ADVICE: Backdated overtime claims

In light of the recent decision by the Employment Appeal Tribunal (EAT) decision that some people working overtime could claim for additional holiday pay, we’ve asked an employment solicitor to explain the situation and what it means for you. By ABIGAIL HALCARZ We have been awaiting this landmark judgment for some time and now the Employment Appeal Tribunal (EAT) has ruled that overtime should be counted in ‘normal remuneration’ when calculating holiday pay. The EAT also ruled that workers can make retrospective claims, but these will only be allowed for a limited period. The ruling is expected to have widespread implications for all those organisations that routinely make overtime payments to their staff; they will now need to factor in non-guaranteed overtime when they are calculating an individual’s holiday pay. Employers should note that currently this appears to relate only to the four weeks holiday entitlement under the Directive. It’s not all gloom and doom however, as employers can take some comfort from the fact that the EAT has limited the period for which claims can be backdated, although the limit will only come into effect where there has been a three-month break between deductions (i.e. between holidays). It is likely that situations will exist where this is not the case, for example, where a worker has taken holiday at regular intervals throughout the year. Further, although it is highly unlikely, there appears to be nothing stopping an employee bringing a claim for breach of contract in the civil courts; the time limit would then be six years from the date of the breach. New taskforce The current Business Secretary, Vince Cable, has announced that a new taskforce has been assembled to assess the impact of this ruling. In a press release following the judgment, he said: “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 taskforce of representatives from government and business to discuss how we can limit the impact on business. The group will convene shortly to discuss the judgment.” Given the significance of the judgment to the three businesses concerned with the original appeals and all organisations in general, it seems highly likely the matter will be appealed to the Court of Appeal. This would almost certainly ensure a final decision on the matter could still be many years away. Wait or act? But for those organisations considering the possible consequences, there are actions that could help them mitigate the risks: Employers should assess their potential liability for historical claims and ensure they budget for this in worst-case scenario; Employers could settle claims with employees. This will depend on the number of staff involved and will take time to calculate if the settlements are to reflect each employee’s entitlement; Employers could make a notional overtime payment to staff to break the series of deductions, which could trigger the three-month time limit for making a claim for historical underpayments. However, it could arouse suspicion and lead to more claims, particularly in unionised workplaces; Employers may also wish to impose a suspension on holiday for three months. This could lead to discontent in the workforce and also unmanageable holiday levels in other parts of the year; A more drastic option would be for employers to cease offering overtime to workers. However, this would not prevent retrospective claims and is likely to have disadvantages for employees and ultimately, the business; In the future, subject to the outcome of any appeal, employers should change their policies to include overtime in holiday pay calculations. This will put an end to the series of deductions with regard to unlawful deduction of wages, so employees would have to make a claim within three months of the last deduction, otherwise they will lose the ability to do so. However, employers may need to consult with trade unions first. In conclusion Despite all the speculation, until we know whether the ruling is going to be appealed, the position remains unclear. I’m confident most employers will choose to wait for the result and see what happens, with many considering that any changes they make now will be insufficient or unnecessary. And whilst I accept the situation will be different for every organisation, employers choosing to act now have the chance to limit the number of claims brought. Those that seek expert advice now could help limit what could be a significant expense, not to mention the huge administrative burden businesses face at a time when most are hoping for sustained growth, possibly on the back of increased overtime. THE CASES Neal v Freightliner – Tribunal held voluntary overtime should be included (settled before it went to appeal) Fulton v Bear (Scotland) – Tribunal held that overtime that the employee could reasonably refuse should be included in the calculation for holiday pay. Wood and Others v Hertel and Amec – Tribunal held that compulsory overtime (where the worker must work overtime if required by the employer under his contract) must be included. All employers appealed the decisions and the Employment Appeal Tribunal (EAT) heard the appeal on 31 July and 1 August 2014. A key argument for the appeal was whether (and where) a line should be drawn as to when overtime is included. Domestic law has accepted that guaranteed overtime does form part of normal working hours and should therefore be included in holiday pay calculations (Bamsey v Albion Engineering and Manufacturing 2004), but these cases highlight that the position is not so clear for non-guaranteed overtime. About the author: Abigail Halcarz is an employment solicitor in the Commercial Group at UK top 100 law firm SGH Martineau LLP., acting for a variety of private companies, educational establishments and individuals in both contentious and non-contentious employment matters.