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Part one holiday pay state of flux: Our predictions

Ahead of the Employment Appeal Tribunal (EAT) decision in the combined cases of Fulton v Bear and Neal v Freightliner, it is time to do some crystal ball gazing and start predicting the possible outcomes and implications of this landmark UK decision on the calculation of holiday pay.

Calculating holiday payWe consider the likelihood that the EAT will take a bold approach and re-write the Working Time Regulations (WTR) in a manner that is compliant with the direction of the European cases in this area. Take part in the debate by completing our Holiday Pay Survey and read part two of our holiday pay blog containing practical guidance and the EAT decision.

The EAT will be in an unenviable position when it hears the combined appeal in the Fulton v Bear and Neal v Freightliner ET cases on 30 and 31 July 2014. It will be acutely aware that its decision will be closely scrutinised. This judgment is awaited anxiously by employers and keenly by employees and unions.

 

There is a strong sway from European holiday cases on the direction of travel, and perhaps also a trace of pressure from the UK Government. Against this backdrop, the EAT will need to reach a decision that is a legally sound interpretation of the WTR as currently drafted, subject to reading these in a manner compliant with the EU Directive where possible – if that can be done!

In our view it is possible, albeit will be a particularly strained interpretation of the WTR, to read them in a manner compliant with the EU directive. The best evidence of this is the recent example of a Nottingham Employment Tribunal adding an additional 49 words to be read at the end of regulation 16(3)(d) of the WTR in order to interpret them in an EU compliant manner. In effect this meant that overtime and incentive bonuses must be included in the calculation of holiday pay. Whilst some may criticise such a creative approach and complain that the judiciary is writing statute under the overbearing influence of Europe, let us consider the alternative for a moment…

If the EAT were sufficiently unsure that it was possible to read the WTR consistently with the EU Directive, it would make a referral to Europe. Some lessons should be learned from the plethora of cases already sent to Europe over the years, not least the recent holiday decision in Lock v British Gas. The Court of Justice of the European Union (CJEU) is often reluctant to involve itself in how a member state chooses to implement a particular directive. A European referral in this case would result in a significant delay for all concerned. The questions referred would then be resubmitted for the EAT to interpret. The other alternative is that the Government takes a proactive approach and amends the WTR to avoid the judiciary having to do this under duress. However, it is highly unlikely that this issue will be high on the Government agenda pending a general election next year.

In our view, the issue under consideration by the EAT on 30 and 31 July 2014 is a less contentious issue than that raised in Lock v British Gas (regarding the inclusion of commission payments when calculating holiday pay). The Neal and Fulton cases consider whether overtime should be included for the purposes of calculating holiday pay. Purely from a perspective of fairness, it is hard to argue against this decision. This may involve inserting new wording into the WTR to make it EU compliant, but at least this would provide some certainty and allow employers to plan for the future.

In conclusion, whilst our prediction is likely to be unpopular with UK employers, the expectation is that the decision in the Fulton v Bear and Neal v Freightliner cases are likely to be upheld by the EAT, in other words, overtime will have to be included in holiday pay calculations going forward.

We will be in attendance at the EAT on 30 and 31 July 2014 and will be Tweeting live from the hearing. Keep up to date and Follow us @dwf_employment

 

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Legal news, views, trends and tools for HR Professionals. Stay ahead. Go further