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Holiday pay: What about back pay?

Ahead of this week’s EAT judgment in Bear Scotland Ltd v Fulton and Baxter, Hertel (UK) Ltd v Wood and others and Amec Group Limited v Law and others, employers feared the prospect of crippling retrospective pay claims dating back up to 16 years.

Businesses and their representatives breathed a collective sigh of relief upon reading [81], which said: “any series punctuated by from the next succeeding series by a gap of more than three months is one in respect of which the passage of time has extinguished the jurisdiction to consider a complaint while it was unpaid.”

However, oversimplified reports that retrospective claims could “only go back 3 months” are misleading. Upon deeper analysis of the implications in individual cases, back pay claims may be more significant, and complicated, than envisaged.

Langstaff J appears to assume at [83] that at some point the majority of employees will have had a three month break between holidays that would break the chain, without needing to distinguish whether such holidays constituted EU or additional domestic leave. In my view, this overlooks two key factors:

  1.       The relevant date for the purposes of unlawful deductions from wages is the date of payment not the date of holiday, so up to almost a 4 month gap between actual holidays may not break the chain; and
  2.       A significant number of businesses do not operate on bank holidays and require employees to take these as annual leave.

Bank Holidays

2014 contains the following bank holidays: 1 January, 18 & 21 April, 5 & 26 May, 25 August and 25 & 26 December. As shown on the following table, these leave little scope for a 3-month gap:

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sept

Oct

Nov

Dec

1 BH

   

2 BH

2 BH

   

1 BH

     

2 BH

Example: Sunny Tours

Take a hypothetical example: Sunny Tours, a travel agent. Sunny Tours has a leave year running 1 January to 31 December. Employees are entitled to 28 days holiday per year, including bank holidays, when the branch is closed. Payday is the last Friday of every month, when pay represents time worked the previous month (i.e. pay for July 2014 was paid on 29 August 2014). Employees are paid basic pay for holidays.

Miss Beach

Miss Beach, a Sales Assistant, is entitled to commission of 20% on all package holidays she sells. She takes her holidays in weeklong blocks throughout the year. She has booked the following annual leave in 2014:

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sept

Oct

Nov

Dec

1 BH

5 AL

 

2 BH 5 AL

2 BH

5AL

 

1 BH

   

5 AL

2 BH

Following the judgment in Lock v British Gas, Sunny Tours should have been reflecting Miss Beach’s commission in her holiday pay, but it has not been. Can she make a claim for back pay?

The EAT this week clearly distinguished between the 20 day entitlement under EU law, which need to include the additional elements to reflect “normal pay,” and the additional 8 days under domestic law, which do not. [82] states that the additional leave “should be the last to be agreed upon during the course of a leave year.” Though slightly ambiguous, the general view amongst commentators, with which I agree, is that in order to make practical sense, this ought to be interpreted as meaning the EU leave is the first 20 days agreed upon and taken in a given leave year.

Miss Beach used her 20th day of 2014 leave in June. She received payment for that month on 25 July 2014. This was the date of her last ‘deduction’. Given that it was more than 3 months ago, she has no right to claim any back pay.

Sunny Tours needs to ensure that it includes a payment to reflect commission for the first holiday Miss Beach takes in 2015 (which will be the 1 January bank holiday, payable on 27 February 2015).

Mr City

Another employee, Mr City, a Telephone Customer Services Advisor, is contractually obliged to work overtime when Sunny Tours requires it. He normally does 10-30 hours overtime per month. He prefers to space his holidays out throughout the year so he can go away on long weekend city breaks. During the previous few years he has taken the following leave:

2014

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sept

Oct

Nov

Dec

1 BH

2 AL

2 AL

2 AL

2 BH

2 BH

2 AL

2 AL

1 BH

2AL

2 AL

2 AL

2 AL

2 BH

2AL

2013

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sept

Oct

Nov

Dec

1 BH

1 AL

2 AL

1 BH

1 AL

1 BH

1 AL

2 BH

2AL

2AL

1 BH

2AL

2AL

2AL

2AL

2 BH

4 AL

2012

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sept

Oct

Nov

Dec

1 BH

3 AL

2 AL

2 AL

2 BH

2 BH

2 AL

2 AL

1 BH

3 AL

2AL

2 AL

2 AL

2 BH

Following the Bear Scotland judgment, Sunny Tours should include Mr City’s non-guaranteed regular overtime when calculating his holiday pay. Does Mr City have a back pay claim?

In 2014, Mr City took his 20th day of holiday in September. The payment for September was made on 31 October 2014. Given that it did not include an overtime element for his holiday pay, Sunny Tours has made an unlawful deduction in the past three months. There has not been a 3-month gap in payments for the earlier 20 days’ EU leave in 2014, so Mr City will be entitled to payment for those deductions too.

Looking back to 2013, Mr City’s 20th day of EU leave was in October. Payment was due on 29 November 2013, so that was the date of the last deduction in that series. His first day of EU leave in 2014 was the January bank holiday. Payment for that period was due on 28 February 2014. There is not more than a three month gap between these series of deductions, so Mr City will also be entitled to back paid overtime on his 20 days’ EU leave in 2013.

His 20th day of EU leave in 2012 was in August. Payment was due on 28 September 2012, so that was the date of the last deduction in that series. His first day of EU leave in 2013 was the January bank holiday, payable on 28 February 2013. Given that there was more than a 3-month gap between these series of deductions, Sunny Tours’ liability for back pay is extinguished.

Conclusions

Businesses that require staff to take bank holidays as annual leave are probably the most vulnerable to back pay claims. Assuming such businesses operate a January to December leave year:

  •         In light of the 25 August 2014 bank holiday that occurred within the past three months, such employers are only likely to escape liability for back pay if individual employees had already taken 20 days of holiday and received their pay representing that period before 8 August 2014 (as at today’s date), like Miss Beach in the example above.
  •         Once that entitlement is activated, regardless of earlier annual leave, the January, April and May 2014 bank holidays are likely to join up liability for any other of the 20 days’ EU leave already taken this leave year.
  •         Retrospective liability back into 2013 is only likely to be broken for employees who took 8 days or fewer leave (including the Christmas bank holidays) between October and December 2013.

In the case of the very small number of employees who have taken holidays in a pattern like Mr City in 2013 year after year, the EAT has left open the question of how far back they can claim holiday pay. We may therefore still see a handful of claims attempting to recover 16 years’ back pay reaching the tribunals.

By Chesca Lord

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