Overtime and Holiday Pay

The actual outcome of the cases regarding overtime and holiday pay is not particularly surprising, EU law is fairly clear on the point. Holiday pay is meant to ensure that employees take their holiday (because it’s good for them) and therefore holiday pay is meant to put them in the same position they would be if they were at work instead. Holiday pay is meant to be ‘normal pay’. Normal pay is what the employee normally receives.

That isn’t quite what UK law had done when implementing the relevant directive so the EAT had to ‘interpret’ the directive fairly creatively to get the result EU law requires – bearing in mind that the UK laws were supposed to be implementing the agreed EU directive.

The decision will certainly be appealed and there will be much more judicial time spent on this before it is over but the basic principle is unlikely to be overturned unless the UK leaves the EU anytime soon.

What is more interesting from an employment lawyer’s point of view is the part of the decision dealing with time limits. The EAT held that a claim can only be brought within 3 months of the holiday payment that was too low. For example, Anna goes on holiday on 1st July. For that day she is paid less than she should be. She returns on 2nd July and is paid her usual pay. If Anna wants to bring a claim for her underpaid holiday pay, she has to do so by the end of September (i.e. within three months of 1st July).

Except that is if there is a series of underpayments.

Normally where an employer pays too little, time for bringing a claim starts afresh each time a payment is made until the deficit is corrected. So for example, Bert is entitled to £400 a week wages. One week he receives £360 by mistake. The next week he receives £400 again but the £40 he was owed from the week before is not paid. Until it is, he can still bring a claim for it. Time for him to bring a claim effectively won’t run until his employment ends and he receives his final payment. If that is still too low, the 3 months begin to run. This is because there was a series of payments which restarted the limitation period each time and the series has only now come to an end. This could be years down the line.

The EAT held that for holiday pay, a series of payments has to be considered in the context of the kind of payment being made. Holiday pay is therefore to be considered to be different to ordinary pay. So an employee has two (or logically many) series of payments being made at any point. There is holiday pay, ordinary pay, sick pay, etc. Each of those apparently has to be considered separately.

So, Anna gets paid too little for 1st July, if she goes on holiday again within 3 months and is again paid too little that is a series of payments and keeps her claim alive. If she does not go on holiday again for 3 months the pay she receives in the meantime does not count towards the series for her underpaid holiday pay and her claim for the 1st July underpayment dies.

That is probably good news for employers who would otherwise face potential claims by employees going back for several years in many cases. That is almost certainly why the EAT ruled that way.

It is however not how the concept of a series of payments has generally been previously understood. It potentially has some very important ramifications and could massively reduce the effectiveness of the protections UK law affords for employees.

Given that an employee has to pay a fee of at least £160 to bring a Tribunal claim, is it really likely that an employee will do so over one stretch of underpaid holiday pay (or sick pay or whatever)? Is an employee going to do so while they are still employed or are they perhaps more likely to feel they have to wait until they have alternative employment before suing their employer?

Will employers suddenly start insisting that employees leave at least three months between holidays – just to be safe? Should one advise employees to make sure they take at least a day’s holiday within each three month period, just to keep any claims alive? Both seem a bit absurd.

The undermining of any effective remedy for underpayment of holiday as outlined above is likely to be a real concern for the Court of Appeal and any higher court that has to deal with this. If things remain as per the EAT judgment, I think the chances of a successful claim to the European Court of Justice on the basis that the UK still has not provided effective implementation of the directive is extremely high.

If you have any views on the issue or have any questions on employment law generally, please contact me on idp@gardnercroft.co.uk or by telephone on 01227 813400.