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Holiday pay and a ‘series of deductions’. Could a Scottish EAT case finally mark the end of the holiday pay saga?

You’ll be forgiven for thinking why on earth are we still banging on about holiday pay. Wasn’t this business sorted out ages ago? Well, yes and no. 

In Fulton and anor v Bear Scotland Ltd, the EAT has confirmed the decision that a gap of more than three months between non-payments (or underpayments) of wages breaks the ‘series’ of deductions for the purpose of bringing an unlawful deduction from wages claim.  In English, this means an employee claiming money for non-payment or underpayment of holiday pay will be time barred if there was more than a three month gap between their holiday pay.

As many of you will recall, this case arose out of the long-running saga over the calculation of holiday pay. In an earlier decision the EAT held that payments in respect of non-guaranteed overtime must be taken into account when calculating holiday pay.  The EAT also held that for the purpose of bringing an unlawful deduction from wages claim under S.13 of the Employment Rights Act 1996, a gap of more than three months between any two deductions will break the ‘series’ of deductions and therefore has the effect of making any such claim out of time. The two claimants in this case appealed to the EAT, arguing, among other things, that this part of the decision was not actually binding.

Unfortunately for them the EAT disagreed and held that the ruling on the three-month-gap point was part of the “ratio decidendi” (everyone loves a bit of Latin don’t they?), i.e. it formed part of the court’s decision and therefore it was binding on other courts.

This is an important case. There was real concern that employees would be able to make claims for underpayment of holiday pay going back several years. Many employers will now be breathing a final sigh of relief as this matter should now be settled.

What does this mean for you or your business?

This latest decision is good news for employers and means that many claims for historical underpayment of holiday pay will continue to be found out of time. Company’s facing claims for outstanding holiday pay need to do the sums carefully. If there is more than a three month gap between the payment of holiday pay, then there is no need to pay underpaid holiday for the period before the gap.

What do you need to be doing now?

If your business is in the midst of settling any outstanding holiday pay claims, this case provides much clarity on the matter and should see what has been a very worrying issue for most businesses, resolve itself quickly. Call us if you want to know more.

 

These notes have been prepared for the purpose of an article only. They should not be regarded as a substitute for taking legal advice.

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