• Holiday Pay includes Overtime EAT Rules

    The EAT has given judgment in the joined cases of Bear Scotland Ltd and ors v Fulton and ors; Hertel (UK) Ltd v Woods and ors; Amec Group Ltd v Law and ors. Its decision confirms that all elements of a worker’s normal remuneration – including payments in respect of non-guaranteed overtime – must be taken into account when calculating holiday pay under the EU Working Time Directive (No.2003/88); and that the Working Time Regulations 1998 SI 1998/1833 can be construed to achieve that result. However, the judgment significantly limits the scope for retrospective holiday pay claims under domestic law.

    The appeal concerned the decisions of two employment tribunals that supplementary payments normally received by workers, including overtime payments, should count towards holiday pay. Mr Justice Langstaff (President of the EAT), sitting alone, referred to British Airways plc v Williams and ors 2012 ICR 847 (Brief 935), in which the European Court of Justice held that holiday pay under the EU Civil Aviation Directive (No.2000/79) should, in principle, be equivalent to airline pilots’ normal remuneration. Accordingly, it was not confined to basic pay but included supplementary payments for time spent flying, as well as allowances linked to the pilots’ professional and personal status. This reasoning was adopted by the ECJ in Lock v British Gas Trading Ltd 2014 ICR 813 (Brief 999), a case concerning the right to paid annual leave under Article 7 of the Working Time Directive. In Lock, the ECJ held that commission payments that were directly and intrinsically linked to an individual’s work must be reflected in the worker’s holiday pay.

    Langstaff P considered that Williams and Lock, taken together, represented the settled view of the ECJ as to the meaning of Article 7. The principles established in those cases applied equally to overtime payments and it was unnecessary to make a further reference to the ECJ. Langstaff P observed that ‘normal pay’ is simply pay that is normally received by the worker. There is a temporal component to what is regarded as normal: payment has to be made for a sufficient period of time to justify that label. Where the pattern of work is settled, however, there is no difficulty in identifying ‘normal’ pay for the purposes of Article 7.

    In Hertel and Amec, overtime was compulsory (although not guaranteed by the employer) and, on the evidence, was required with a sufficient degree of regularity for overtime payments to count as ‘normal’ remuneration. In so far as the ECJ case law required an intrinsic or direct link between the payment claimed and the tasks that the workers were required to carry out, that definition was clearly satisfied. Accordingly, Article 7 required overtime payments to be taken into account when calculating the workers’ holiday pay. The taxable element of certain payments for travelling time also formed part of the workers’ normal remuneration and should be included in their holiday pay. In so far as they were taxable, such payments did not represent a reimbursement of expenses but were directly linked to work.

    The next question for the EAT was whether the Working Time Regulations, which calculate holiday pay by reference to the ‘week’s pay’ formula set out in Ss.221-224 of the Employment Rights Act 1996, could be interpreted to achieve the result required by the Directive. Langstaff P held that they could and, indeed, should. While the precise form of words did not matter, in his view this was best achieved by reading words into Reg 16 to disapply Ss.223(3) and 234 ERA, which have the effect of excluding certain overtime payments from the definition of a ‘week’s pay’. Langstaff P did not accept that this interpretation went against the grain of the legislation. The Regulations were made specifically to implement the Directive and it could be presumed that Parliament’s intention was to fulfil that obligation fully and accurately. If, seen through a modern lens, the wording of the statutory provisions did not achieve that result, it was appropriate to adopt a conforming interpretation. Langstaff P referred to Bamsey and ors v Albon Engineering and Manufacturing plc 2004 ICR 1083 (Brief 756), in which the Court of Appeal had held that compulsory but non-guaranteed overtime did not have to be taken into account when calculating a worker’s holiday pay. He noted that Bamsey was decided before the relevant ECJ authorities on the proper interpretation of Article 7 and the scope of ‘normal remuneration’. The fundamental premise of the case – that Article 7 left it to Member States to decide how to calculate holiday pay – was no longer correct.

    The other main issue on appeal related to the scope for backdated holiday pay claims under domestic law. In Revenue and Customs Commissioners v Stringer 2009 ICR 985 (Brief 880), the House of Lords established that a failure to pay holiday pay under the Regulations can be framed as an unlawful deduction from wages contrary to S.13 ERA. A worker can bring a S.13 claim in respect of a ‘series of deductions’; in such a case, the claim must be brought within three months of the last deduction in the series – S.23 ERA. It was widely assumed that this provision allowed claimants to link together a series of underpayments in order to bring a backdated claim, regardless of the length of time that had elapsed between each deduction.

    Langstaff P accepted that whether there is a ‘series’ of deductions is a question of fact, requiring a sufficient factual and temporal link between the underpayments. In a new development, however, he held that if there is a gap of more than three months between any two deductions in the chain, the ‘series’ of deductions is broken. He reasoned that, since a tribunal has no jurisdiction to consider a claim brought more than three months after a one-off deduction or the last deduction in a series, Parliament could not have intended that jurisdiction could be regained simply because a subsequent non-payment, occurring more than three months later, could be characterised as having similar features such as to form part of the same series. This aspect of the judgment significantly restricts the scope for workers to claim arrears of holiday pay.

    The parties in the Hertel and Amec appeals were granted permission to appeal on the grounds on which they had lost. Langstaff P noted that he did not consider that appeals on the interpretation of Article 7 and the calculation provisions in the Regulations were arguable but granted permission given the importance of the issues. He noted that an appeal against his ruling on the meaning of ‘series’ was arguable and that it was also of public importance.

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