the worker performing their job) may now need to be reflected in statutory holiday pay.

The decision only applies to the first four weeks of minimum statutory leave. Currently if an individual works full time Monday to Friday they are entitled to 28 days per annum, which may include public holidays (5.6 weeks). This decision only applies to the first four weeks of a worker’s statutory leave (20 days/4 weeks).

We already know that guaranteed overtime should be reflected in holiday pay for four weeks. Guaranteed overtime is where the employer guarantees to provide a certain number of hours overtime and the worker must accept and perform those hours.

The decision in Bear Scotland established that non-guaranteed overtime should also be caught. Non-guaranteed overtime is where overtime is not guaranteed by the employer but the employee is obliged to work if provided.

The decision is unclear on purely voluntary overtime but we believe purely voluntary overtime worked on an irregular ad hoc basis will not be caught. However voluntary overtime worked on a “settled” or “regular” basis may be caught. There is no clarity on what “settled” or “regular” basis means but our view is that there must be some sort of pattern to the overtime in order that it is caught.

Having established that the law should be changed in this way to give workers more holiday pay (the effect of the decision is to rewrite the law as if it always applied in this way), the Judge went on to deal with retrospective liability. He came up with a proposition that limits workers claims for underpayment of holiday pay. He said that most claims will be time barred as workers will have had a period of three months after they have taken their four week minimum leave. The point is that you can only bring a claim for past unlawful deductions within three months of the most recent deduction. This is an arguable point but Unite the Union (who supported the employees in the case) have elected not to pursue this as an appeal.

The good news is that the Government has stepped in and imposed a two year cap on retrospective liability claims. The bad news is that this is not effective until 1 July 2015. This means that there is a period between now and the 30 June 2015 where workers may seek to bring claims for historic liability if they feel they would be prejudiced by the two year cap.

The decision in Bear Scotland is complicated and has consequences wider than just overtime. Given the European cases on commission and in light of Bear Scotland, we strongly recommend you assess exposure to increased holiday pay payments for the past present and future. We recommend you undertake an assessment of the workforce and any “intrinsic payments” you may be making and then assess what steps, if any, you should make next.