The right to paid annual leave is an important principle of EU law, the purpose of which is to allow a worker time to rest and enjoy a period of ‘relaxation and leisure’. Any reduction in a worker’s remuneration in respect of that leave that would be liable to deter them from actually exercising their right to take a break from work is contrary to the objective pursued by Article 7 of the EU Working Time Directive (WTD).
In the latest case on this subject (Bear Scotland Ltd. and Others v Fulton and Others), the Employment Appeal Tribunal (EAT) ruled that employers should include ‘non-guaranteed’ overtime that is routinely worked when calculating an employee’s holiday pay.
Specifically, Article 7 of the WTD should be interpreted so that payments for overtime which employees are required to work but which their employer is not obliged to offer them do count as ‘normal remuneration’ for the purposes of calculating holiday pay taken under Regulation 13 of the Working Time Regulations 1998 (WTR).
However, the EAT went on to find that this decision only applies to the 20 days’ annual leave entitlement guaranteed under the WTD, not the additional eight days’ entitlement granted under Regulation 13A of the WTR, and claims for unlawful deductions from holiday pay will be subject to the three-month limitation period for bringing claims laid down by the Employment Rights Act 1996 (ERA). This will limit any retrospective liability on the part of employers, particularly as the EAT ruled that additional leave under Regulation 13A should be ‘the last to be agreed upon during the course of a leave year’.
In addition, the EAT found that travel time payments that exceed expenses incurred by the worker and are therefore taxable should also be taken into account when calculating holiday pay.
Recognising the importance of the issues, the EAT granted the parties leave to appeal to the Court of Appeal on all points on which they lost, but doubted whether an appeal against its main finding as regards guaranteed overtime and normal remuneration would succeed. The trade union Unite, which acted for the claimants, subsequently indicated that it will not be appealing against the limitations imposed by the EAT on retrospective claims.
The Government, meanwhile, was quick to set up a taskforce to assess the possible impact of the EAT’s decision and subsequently laid before Parliament the Deduction from Wages (Limitation) Regulations 2014. The Regulations amend the ERA so as to limit most unlawful deduction from wages claims to the two-year period ending on the date on which the employee’s Employment Tribunal (ET) claim is lodged. This provision will only apply to complaints presented to the ET on or after 1 July 2015.
In addition, the Regulations make clear that the right to payment in respect of annual leave under the WTR is not intended to operate in such a way as to provide that right under a worker’s contract. It is a separate statutory right.
This case follows on from Lock v British Gas Trading Ltd. and Others, in which the Court of Justice of the European Union ruled that a correct interpretation of the WTD requires that the holiday pay of an employee whose normal remuneration is made up of a basic salary plus variable commission should include an amount equivalent to the sum he would have earned by way of commission had he been working rather than on annual leave.