What do we already know?
Calculating holiday pay has been made much more complex over the past few years. The Court of Justice of the European Union (CJEU, formally known as the ECJ), EAT and subsequent Tribunal decisions in Bear Scotland Ltd v Fulton and Lock v British Gas have indicated that payments such as commission and bonuses, should be included in holiday pay. For further detail please see our updates here.
We updated you in our November 2014 Newsletter Case update (1): Holiday pay and news that an important and welcome aspect of the EAT’s decision in the case of Bear Scotland Ltd v Fulton is that an interval of more than three months between underpayments will “break the chain” of the series and prevent a Tribunal claim for underpayment of wages/holiday pay from reaching back prior to that break.
However, the EAT’s decision on ‘breaking the chain’ had been challenged and the EAT has recently revisited the meaning of a “series of deductions” in the context of an unlawful deduction from wages/holiday pay claim, and considered whether a three-month gap between deductions breaks the series.
The EAT has confirmed its previous position that that an interval of more than three months between underpayments will “break the chain” of the series and prevent a Tribunal claim for underpayment of wages from reaching back prior to that break
This is very good news for employers. The holiday pay decisions that we have updated you on, require the inclusion of commissions and overtime in the calculation of holiday pay only in respect of the basic EU Working Time Directive four-week minimum holidays, and not to the additional 1.6 weeks added by the UK Working Time Regulations, or any further holiday provided for by the employment contract.
This means that when employers are looking for that three month gap, it is not only from any one day’s holiday to the next but (essentially) from the last day of one year’s four week entitlement to the first day of the next. If you assume a holiday year to be the same as the calendar year, an employee gets their new holiday entitlement from 1 January. Three months back is 30 September. Therefore, if the employee had taken four weeks’ holidays (including bank holidays) by or before the end of September, there is relevant gap. It will not matter that the employee then took all or any of the remaining 1.6 weeks or any additional contractual entitlement between 1 October and 31 December.
As ever with holiday pay claims, this is a complex area and before taking action we would encourage you to seek advice from our Menzies Law team on 0117 325 0526.