From 1 July 2015, claims for backdated pay, including holiday
pay, will be limited to a maximum of 2 years under legislation
introduced last week. The Government says the legislation is
intended to reduce potential costs to employers and give certainty
to workers on their rights on holiday pay.
The new 2 year limit is a reaction to an Employment Appeal Tribunal
decision last month that pay for certain statutory minimum annual
holiday should include non-guaranteed overtime and other non-salary
payments for work done (Bear Scotland Ltd -v- Fulton).
That decision followed a number of cases in the European courts in
which individuals sought, successfully, to establish that their
'normal remuneration', which might include non-salary
payments such as commission, should be used to calculate statutory
holiday pay.
The Bear Scotland decision opened up the prospect of
claims by individuals for large amounts of backdated holiday pay
from their employers as 'unlawful deductions'. It found
that such claims would generally be out of time if there was a
break of more than 3 months between the underpayments but, in the
absence of such breaks, claims could potentially go back some
significant time. To provide certainty therefore, the Government
has attempted to effectively cap such claims at 2 years.
The Government has also confirmed that workers' rights in
respect of pay for statutory holiday are purely statutory, and not
contractual, with the intention that individuals cannot therefore
use breach of contract law to circumvent the 2 year limit for
unlawful deductions.
Some practical implications of the new legislation, and the
Bear Scotland decision, will take time to work their way
through the court and tribunal system. For example, how will the 2
year limit sit alongside the holiday year? How regularly does
overtime have to be worked and paid for it to be included in
holiday pay? What allowances and bonuses should be included in
holiday pay and does it matter how frequently they are paid? How
can employers mitigate some of the remaining risks?
For advice on these and related issues please contact any member of
the Withers Employment Group.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
