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Employment Law Update - September 2013

Posted on 5 September 2013

Pardoes Employment Solicitors, Holiday Leave Entitlement

In a recent case, Neal v Freightliner Ltd ET/1315342/12, the Employment Tribunal ruled that employers should calculate holiday pay based on actual remuneration for contractually required tasks.

The case

Mr Neal’s contract stated that he worked 35 hours per week in 7 hour shifts. In practice he actually worked much longer shifts of up to 12 hours which meant his total hours would be over and above 35 per week. Mr Neal was paid for the additional hours worked at his normal rate.  However, when it came to calculating his holiday pay, a week’s pay was deemed as 35 hours’ work.

Mr Neal argued that his holiday pay should reflect the additional hours which he was working. The employer argued that the overtime was voluntary and the holiday pay should be calculated, as it had been, on the basis of Mr Neal’s normal contractual 35 hour week.

The result of Mr Neal’s case

The Tribunal followed the approach of the Supreme Court decision in British Airways plc v Williams and Others which took into account flying pay supplements for pilots in the calculation of “normal remuneration” under the Working Time Regulations 1998 (WTR) and ruled that the calculation of holiday pay should include all payments which are intrinsically linked to the performance of tasks required under the contract – including l voluntary overtime.

This decision has particular impact where employees hours vary from week to week so that they are considered as having ”no normal working hours” under the WTR and their weekly pay is calculated on the basis of their average pay over the last 12 weeks – which may now be considerably greater.

Does this leave the employer open to abuse? The Judge in Mr Neal’s case said no - it is up to the employer to control the employee’s overtime and prevent them from working substantial overtime in the weeks leading up to holidays.

Implications for employers

Should employers be reviewing the way in which they calculate employees’ holiday pay?

The decision is a first instance decision and the judgment is not binding on any other tribunal.

The employer has also since requested permission to appeal the decision, so there is likely to be further argument yet to come as to the correct basis of the calculation of holiday pay. 

Sectors where overtime, shifts premiums and similar arrangements are common, such as the retail sector, as well as heavily unionised environments, where employees may be encouraged to litigate, are reviewing how they calculate holiday pay, with some large employers taking the decision to pay on the basis of their pay for the hours actually worked, including overtime and shift premiums.

Whilst changing the basis of the calculation now  will protect from future claims, there could be significant claims for back pay which can go back as far as the introduction of the WTR in 1998. There may be ways to limit the extent of these sorts of potential back pay claims which we can help with.

Employers should also be aware that the decision in Neal only applies to the 4 weeks’ holiday pay required under the Working Time Directive, rather than the additional 1.6 weeks’ leave conferred by the WTR under domestic law. It is unclear at present whether the employer is required to apply the same basis of calculation for the additional 1.6 weeks or whether they can operate two separate systems.

If you require any further assistance with this or any employment-related query, please contact Maeve Vickery, Head of Commercial and Employment at Pardoes Solicitors on 01823 446210.

DISCLAIMER: This update represents a summary of the legal issues and is not intended to provide or be relied upon as specific legal advice nor is it intended to be comprehensive. If you require advice on a specific issue, please contact your solicitor.

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