Laura Binnie and Jennifer Scott, in our Employment law team, explain the law around holiday pay.
The Holiday Pay Act 1938 was introduced in the UK after a two decade campaign for annual leave following the industrial revolution; this entitled some workers to one week’s holiday pay per year. In the 1980s the idea of four weeks paid leave per annum was debated by the EU, leading to the implementation of the Working Time Regulations 1998. Today the minimum statutory entitlement for paid holiday each year is 5.6 weeks (28 days including bank holidays) for a full time employee. Part-time employees require the same entitlement on a pro-rata basis. But what should workers receive as part of their holiday pay?
Recently, further developments on this issue have taken place. Holiday pay should now include regular overtime and commission payments, as well as just salary.
Since the judgment in Lock v British Gas Trading in 2016 it was ruled that commission payments should be factored into paid annual leave. Mr Lock was an internal energy sales consultant for British Gas who received commission linked to the number of sales he carried out, totalling around 60% of his wages. He brought a claim stating that his employer owed him money as the holiday pay he received did not account for any commission he would have received had he been working.
The Employment Tribunal found in Mr Lock’s favour and confirmed that commission should be included in holiday pay on the basis that Article 7 of the Working Time Directive (“WTD”) states that workers should receive their “normal remuneration” during annual leave and as his commission payments are “intrinsically” linked to the performance of his duties under his employment contract, this should be reflected in holiday pay. They also considered the point that he was placed at a financial disadvantage in taking his entitled annual leave, which was not the purpose intended by the WTD.
In the case of Bear Scotland Ltd and Others v Mr David Fulton and Others, the individuals were employed as road operatives. They received overtime pay in addition to their basic salary; however when on annual leave, they only received remuneration equivalent to basic salary. They both brought claims that they had been underpaid annual leave, the highest claim totalling £15,170, on the basis that they should have received holiday pay that included their overtime and standby payments as well as their basic salary and that this constituted a breach of WTD.
The Employment Tribunal found that Bear Scotland should have included their supplemental payments in their holiday pay for the first 20 days of annual leave and therefore had made unauthorised deductions from their wages. It was however found that a gap of three months between deductions would suffice in breaking a series of deductions for the purpose of unlawful deduction from wages claims. This therefore time bared most of their claims dating back to 2007, Mr Baxter was therefore awarded £2,180 of the original claim for £15,170.
Interestingly, in the recent case of Chief Constable of Northern Ireland Police v Agnew the Court of Appeal in Northern Ireland found that the decision in Bear Scotland may lead to "arbitrary and unfair results". Although this case is not formally binding on Tribunals in Britain the Northern Irish legislation is identical to that of England and Wales, which may give rise to further developments in this area.
In the case of Flowers v East of England Ambulance Trust (2018) the claimants were employed in a variety of roles relating to ambulance services. They made a claim against the Trust for unlawful deductions from their holiday pay stating that under the terms of their contract and under Article 7 of the WTD their voluntary overtime and non-guaranteed overtime should be included in their holiday pay calculation.
The ET found that they were entitled to their non-guaranteed overtime which included “shift overrun payments”; an example of this would be when they were still caring for a patient at the time their shift ended, they therefore received pay for the time their shift overran. Voluntary overtime, however, was not to be included.
The Trust appealed to the EAT to further consider their contractual claim and their claim under Article 7. They found in favour of the Claimants with regard to their contractual claim and also tackled the issue raised in relation to Article 7. They found that recent case law and the WTD should not be interpreted in such a way that a worker would be deterred from exercising their right to annual leave due to financial loss of overtime and supplemental payments. They also made reference to the danger of zero hour contracts and the abuse that could take place if overtime was not included in the calculation for holiday pay (e.g. contracts could stipulate minimum hours and offer overtime but employers would only be bound to pay the mandatory hours during annual leave). They ruled that overtime pay that was “regular” and “settled” should be incorporated into annual leave.
Guidance states that holiday pay should be calculated based on an average of an employee’s last 12 weeks’ pay to include overtime and commission as seen in the above cases. If you want to ensure that your holiday pay has been lawfully calculated, or if you are an employer wanting to check what you should be paying, please contact Andrea Corr, Solicitor or Laura Binnie, Associate in our Employment Department for further advice.
For further information or legal advice, please contact firstname.lastname@example.org or call 0118 951 6800.
This article is intended for the use of clients and other interested parties. The information contained in it is believed to be correct at the date of publication, but it is necessarily of a brief and general nature and should not be relied upon as a substitute for specific professional advice.