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Holiday Pay and Overtime

The recent Employment Appeal Tribunal case of Bear Scotland which decided that overtime pay needs to be included when calculating holiday pay, has attracted a lot of media attention.

In the case, the workers claimed that they had received too little holiday pay because overtime which they were obliged to work (but which the employers did not contractually guarantee) had not been included when holiday pay had been calculated.

The Judge decided that overtime pay which the workers routinely received as part of the settled pattern of their employment was "normal pay" which was "normally received". As a result, this overtime pay had to be taken into account when calculating holiday pay under the Working Time Regulations 1998 (limited to four weeks holiday per year).

With regard to retrospective claims for underpaid holiday, if such a claim is made to an Employment Tribunal more than three months after the date of the underpayment, then this claim will be out of time in the Employment Tribunal.
However, the claim can still be heard if the underpayment forms part of a series of underpayments. The Judge decided that if there is a gap of more than three months in any series of such underpayments, an Employment Tribunal would not be able to consider the claims relating to the earlier underpayments.

This seems to have significantly limited the scope for retrospective holiday pay claims.

However, the Employment Appeal Tribunal has given leave to appeal the judgement to the Court of Appeal. The Judge has indicated that the most significant point to be decided by the Court of Appeal relates to the time limit for a series of underpayments. Due to the importance of the case, it is very likely to be appealed.

The Government has also set up a taskforce to assess the impact of the ruling and to limit its impact on businesses.

If you are concerned about how your business may be affected by this ruling, please contact either of our Employment Partners, Julia Woodhouse or Mark Ridley to discuss.

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