Employment Law E-Bulletin Issue 41

Patterson v Castlereagh Borough Council [2014] NIIT/1793/13IT – Holiday pay may include voluntary overtime

This case follows the decision of the Employment Appeal Tribunal (EAT) in Bear Scotland Ltd and ors v Fulton and ors last year which held that the calculation of holiday pay should take into account all elements of a worker’s normal pay. Bear Scotland covered the position in relation to guaranteed and non-guaranteed overtime but did not express an opinion on whether voluntary overtime should be included in the calculation of holiday pay.

The Northern Ireland Court of Appeal (NICA) has now provided its view on this issue and decided that voluntary overtime should be included in holiday pay calculations.

NICA went through the recent case law on the issue of calculating holiday pay and considered the position in light of this. It noted that the European legislation is such that workers should not be deterred from taking holiday and, where a worker is used to receiving a certain level of pay, they should receive this whilst on holiday. There was no reason why employers should not include voluntary overtime in the calculation of statutory holiday pay. It would be for a tribunal to then decide whether voluntary overtime in any given case was carried out with sufficient regularity to warrant inclusion in the calculation of holiday pay.

Although this judgment is not binding on tribunals in England and Wales, it provides a base for workers to at least argue that voluntary overtime is part of their ‘normal remuneration’ and should therefore be included in the calculation of statutory holiday pay. Employers may therefore wish to think carefully before excluding voluntary overtime (or other variable elements of pay) from the holiday pay calculations, especially where these are carried out on a regular and consistent basis.

Plumb v Duncan Print Group Limited [2015] UKEAT 0071/15/0807 Does an employee on sick leave have to show he was unable by reason of illness to take holiday for it to be carried forward and is the right to carry forward unlimited?

The employee was absent for four years following an accident. Upon dismissal he claimed payment of 60 days’ accrued during the following holiday years: 2010/2011, 2011/2012 and 2012/2013. The Employment Tribunal at first instance decided that the employee was unable to show that his medical condition was the reason for not taking the leave and the leave could not therefore be carried over.

On appeal, the Employment Appeal Tribunal (EAT) held that an employee is entitled to take their leave at a later date. The EAT said that the Working Time Directive (the European legislation), which requires employees to be given at least 4 weeks’ annual leave per year, does not require an employee to take their annual leave or show that they are unable to take it by reason of sickness.

In respect of how long annual leave can be carried over for, UK legislation provides that annual leave must be taken during the holiday year in respect of which it is due. The EAT held that the UK legislation must be interpreted to reflect European legislation which requires that employees on sick leave are able to take annual leave within a period of 18 months of the end of the holiday year in which it accrues. This will therefore apply in respect of each separate holiday year, and applies whether or not an employee has been unable or unwilling to take holiday because of sick leave.

The employee in this case was only therefore only awarded leave in relation to the holiday year 2012/2013 and not in respect of the earlier years.

Employers should be aware that this decision only applies to the four weeks’ leave provided under the European legislation. It does not apply to the extra 1.6 weeks that workers are entitled to under UK legislation or any enhanced contractual holiday that employers may be entitled to.

Please note that the parties have been given leave to appeal to the Court of Appeal and we will therefore keep an eye on how this develops.

Two year cap on backdated claims for holiday pay

Referring again to the Bear Scotland case, claims for underpaid holiday pay can now only be backdated for a period of two years. This applies to all claims submitted from 1 July 2015 onwards. Claims for underpaid holiday pay will only be allowed where the payment in question is made less than two years before the claim is issued.

This legislative change is a direct result of the decision in Bear Scotland which decided that holiday pay calculations should reflect pay normally received, including non-guaranteed overtime. This decision was summarised in our E-Bulletin Issue 33. The above case of Patterson has provided some commentary on voluntary overtime, which was not considered by the EAT in Bear Scotland.

In addition, if there are any three month breaks between alleged underpaid holidays in that two year period then an employee cannot recover any sums prior to these breaks. This rule was laid down by the EAT in Bear Scotland and is another mechanism designed to limit the liability of employer for holiday pay claims.

New Acas guide on equality and diversity in the workplace

Acas has published three new guides on identifying, addressing and preventing discrimination in the workplace. The separate guides are:

  • Equality and Discrimination: understand the basics – which sets out the legal position and employer’s obligations;
  • Prevent discrimination: support equality – which provides a practical guide on how to prevent discrimination and promote equality in the workplace; and
  • Discrimination: what to do if it happens – which provides a step by step guide about how to investigate and handle concerns about discrimination.

These follow reports by Acas that it has dealt with over 50,000 calls relating to discrimination and diversity issues in the workplaces through its helpline over the last 12 months.

The new guides can be found on the acas website under ‘Equality and discrimination’.

Potential changes to the taxation of termination payments

The government is considering how it can simplify the tax and National Insurance contributions (NICs) treatment of termination payments and has commenced a consultation process to explore how this could be done.

As many employers will know, payments made to an employee by way of compensation for loss of employment (e.g. to compensate for potential unfair dismissal or discrimination claims) are not treated as ‘earnings’ and can therefore be paid tax free (up to a maximum of £30,000). Payments that are contractual (such as bonus payments or contractual payments in lieu of notice (PILONs)) are taxable at source in the normal way.

Possible changes proposed by the government include the removal of the distinction between the tax and NICs treatment of contractual and non-contractual payments. The intention here is that all payments made in connection with the termination of employment would then be ‘earnings’ and therefore subject to tax and NICs.

Another proposal is that a specific tax exemption is linked to statutory redundancy pay. This would mean that employees whose individual circumstances fall short of the statutory definition of ‘redundancy’ would unlikely be covered.

It will be interesting to see what happens because if changes are made it could make it harder for employers to be able to offer tax free payments to employees in order to terminate their employment in a swift and discreet manner.

The consultation commenced on 24 July and will run until 16 October 2015. We will keep you updated as to the response to this which is expected to be announced in the Autumn Statement.

For any further information on this or any other Employment matter, please contact Keith Land on 0191 226 4892 or keith.land@sintons.co.uk

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