Calculating holiday pay – impact of recent cases: legal overview Anna Fletcher
Background Working Time Directive 2003/88/EC Purpose and scope Article 1 “This Directive lays down minimum safety and health requirements for the organisation of working time” Annual leave Article 7 “Member States shall take the measures necessary to ensure that every worker is entitled to paid annual leave of at least four weeks in accordance with the conditions for entitlement to, and granting of, such leave laid down by national legislation and/or practice .”
Background (2) Working Time Regulations 1998 Regulation 13 – four weeks’ leave Regulation 13A – additional 1.6 weeks’ leave (8 days) introduced fully from 2009 Regulation 16 – A worker is entitled to be paid in respect of any period of annual leave to which he is entitled under regulation 13 at the rate of a week’s pay in respect of each week of leave. Sections 221-224 Employment Rights Act 1996 applies for the purposes of calculating a weeks’ pay.
Background (3) Normal working hours – calculating a week’s pay depends on whether remuneration varies with the amount of work done Where work does not vary with the amount of work done (the - worker is paid a fixed wage or salary irrespective of hours worked or the amount of work done) a week’s pay is calculated on basic pay only (s221(2)) Where pay varies according to the amount of work done a week’s - pay is calculated according to the average paid to the worker in the previous 12 weeks (s221(3)) Where pay varies according to the time when work is done a - week’s pay is calculated according to the average paid to the worker in the previous 12 weeks (s222) No normal working hours – a week’s pay is an average of all the sums paid to the worker in the previous 12 weeks (s224)
Where did it all begin? Overtime Tarmac Roadstone Holdings Ltd v Peacock and others [1973] ICR 273 Court of Appeal established 3 types of overtime guaranteed and compulsory - voluntary x - ‘non guaranteed’ x - Bamsey v Albon Engineering and Manufacturing Plc [2004] IRLR 457
Where did it all begin? (2) Commission Evans v Malley Organisation Ltd t/a First Business Support [2003] IRLR 156 Weekly variations in pay (due to commission) were not - caused by the amount of work done s221(3) did not apply. It was s221(2) that applied - Holiday pay could not include commission -
The beginning of the end British Airways v Williams and others [2012] ICR 847 Aviation Directive - Civil Aviation (Working Time) Regulations 2004 - EAT: pilots entitled to be remunerated while they were on annual - leave in a way which was comparable to the way in which they were remunerated while they were working Court of Appeal: no breach of Regulation 4 CAWTR - CJEU: workers must received their normal remuneration for that - period of and during the leave period the worker is to be in a position which is as regards remuneration comparable to periods of work ie “normal remuneration” Supreme Court: agreed with CJEU -
What does that mean for overtime? Neal v Freightliner Limited Non guaranteed overtime could be taken into account in the - calculation of holiday pay Confirmed that only regulation 13 leave was affected - Rewriting of Reg 16 “as if reference to sections 227 and 228 - did not apply and, in the case of the entitlement under regulation 13, sections 223(3) and 234 do not apply”. Elms v Balfour Beatty Utilities Solutions Limited Claim for overtime, bonus and standby payments to be - included in the calculation of holiday pay Tribunal held it was not possible to interpret the WTR to give - effect to Williams
What does that mean for overtime? (2) Fulton v Bear Scotland Limited Contracts guaranteed a set number of hours but the tribunal - found that the employees had no normal working hours Overtime, standby and call out payments were to be - included in the calculation of holiday pay Applied the calculation to both regulation 13 and 13A leave -
What does that mean for overtime? (3) Wood v Hertel (UK) Limited and Law v AMEC Tribunal accepted that the following payment should be included in the calculation of regulation 13 leave/holiday pay Overtime (which was compulsory for workers only) - Radius allowance - Travelling time payments - Productivity, performance and attendance bonuses -
What does that mean for overtime? (4) Tribunal concluded workers had no normal working hours and read words in to regulation 16 “The provisions referred to in paragraph (2) shall apply as if the reference to sections 227 and 228 did not apply and, in relation to an entitlement under regulation 13, as if he had no normal working hours and such that “average weekly remuneration” in section 224 does not include any sum not forming part of his ordinary or normal remuneration in accordance with the law of the European Union. ”
Where are we now? Bear Scotland Limited v Fulton Combined appeals of Bear Scotland, Hertel and AMEC EAT found that A rticle 7 requires “normal remuneration” to be paid during - periods of annual leave must be an intrinsic link between the payment and the work - that a worker is required to carry out WTR can be interpreted to conform with Article 7 - “normal remuneration” replaces the ERA definition of a - week’s pay when calculating regulation 13 leave for those with normal working hours
What must be included in the calculation of holiday pay? Pay which is normally received Payments intrinsically linked to the performance of the tasks - required under the contract of employment Payments which relate to the workers professional and - personal status Voluntary overtime? Neal v Freightliner Limited - Patterson v Castlereagh Borough Council -
What does that mean for commission? Lock v British Gas Trading Limited CJEU : commission payments must be included in the - calculation of holiday pay Holiday pay must correspond to the normal remuneration - received by the worker Any aspect of pay intrinsically linked to the performance of - tasks required under the contract must be taken into account Here, commission was directly linked to Mr Lock’s work so - had to be included in the calculation of holiday pay
What does that mean for commission? (2) Leicester Employment Tribunal March 2015 : commission should be included in the calculation of holiday pay Read words into regulation 16 “as if in the case of the - entitlement under regulation 13, a worker with normal hours whose remuneration includes commission or similar payments shall be deemed to have remuneration which varies with the amount of work done for the purpose of s221 ” Issue of how to actually calculate holiday pay to a later - hearing
What does that mean for commission? (3) May 2015 : Appeal lodged Commission is different to overtime - UK domestic law cannot be interpreted to give effect to EU - law
New developments Deduction of Wages (Limitation) Regulations 2014 Two year backstop to avoid leapfrogging a series of deductions back to 1 October 1998 Applies to claims lodged on or after 1 July 2015
Anna Fletcher Anna.fletcher@wragge-law.com +44 121 393 0242 www.wragge-law.com
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