Circular No NP/ 223 /14
To All Branches, Regional Offices & Regional Councils
Our Ref: LA/45/14
5th November 2014
Legal Update: Holiday Pay.
Further to Circular NP/099/14 of the 29th May 2014 where I reported the case of Lock v British Gas, and Circular NP/149/14 dated 2nd September 2014, the EAT decided today in Hertel,Amec v Wood and others and Bear v Fulton favour of the workers . The appeals arise in a test case concerning the calculation of holiday pay. The appeal by Bear Scotland was against a decision by a Glasgow ET who found that the employers had made unauthorised deductions from wages of two employees by failing to include overtime and other payments associated with their work in calculating holiday pay. The second appeal was by Hertel and AMEC Group against a decision by and ET that each had made unauthorised deductions of wages by failing to include overtime when calculating holiday pay and failing in breach of contract to pay them full pay in lieu of notice when their employment ended. The third appeal Freightliner v Neal settled before the hearing but all issues were heard together. Contrary to what has been said in the press, the case is NOT about voluntary overtime. In each appeal the workers were required to work overtime, though it was not guaranteed and in fact normally worked it. But nothing was paid for overtime in respect of the four week period of holiday guaranteed by Working Time Regulations, implementing Article 7 of the Working Time Directive.
Article 7 of which provides that member states:
“shall take the necessary measure to ensure that every worker is entitled to paid annual leave of at least 4 weeks in accordance with the conditions of entitlement to, and granting of such leave laid down by national legislation and/or practice.
2) The minimum period of paid annual leave may not be replaced by an allowance in lieu, except where the employment relationship is terminated”
The appeals raised the following issues
1 To determine what Article 7 required by way of paid annual leave.
Does it follow from the cases of Williams and Lock that non-guaranteed overtime and other elements of remuneration which workers received had to be included in pay during and for annual leave?
The Court accepted the argument for workers and rejected the arguments of the employers and BIS and held that the judgements in Williams and Lock were clear. Under Article 7, normal pay had to be paid in respect of annual leave. The overtime was required by the employers and in fact regularly worked by the workers. Overtime pay was therefore remuneration which had to be paid in respect of annual leave. No reference to the Court of Justice was necessary.
“Normal pay” is what is normally received and payment has to be made for a sufficient period of time to justify “normal”.
In cases where the pattern of work is settled there is no difficulty in identifying normal pay; but where there is no such normal remuneration an average taken over a reference period determined by the member state is appropriate. Therefore Art 7 requires and required non-guaranteed overtime to be paid during annual leave. As it is only Article 7 leave that is covered by this, this only relates to the 4 weeks (Regulation 13) leave required by the Working Time Directive (not additional Reg 13A and/or contractual leave).
- For the purpose of assessing pay in respect of annual leave. PILON and or damages for breach of contract what was the claimants normal working hours and what should PILON be based on
This was a cross appeal to include two taxable payments for travel time (the Radius Allowance & Travel Time Payments) in holiday pay. The ET found these payments were likened to expenses and therefore were not to be included in holiday pay. The EAT overturned the ET’s finding – these payments were for time spent by the worker travelling to work (which is linked to work), the taxable elements of RA and TTP were part of their normal remuneration and they should therefore be included in holiday pay.
- The Interpretation of the Marleasing principle
Article 7 is interpreted that workers should have been paid during holidays in respect of their overtime the question then arises whether UK legislation can be interpreted to provide for this result. The obligation on a UK Court when interpreting national legislation which implements a directive is to do so as far as possible in light of the purpose and the wording of the directive so that the principle of the directive is achieved- this is called the Marleasing principle.
The Court held that they could be. WTR were passed to implement the Directive and their essential feature was that holidays should be paid. The fundamental premise laid down by the case of Bamsey that Article 7 laid down no requirements as to payments for annual leave was now wrong. While the exact wording did not matter, words could be read into regulation 16 WTR to ensure that the overtime payments were maintained in respect of annual leave
- Whether the Tribunal was entitled to find that the underpayments constituted a “series” of deductions within the meaning of Regs 13 of WTR 1998 so as to give the tribunal jurisdiction to hear them?
The Court held that whether there has been a series of deductions or not is a question of fact, “Series” has no legal meaning.
In Revenue and Customs v Stringer the House of Lords held that a claim for holiday pay could be brought as a claim for unlawful deduction from wages. The final issue was how those provisions interact with past claims for underpaid holiday, brought as a “series” of deductions from wages. In a new development of the law, the EAT held that the sense of the legislation was that if a series was punctuated by a gap more than three months, the passage of time had broken any series of underpayments.
A series of deductions will be broken if there is a period of more than 3 months between the deductions. The Court held that the word “series” had to be understood in a legislative context – i.e. a deduction from wages claim has to be brought within 3 months, so if there is more than 3 months between deductions this will break the series of deductions.
The Judgement which may be the subject of further appeals is important as it confirms that holiday pay must include all elements of normal remuneration and that tribunals can and should interpret WTR to achieve that result. The point on unlawful deductions means for the moment at least, that claims for retrospective liability may be restricted in effect. But it creates difficulty as it means holiday pay claims either need to be reissued or amended every 3 months to include holiday pay since the date of issue and then going forward the previous amendment/re-issue. Furthermore, as expected, claims need to be submitted within 3 months of the first 4 weeks holiday in the holiday year.
We will attempt to raise holiday pay through our collective bargaining procedures but if members have claims they should contact their Regional Officer who will give them L2 forms for legal assistance. Remember time limits will apply to holiday pay claims and early conciliation also applies. ACAS must be contacted and the early conciliation certificate issued before any Employment Tribunal claim can be lodged.
We will keep you updated on both the legal implications and our approaches to the employers. It should be noted that it is likely the EAT judgement will be appealed.