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Hearing date set for important holiday pay calculation cases

Kate Hodgkiss, Partner in our Edinburgh office, comments: The EAT has now listed the cases of Bear Scotland Ltd v Fulton and Neal v Freightliner Ltd to be heard on 30 and 31 July 2014. The EAT’s findings will determine whether payments in respect of non-guaranteed overtime have to be included in the calculation of holiday pay.  This issue is deemed to be of such importance to employers that BIS has been granted leave to intervene in the proceedings.

Until recently, the legal position seemed to be clear. In 2004, a Court of Appeal case, Bamsey v Albon Engineering & Manufacturing PLC, held that only guaranteed (ie obligatory) overtime needed to be included in holiday pay calculations.  However, in  2011, the ECJ indicated in British Airways Plc v Williams, that all payments which are intrinsically linked to the performance of the contract must be included in holiday pay calculations.  This led the employment tribunals in Fulton and Neal to find that regular overtime should be included in the respective employers’ holiday pay calculations, even if that overtime was not obligatory.

The outcome of these cases has potentially significant ramifications for employers who are currently only including basic remuneration in their holiday pay calculations. Employees may seek to claim any holiday pay underpayments, potentially going back a number of years, and this could result in significant costs liabilities for employers.  Employers therefore need to make an important decision now as to whether to sit tight and await the outcome of the EAT’s decision or to take steps at this stage to minimise any potential liabilities. We will continue to report any future developments in Be Aware.

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