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Unions to “take up cudgels” on holiday back pay

Peter Sharp partner at Pinsents Masons
Peter Sharp partner at Pinsents Masons

A landmark ruling expected this week from the Employment Appeals Tribunal (EAT) could lay UK businesses open to claims for hundreds of millions of pounds in back pay.

In Scotland it is understood that more than 400 cases have already been launched in anticipation of the EAT judgement. It’s also expected trade unions will benefit from a surge in membership as they take up the cudgels on behalf of members with group actions against employers, a law firm has warned.

The EAT decision on cases involving roads maintenance specialist BEAR Scotland and others relates to the calculation of holiday pay and if overtime and other allowance should be included in salary payments.

Historically the majority of UK employers have not included voluntary overtime in their calculation of holiday pay and the ruling will focus on whether voluntary overtime should be included in calculating holiday pay and the time limitation for historic claims.

A decision in favour of employees could lead to retrospective claims dating back many years and the total exposure to UK plc could run in to hundreds of millions pounds in settlements.

Legal firm Pinsent Masons said the outcome of the case will likely sound alarm bells in boardrooms as the ruling will have a direct effect on company financial results.

Peter Sharp, a partner and Aberdeen-based employment law specialist, said: “This decision will force this issue to the top of agendas and boardrooms will have a major headache in relation to back pay claims, the final bill for which is likely to run into many millions.

“Organisations which rely on overtime, particularly those in seasonal industries such as retail, will be particularly exposed and they face a twin challenge.”

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

Pinsent Masons said the initial step required by businesses is to assess their historic exposure by taking steps to assess the financial impact, and quantify precisely what this means for their business.

Partner Euan Smith added: “In practical terms that will be both a time-consuming and disruptive exercise. Payroll and HR records will need to be examined to assess exposure to potential claims and likely quantum.

“Trade unions are already pursuing claims and approaching employers directly to ask for settlement proposals. This decision is likely to encourage more of those claims to be pursued by trade unions, claims management companies and by individual employees.

“In the short term we may seem some employers prohibit overtime or certain types of allowances altogether, opting for a standard set 12-month salary contract giving visibility of cost to the business. The net effect is that overall workforce flexibility could be reduced, meaning significant operational issues.”