Legal Update: Holiday Pay.
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Circular No NP/ 149 /14
To All Branches, Regional Offices & Regional Councils
Our Ref: LA/42/14
2nd September 2014
Legal Update: Holiday Pay.
Further to Circular NP/099/14 of the 29th May 2014 where I reported the case of Lock v British Gas. Many members have been asking questions about holiday pay, who is entitled to it and what we should be doing in light of the European case law.
Entitlement to statutory holidays under the Working Time Regulations 1998 applies to workers which includes those who personally provide services under a contract such as casual and freelance workers as well as zero hours workers. Some sectors are excluded from the Working Time Regulations 1998 but have similar although not always identical provisions in separate regulations these include for example seafarers as defined, sea fishermen, workers engaged in the navigation of vessels in inland waterways and aircraft crew.
The Working Time Directive (WTD) provides that all workers are entitled to a minimum of 4 weeks paid holiday per year. The WTD does not set out how holiday pay should be calculated.
The Working Time Regulations (WTR) 1998, which are meant to implement the Working Time Directive goes further by providing that workers are entitled to 5.6 week’s paid holiday - subject to a maximum of 28 days. Therefore statutory holiday is made up of two entitlements; 4 weeks statutory holiday or 20 days if working a 5 day week; and additional statutory holiday which is 1.6 weeks leave, or 8 days if working a 5 day week.
A contract of employment can provide that a worker is entitled to more leave than the statutory leave. This briefing does not cover how contractual holiday pay is calculated. It only covers the statutory 4 weeks holiday
How statutory holiday pay should be calculated is set out in the Employment Rights Act 1996. These provisions are complicated but broadly speaking how much statutory holiday pay a worker receives depends on whether the worker works normal working hours or has no normal working hours. Normal working hours is where the contract fixes the working hours. Overtime hours are not “normal working hours” unless obligatory on both sides, which means contractually guaranteed by the employer and compulsory for the employee For example, where a clause in the contract states “Your normal working hours are 37 per week”, statutory holiday pay is calculated on the basis of the normal 37 hour working week, so if overtime is worked this is not included in the calculation of statutory holiday pay, unless the overtime is obligatory on both sides.
If no normal hours are worked and none are set out in the contract, for example where the contract provides “Your working hours will vary according to the work that needs to be done” the rate of holiday pay will be calculated by reference to average pay over the previous 12 weeks for all sums earned.
There is a body of European case law which states that workers should be paid their normal remuneration when on their statutory 4 weeks leave under the WTR. In the case of British Airways v Williams the European Court held that holiday pay should include:
(i) payments which are intrinsically linked to the performance of the tasks which the worker is required to carry out under her/his contract of employment;
(ii) those elements of pay which relate to the personal and professional status of the worker; and
(iii) the rate to be applied must be based on an average calculated over a representative reference period.
Applying those principles the European Court in the case of Lock v British Gas Trading Ltd held that a worker whose pay was made up of about 60% commission was entitled to include commission in the calculation of his holiday pay.
As a result of these European cases there have been a number of Employment Tribunal claims which have been brought claiming that overtime and shift premiums should be included in the calculation of the statutory 4 weeks holiday pay. These cases are currently stayed (i.e. put on hold) pending the decision of the Employment Appeal Tribunal in the cases of Hertel (UK) Ltd v Wood & ors and Amec Group Ltd v Law & ors .
What does this mean for members now?
The law in Britain is not yet decided, we can rely on the European case law to argue that the payments (e.g. Overtime, incentive bonus payments; shift premiums; standby/emergency call out payments; certain allowances; commissions) are intrinsically linked to the tasks our members are required to do under his/her contract of employment and so should be included in the calculation of the statutory 4 weeks holiday pay, but until our courts have decided the position it is too early to give a definitive advice and we should be cautious in our approach.
However we are not content not to do anything; so we have begun the process of writing to all our employers through the normal bargaining procedures to open up discussions with them to seek a collective resolution to the issues raised by the European Courts to secure better pay and conditions for our members.
In the meantime if an individual member considers they have a pressing problem with their holiday pay they can contact their Regional Officer who will update them on negotiations and if necessary obtain legal advice. Remember time limits may apply to holiday pay claims and early conciliation also applies to holiday pay claims. ACAS must be contacted and the early conciliation certificate issued before any Employment Tribunal claim can be lodged.
We will keep you updated on both the legal implications and our approaches to the employers.
Acting General Secretary