10/11/14 - What are these overtime cases all about?

Following from the relatively recent European case (Lock –v- British Gas Trading) that confirmed that holiday pay should include any commission,  there was a tribunal decision in September stating that holiday pay should include overtime.  Now employers have been dealt a further blow with the widely reported Employment Appeal Decision which confirmed that employees who work overtime can now claim for additional holiday pay.

Background

Under the Working Time Regulations, holiday pay is based on an employee’s “normal working hours” and “a week’s pay”. Where an employee has contracted working hours, holiday pay is based on these hours. Overtime pay is ignored, unless overtime is guaranteed and the employee is contractually obliged to work these hours. Voluntary overtime has traditionally been excluded. Only where an employee has no set working hours would an average wage be used (based on earnings over the previous 12 week period).

Impact

The three most recent cases, (Bear Scotland –v- Fulton; Amec  -v- Law, and Hertel –v- Wood), have confirmed that overtime should now be included in calculating holiday pay.  The only slight relief for employers was a ruling that employees cannot claim more than three months after the last incorrect payment.  This does not, however, guarantee that employees cannot try and claim for backdated claims going back, potentially for the entire duration of their employment, or 1998 (whichever is the earlier).

After the ruling, Business Secretary Vince Cable said he would be setting up a task force to assess the impact of the ruling.

“The Government will review the judgment in detail as a matter of urgency.  To properly understand the financial exposure employers face, we have set up a task force of representatives from government and business to discuss how we can limit the impact on business.”

This is, however, only an Employment Appeal Tribunal decision and as such is capable of appealing.  Given the major impact of this ruling it is more than likely that the appeal process will rumble on – I will keep you updated…

How do I have to deal with this?

On a practical level, you should be aiming to reduce the amount of overtime available, where possible or feasible.

On a legal level, as this is likely to be appealed, then there may be little to be gained by changing your policy at present.

Solution

There are certain preventative steps that you can take now, to minimise the risk of future claims.  If you think your business may be affected by such claims, then please contact me to discuss matters.

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For More Information Contact:
Graham Millar
Mobile: 07841920102
Direct Dial: 0141 530 2023
Email:gmillar@gilsongray.co.uk

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The information and opinions contained in this blog are for information only. They are not intended to constitute advice and should not be relied upon or considered as a replacement for advice. Before acting on any of the information contained in this blog, please seek specific advice from Gilson Gray.