On Tuesday this week, the Employment Appeal Tribunal (EAT) ruled on three test cases against engineering company AMEC, industrial services firm Hertel and maintenance company Bear Scotland. The long-awaited decision concerned whether overtime payments should be included in an employee’s holiday pay entitlements.
The standard position, adopted by most UK employers and supported by the Government, has been that holiday pay should only be based on a worker’s basic rate of pay; overtime should not be included. However, the EAT has held that this is incorrect and that workers are entitled to receive non-guaranteed overtime payments in their holiday pay.
This decision has been hailed as a victory for employees and has been met with praise by trade unions, most notably Unite, which brought the case against the three employers. However, various business lobby groups have already hit out at the judgement, observing that it will place even greater financial burdens on employers at a time when economic recovery across the UK should be the top priority. John Cridland, Director General of the Confederation of British Industry (CBI) said the ruling was “a real blow to UK businesses” that now face the prospect of “punitive costs potentially running into billions of pounds.”
The Government has reacted swiftly to the decision. Just an hour or two after the judgement was issued, Vince Cable announced that the Government would be setting up a taskforce in an attempt to limit the financial exposure businesses will face as a result of this judgement. This taskforce will comprise of all the main UK business groups, including the CBI, the Institute of Directors, the Federation of Small Businesses and the British Retail Consortium.
The potential ramifications of this judgement are far-reaching. It is estimated that approximately one-sixth of the current UK working population is paid overtime. A large proportion of these workers could well have back-dated claims for additional holiday payments. However, it should be noted, at this juncture, that the EAT’s decision is still subject to appeal. Given the ramifications of this decision, an appeal is almost inevitable.
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We shall keep you updated on the progress of the appeal. In the meantime, should you require any further information, please do not hesitate to contact Alan Glazer or your usual contact at Murray Beith Murray.