Employment Eye: Unpacking Holiday Entitlements

Now that the holiday season is in full swing, we thought it would be timely to provide an update on where we are with holiday entitlements, including the recent decision on holiday pay and long term sick leave.

Backdating of holiday pay claims

Since the landmark decision of Bear Scotland v Fulton last year, holiday pay has barely been out of the news. In that case, the Employment Appeal Tribunal (EAT) held that 'non-guaranteed' overtime (i.e. overtime that the employee is required to work but which the employer is not obliged to provide) must be included in holiday pay in respect of the 4 weeks' of annual leave to which employees are entitled under the Working Time Regulations. The ruling does not apply to the additional 1.6 weeks' of leave to which employees are entitled under our domestic legislation. Please click here for more information.

Following the Bear Scotland decision, a major concern for employers was whether employees would make costly claims for retrospective unauthorised deductions from wages, potentially reaching back over many years.   As from 1 July 2015, the Deductions from Wages (Limitation) Regulations 2014 prevent employees from bringing backdated wages claims for any more than two years from the date of the deduction.

What about holiday pay & voluntary overtime?

This remains an uncertain question in England and Wales.  However, a recent decision of the Northern Ireland Court of Appeal ("NICA") may shed some light on this area and, unfortunately for employers, may be persuasive (although not binding) for courts and tribunals in our jurisdiction. 

In Patterson v Castlereagh Borough Council, the NICA held that a tribunal's decision that voluntary overtime should not be included in holiday pay calculations was incorrect.  Rather unhelpfully, the NICA did not explore much further how it should be included in the calculation.  Instead, it held that the determination of holiday pay was a question of fact for each tribunal to decide.

Therefore, the question of whether voluntary overtime should be included in holiday pay will turn on the particular circumstances of each case; but there is nothing, in principle, to say that it should not be included in holiday pay.

Are other non-salary payments included in holiday pay?

• Commission may need to be included in holiday pay, if it is part of an employee's 'normal remuneration'.  This was decided by an employment tribunal in a case called Lock v British Gas.  An employment tribunal found that the Working Time Regulations should have a new section read into them, so that holiday pay for employees who normally earn commission is calculated on the basis of an averaging exercise. This is, however, unlikely to be the last we have heard on this point, as we understand that British Gas is appealing the decision. It is expected that the EAT will hear the appeal towards the end of this year.
• Allowances may need to be included in holiday pay, depending on whether the allowance is, in reality, part of an employee's normal earnings. If the allowance is designed to reimburse an expense, then it probably would not be included.  For example, a car allowance which is always added to an employee's monthly salary would probably need to be included, but reimbursement for the fuel for that car probably would not be covered.

It is difficult to draw any general principles from the case law on calculating holiday pay, because each scenario is likely to depend on its own facts. However, a theme that appears to be emerging in this developing area is that payments which are normally paid and are linked directly to the work undertaken by employees may need to be included in holiday pay, in addition to an employee's basic salary.

Holiday pay and sick leave

Earlier this month, in a case called Plumb v Duncan Print Group Limited, the EAT looked at the issue of holiday entitlement while on long term sick leave.  In this case, a printer, Mr Plumb took four years' sick leave following an accident at work.  The leave year ran from 1 February to 31 January and Mr Plumb did not take or request any holiday until September 2013, at which time he requested permission to take all of his accrued holiday from 2010. His employer, Duncan Print Group, agreed to pay for accrued holiday for the then current leave year (2013/2014), but refused to pay for unused holiday for the previous three leave years. Following his dismissal, Mr Plumb brought a claim for payment in lieu of untaken leave from 2010-2013.

The ET dismissed Mr Plumb's claim on the basis that he was unable to show that it was his medical condition that prevented him taking leave. 

The EAT overturned that decision, and said that Mr Plumb did not need to show that he was unable to take annual leave because of his medical condition.

The EAT acknowledged that previous case law (NHS Leeds v Larner) has established that workers on sick leave for an entire leave year are entitled to payment in respect of that year's unused holiday entitlement. However, there has been no principle established that a worker must demonstrate that they are physically unable to take annual leave in order to benefit from carried-over leave.

Therefore, workers on sick leave are able to carry over their annual leave, but only for 18 months from the end of the relevant leave year, should they have been unable or unwilling to take the leave, during their sickness absence.

This is unlikely to be the last we have heard on this issue.  The EAT acknowledged that this area is both important and evolving and has, therefore, granted leave to appeal to the Court of Appeal.  It remains to be seen whether an appeal will be forthcoming.

Further assistance

If you have any further queries on holiday pay, please contact me. 

Please click here  for further information on how Bevan Brittan may assist you with holiday pay issues.