Holiday pay: An update

There is rarely any rest for holiday pay cases, and it remains a hot topic in employment law. As the summer comes to an end, now is a good time to reflect on some recent holiday pay cases, which employers should bear in mind when calculating pay for annual leave.

Holiday Pay and Voluntary Overtime

The first is the English Court of Appeal decision in East of England Ambulance Service NHS Trust v Flowers [2019] EWCA Civ 947.

This decision was handed down in June this year and involved ambulance crew who worked for the NHS. The claim was that voluntary overtime payments should count towards ‘normal remuneration’ (thereby in scope for some holiday pay calculations). The overtime in question was purely voluntary – the ambulance crew were under no obligation to work it but, in reality, this work was undertaken regularly and consistently.

In this case it was held that, if overtime is sufficiently regular and settled within a worker’s normal remuneration, it should be counted for the purposes of calculating holiday pay derived from the European Working Time Directive. Whether the overtime is sufficiently regular will be a question of fact and degree, and employers should take advice.

The decision in this case was not surprising, but serves as a reminder that employers should be reviewing their holiday pay calculations to ensure compliance with the changes to the law in this area. 

Click here to read the full judgment.

Backdated Holiday Pay

If a holiday pay claim is brought against an employer, how far back can it go? This question was addressed in the next case, Chief Constable of the Police Service of Northern Ireland and another v Agnew and others [2019] NICA 32, also in June.

By way of background, it was previously held in the Bear Scotland cases (Bear Scotland Ltd v Fulton [2015] IRLR 15 and Fulton v Bear Scotland Ltd UKEATS/0010/16) that a gap of more than three months in a ‘series’ of deductions will break that series, such that any alleged arrears of holiday pay before the three-month break cannot be claimed. Employers have relied on this case to limit the value of holiday pay claims, by limiting how far back the claim can go.

However, it was argued in the Agnew case that this was wrong; and the Court of Appeal in Northern Ireland agreed, deciding that this could lead to “arbitrary and unfair results.” This is an interesting decision, which means that a series of deductions will not be broken by gaps in that series in Northern Ireland and may continue to be subject to challenge in other jurisdictions as a result.

It is important to note that this decision is not binding on the courts and tribunals in Scotland or England and Wales, but the decision may prove more persuasive if a further appeal were to be brought in relation to this point in Scotland or England and Wales. The ‘three month gap rule’ in Bear Scotland, and the rule that holiday pay claims can only go back two years in terms of the Deduction from Wages (Limited) Regulations 2014, have been called into question previously, in particular following the ECJ’s decision in King v Sash Windows Workshop Limited.

Now that we have this decision from Northern Ireland, perhaps it will not be too long before the Bear Scotland decision is challenged in Scotland, or England and Wales.

We will keep you updated, but employers should watch this space.

Of course, it remains the case that a holiday pay claim must be brought within three months of the deduction, or last in the series of deductions (unless it was not reasonably practicable to do so, which is a high hurdle for any claimant to get over).

Click here to read the full judgment.

Holiday Pay for Part-year Workers

In August, the Court of Appeal in the case of The Harpur Trust v Brazel [2019] EWCA Civ 1402 rejected the argument that holiday entitlement for ‘part-year’ workers, in this case a visiting music teacher, should be calculated on a pro rata basis at 12.07% of annual pay. 

This is a common approach for casual or irregular-hours workers (and is endorsed in ACAS guidance). It is based on the calculation that the statutory annual leave entitlement of 5.6 weeks represents 12.07% of a working year of 46.4 weeks (i.e. 52 weeks minus 5.6 weeks). However, in the Brazel case, the Court held that there was no requirement to give effect to the pro rata principle or to pro-rate the leave entitlement of part-year workers to that of full-year workers.

The Court accepted that applying the Working Time Regulations without a pro rata reduction for part-year workers could, in some cases, produce unusual results more favourable to those on casual or seasonal type contracts. Nevertheless, the Court held that the Working Time Regulations simply require an exercise to calculate a ‘week’s pay’, which will depend on whether the worker has normal working hours or not, and multiplying that figure by 5.6.

Click here to read the full judgment.

For more information about holiday pay, or if you have any other employment law queries, please contact Jamie Meechan or another member of our specialist employment law team.

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