Good news for employers facing holiday pay claims
Rumbling around at the less well-publicised end of the holiday pay saga is the question of just how far back such claims can go. Changes to the Employment Rights Act 1996 limited this to two years for claims brought after 1 July 2015, but thanks to Bear Scotland Limited, the actual exposure may be very much less. Bear is a case where the outcome is far more interesting than the facts, so put briefly, it goes like this:
- Underpaying holidays, in particular through the exclusion from the calculation of something which ought to be in it (e.g. overtime or commission earnings) is an unlawful deduction from wages.
- Under Section 23 ERA, any claim to the Employment Tribunal for unlawful deductions must be made within 3 months of the deduction or of the last of a series of deductions;
- “Series” requires a chain of underpayments to be linked by both time and cause. If they are for different reasons or too far apart, they will no longer count as a series and so any of them falling more than three months before the referral to Acas will be out of time and (subject to a “not reasonably practicable” discretion on the part of the Tribunal), not recoverable;
- “Too far apart” for these purposes was determined in the original version of Bear Scotland as anything over three months. Following a hearing in December last year, this has just been upheld by the Employment Appeal Tribunal in that same case.
This is a bigger deal for employers than it sounds. The cases requiring the inclusion of commissions and overtime in the calculation of holiday pay only apply to the basic EU Working Time Directive four-week minimum holidays, and not to the additional 1.6 weeks added by the UK Working Time Regulations, or any further holiday provided for by the employment contract. Therefore when you are looking for that three month gap, it is not only from any one day’s holiday to the next but (essentially) from the last day of one year’s four week entitlement to the first day of the next. Assume a holiday year the same as the calendar year, so you get your new holiday entitlement from 1 January. Three months back is 30 September. Therefore, if your employee had taken four weeks’ holidays (including bank holidays) by or before the end of September, there will be your gap. It will not matter that he then took all or any of the remaining 1.6 weeks or any additional contractual entitlement between 1 October and 31 December.
This decision could clearly put a material crimp into the quantum of current or future Lock-type claims for arrears of holiday pay. It reinforces the probability that where collective claims are being brought, the employer should focus on agreeing an appropriate accommodation for the future without necessarily offering any compensation for the past.
But (there is always a ‘but’ with holiday pay) there are two caveats to this:
- First, this analysis assumes that the employer can dictate that WTD holidays are taken before WTR or contractual holidays. Some employment contracts make this express, but for the time being it appears that the employer has this right regardless of specific contractual provision; and
- The series of deductions point only applies to claims brought as unlawful deductions under Section 23 ERA in the Employment Tribunal. If your employee’s claim is put instead as a breach of contract issue in the High or County Court, that three month gap defence for you will fall away.