CIPD: Backdated claims for holiday pay accrued during non-guaranteed overtime will be limited to two years in an attempt to curb the potentially damaging costs for employers, the government has said.
The planned legislation change follows an Employment Appeal Tribunal ruling in November that non-guaranteed overtime must be included when calculating holiday pay. This refers to overtime which employers are not obliged to offer but a worker has to work if it is offered.
However, legal experts have already warned there may be “a flood of claims” as workers attempt to submit their claim before the 1st of July 2015 when the restrictions come into force.
The Department for Business, Innovation and Skills said that employees could still make claims for more than two years of pay under the current arrangements, adding that the six months until July will act as a transition period.
Christopher Bushnell, associate in the employment team at law firm Charles Russell Speechlys, said: “This change may result in a flood of claims from workers wanting to submit their claim before 1 July 2015 to ensure that they benefit from the current legislation. But overall the announcement will be a relief for many employers whose potential financial exposure will be now be reduced.”
Employment specialist at Pinsent Masons Ed Goodwyn said: “HR directors will yet again breathe a sigh of relief as the statutory wheels are set in motion to limit the risk of back pay to a maximum of two years.
“Many employers have been worried that the EAT ruling regarding the back pay issue is likely to be overturned in future. The widely expressed view is that the ruling is flawed. Even if an appeal did now find that the EAT was wrong, this move by the government will at least limit an employer’s exposure to two years back pay, as opposed to potentially back to 1998.”
However, he also warned that the announcement could “trigger a new wave of claims” as employees rush to beat the two year restriction.
Provisions in the EAT ruling had already limited employer liability, as employees can only claim if they have been underpaid consistently as part of “a series of deductions”. A three month hiatus when there weren’t any underpayments, possibly because there was no overtime, breaks this “series” and limits the timeframe for claims.
In practice this means that if there is a three month break employees can only claim for one year’s leave.
Bushnell said: “As the law stands, it remains possible for employers to engineer a break of over three months in the ‘deductions’ for holiday pay which could have the effect of preventing claims going back beyond that point – this opportunity will be lost once claims are submitted.”
The EAT’s November judgment was based on calculating holiday pay in three cases: Bear Scotland v Fulton and Baxter, Hertel (UK) Ltd v Wood and others and Amec Group Ltd v Law and others.