Holiday ruling could see 5m UK workers eligible for backpay
Employer groups warn of bankruptcies and job losses over backdated
pay but Unite says staff who worked overtime were shortchanged
Coalition seeks to limit impact of holiday backpay ruling
Employers
warn of bankruptcies and job losses but TUC challenges
‘scaremongering’, saying including overtime in calculations is simply
fairer
The government is setting up a taskforce to try to limit
the impact of a landmark legal ruling forcing companies to increase the
holiday pay of 5 million people who regularly work overtime.
The employment appeal tribunal (EAT) ruled on Tuesday that employers must include overtime when calculating workers’ holiday pay after test cases brought by the Unite union. The ruling will significantly increase the holiday pay for people who work overtime in the future, although the judgment severely restricts the ability of employees to claim for backdated pay.
Under UK laws, holiday pay has been calculated based on an employee’s basic salary, meaning those who regularly work overtime are often paid much less when they are on holiday. The tribunal’s ruling said employers must in the future calculate holiday pay based on workers’ normal hours, including overtime.
However, under the ruling, employees can claim back pay only if it is less than three months since their last holiday. This will significantly limit the size of potential payouts to the sixth of the 30.8m employees in the UK who regularly work overtime. Companies had feared that they could be hit with claims dating back to 1998.
Unions welcomed the decision but the government and business lobby groups vowed to fight it. The ruling could be challenged at the court of appeal and the court of justice of the European Union (CJEU).
Vince Cable, the business secretary, said: “The government will review the judgment in detail as a matter of urgency. To properly understand the financial exposure employers face, we have set up a taskforce of representatives from government and business to discuss how we can limit the impact on business. The group will convene shortly to discuss the judgment.”
The taskforce includes all of the main UK business lobby groups, including the CBI, the Institute of Directors, the Federation of Small Businesses and the British Retail Consortium. John Cridland, CBI director-general, said: “This is a real blow to UK businesses now facing the prospect of punitive costs potentially running into billions of pounds – and not all will survive, which could mean significant job losses.
“These cases are creating major uncertainty for businesses and impacting on investment and resourcing decisions. This judgment must be challenged. We need the UK government to step up its defence of the current UK law, and use its powers to limit any retrospective liability that firms may face.”
Unite, the union which brought the test cases against the engineering company Amec and the industrial services firm Hertel, said the groundbreaking ruling could lead to a wave of follow-up cases. “Up until now some workers who are required to do overtime have been penalised for taking the time off they are entitled to,” Howard Beckett, Unite’s legal director, said.
“This ruling not only secures justice for our members who were short changed, but means employers have got to get their house in order. Employers will now have to include overtime in calculating holiday pay, and those that don’t should be under no illusion that Unite will fight to ensure that our members receive their full entitlement.”
Frances O’Grady, general secretary of the TUC, said: “Failing to count overtime when calculating holiday pay is quite simply wrong. This ruling marks a victory for people who work long and hard to make a living, and who deserve to be properly paid when they take their well-earned leave.
“Scaremongering about the possible impact of this ruling is irresponsible. British business is far more robust than some of its spokespeople would admit. It’s worth remembering that in 1999 a change in the law meant that 6 million people gained more holiday entitlements and businesses easily absorbed the increase and employment continued to rise.”
If an employee has had a holiday within the past three months, they can claim for any unpaid holiday pay owed from that overtime. Claims can go back in three-month increments, if within those three months the claimant has had a holiday.
Jean Lovett, a partner at law firm Linklaters, said: “The potential financial implications for many employers will be significant. The number of potential claimants across various sectors and industries is vast.
“The law on holiday pay has been in a state of flux for sometime. However, we envisage that the [tribunal’s] decision will not be the last word on this issue.
“As significant sums are involved, we expect the decision to be appealed. Due to the costs involved many employers may now look to reduce the availability of overtime, where feasible.”
The employment appeal tribunal (EAT) ruled on Tuesday that employers must include overtime when calculating workers’ holiday pay after test cases brought by the Unite union. The ruling will significantly increase the holiday pay for people who work overtime in the future, although the judgment severely restricts the ability of employees to claim for backdated pay.
Under UK laws, holiday pay has been calculated based on an employee’s basic salary, meaning those who regularly work overtime are often paid much less when they are on holiday. The tribunal’s ruling said employers must in the future calculate holiday pay based on workers’ normal hours, including overtime.
However, under the ruling, employees can claim back pay only if it is less than three months since their last holiday. This will significantly limit the size of potential payouts to the sixth of the 30.8m employees in the UK who regularly work overtime. Companies had feared that they could be hit with claims dating back to 1998.
Vince Cable, the business secretary, said: “The government will review the judgment in detail as a matter of urgency. To properly understand the financial exposure employers face, we have set up a taskforce of representatives from government and business to discuss how we can limit the impact on business. The group will convene shortly to discuss the judgment.”
The taskforce includes all of the main UK business lobby groups, including the CBI, the Institute of Directors, the Federation of Small Businesses and the British Retail Consortium. John Cridland, CBI director-general, said: “This is a real blow to UK businesses now facing the prospect of punitive costs potentially running into billions of pounds – and not all will survive, which could mean significant job losses.
“These cases are creating major uncertainty for businesses and impacting on investment and resourcing decisions. This judgment must be challenged. We need the UK government to step up its defence of the current UK law, and use its powers to limit any retrospective liability that firms may face.”
Unite, the union which brought the test cases against the engineering company Amec and the industrial services firm Hertel, said the groundbreaking ruling could lead to a wave of follow-up cases. “Up until now some workers who are required to do overtime have been penalised for taking the time off they are entitled to,” Howard Beckett, Unite’s legal director, said.
“This ruling not only secures justice for our members who were short changed, but means employers have got to get their house in order. Employers will now have to include overtime in calculating holiday pay, and those that don’t should be under no illusion that Unite will fight to ensure that our members receive their full entitlement.”
Frances O’Grady, general secretary of the TUC, said: “Failing to count overtime when calculating holiday pay is quite simply wrong. This ruling marks a victory for people who work long and hard to make a living, and who deserve to be properly paid when they take their well-earned leave.
“Scaremongering about the possible impact of this ruling is irresponsible. British business is far more robust than some of its spokespeople would admit. It’s worth remembering that in 1999 a change in the law meant that 6 million people gained more holiday entitlements and businesses easily absorbed the increase and employment continued to rise.”
If an employee has had a holiday within the past three months, they can claim for any unpaid holiday pay owed from that overtime. Claims can go back in three-month increments, if within those three months the claimant has had a holiday.
Jean Lovett, a partner at law firm Linklaters, said: “The potential financial implications for many employers will be significant. The number of potential claimants across various sectors and industries is vast.
“The law on holiday pay has been in a state of flux for sometime. However, we envisage that the [tribunal’s] decision will not be the last word on this issue.
“As significant sums are involved, we expect the decision to be appealed. Due to the costs involved many employers may now look to reduce the availability of overtime, where feasible.”
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