The implications of the ruling for employers are set out in my earlier blog.
If no appeal is lodged it will reduce the spectre of significant backdated Tribunal claims for unlawful deductions of wages that many employers were dreading. However it does not mean that the risk of sizeable backdated claims disappears entirely.
The EAT held that such holiday pay claims will be time barred where they form part of a series of unlawful deductions in the Employment Tribunal when there is a break of more than 3 months between successive underpayments. The EAT had granted leave to appeal on this issue as being an "arguable" point and was one of public importance.
This will particularly affect employees with normal working hours whose remuneration does not vary with the amount of work done in that period. Until now they have normally only received basic pay when on holiday. In the future their holiday pay is likely to have to include an element to cover certain types of payment which are now recognised as being intrinsically linked to the performance of their tasks under the contract. The scope of what this will cover is not covered in this blog.
The ability to bring backdated claims in Tribunal will be limited because the enhanced level of holiday pay will only normally apply to the 20 days leave provided by the European Directive. The employer can continue to provide holiday pay at the basic rate for the additional 1.6 weeks provided by the Working Time Regulations or any further additional leave.
In such cases it should be easier to show a break of more than 3 months in the series of unlawful deductions.
The employer can determine when holidays can be taken which will also help in planning employees' holidays. The EAT recognised that the first 20 days of each holiday year should be taken as the European element.
It should be emphasised that under the existing Working Time Regulations the rules are different where the employee does not have normal working hours. It has always been the case that holiday pay should be calculated as the average remuneration over the previous 12 weeks or longer if there are weeks where no work was carried out. This would apply to the whole of the employee's holiday entitlement with no distinction made between the first 20 days and any holiday balance.
Several Tribunals have found that employers have been wrongly assessing that employees have normal working hours when in fact they do not. That is likely to be an issue that some employers still need to address. If they have been wrongly assessing the basis of payment then there could well be a continuing series of deductions which are not time barred.
It should also be noted that the absence of an appeal on the time bar point does not prevent the same issue being raised in another case. An Employment Tribunal will be bound by this ruling but another EAT Judge or higher court would be entitled to reach a different conclusion. That risk cannot be ruled out. However, Unite have reportedly indicated that they do not want to see an employer's financial viability affected by this issue and other unions (who are the most likely to back such an appeal) will hopefully adopt the same approach.
In addition, the EAT's decision does not deal with the issue of whether workers can pursue backdated claims in the civil courts for breach of contract. If they can then such claims can be brought for up to 5 years in Scotland and 6 years in England from the date of the alleged breach. Such claims are not linked to a series of deductions. There is a non binding Sheriff Court decision which allowed a holiday pay claim under different circumstances to be pursued as a breach of contract claim. However it is highly likely that an authoritative test case to determine this issue will be decided in the near future.