Landmark employment ruling sounds alarm bells for UK employers

Employers around the UK are braced for a wave of claims for back pay likely to cost hundreds of millions after the Employment Appeals Tribunal today issued a landmark ruling on holiday pay.

The ruling in question, Wood and others v Hertel UK and Fulton and another v Bear Scotland Ltd,  has laid bare several questions over whether variable elements of pay, such as overtime and allowances, should be included in the calculation of holiday pay.

The case considered whether voluntary overtime should be included in calculating holiday pay, and the time limitation for historic claims. Historically the majority of UK Employers have not included voluntary overtime in their calculation of holiday pay.

Legal experts at Pinsent Masons say that, while the outcome is likely to be appealed, today’s decision should be sounding alarm bells in boardrooms around the UK as the outcome of the case could have material impact on company financial results.

Neil Black, Partner and employment law specialist at Pinsent Masons says: “Put simply this decision is hugely significant to the UK manufacturing industry.  The issue of holiday pay has been under scrutiny for some time but a lack of clarity in the law has played a role in staying the hand of employees and their trade union representatives.”

“This decision removes much of that uncertainty; greatly increasing the risk of claims.  The impact will be greatest for those UK manufacturers who utilise large amounts of overtime, employ generous commission structures and/or pay shift or similar allowances on a widespread and regular basis.”

“Some manufacturers continue to hold out hope that the Government will be able to intervene, however the scope for this currently appears to be limited given this issue stems from Europe.  As such all UK manufacturers need to take action now as a matter of priority to assess the potential costs from claims of this kind; for many the latent financial risk will render this a board level issue.  Once the potential financial impact is understood, the business will be better placed to determine a strategy moving forward.”

Also commenting, Tim Thomas, head of employment policy at EEF, says: “The announcement of a taskforce to look at the implications of today’s ruling and to hopefully protect businesses from its fallout, is hugely welcome. Government has clearly listened to the concerns that businesses have been raising.

“If unchecked, this ruling will have far-reaching and potentially damaging consequences for jobs and investment. In the short-term, over nine in ten manufacturers (93%) are set to see payroll costs spiral. But the real damage will come further down the line – six in ten firms will have little option but to factor the additional costs in to future pay negotiations, while over half will look to reduce overtime – a quarter may even be forced to reduce headcount.

 

“Everyone agrees that workers should be paid properly and fairly, but the effect of this ruling could be that it turns growth and jobs into dust and that’s something this taskforce has to try to avoid.”