Time for trade to review contracts?

• John Grant said the Working Time Directive is designed to ensure employees take their full holiday entitlement.
• John Grant said the Working Time Directive is designed to ensure employees take their full holiday entitlement.

Employers should consider how staff overtime is dealt with in light of holiday pay cases, writes lawyer John Grant

THERE have been a number of recent cases looking at the correct method of calculating holiday pay under the Working Time Directive and, in particular, how the question of overtime is to be dealt with.
Indeed, there has been a lot of media coverage of the subject and, as always, some of this has been inaccurate leading to unrealistic expectations of large windfalls to employees/former employees.
The essence of the Working Time Directive is to try and ensure that employees take their full holiday entitlement and that there are not barriers to them doing so.
There had been concerns that people were reluctant to take their full holiday entitlement as they would have only earned the equivalent of their basic pay rather than any overtime that they had worked.
In the leading case of Bear Scotland Ltd v Fulton, where the judgment was issued on November 4, 2014, the Employment Appeal Tribunal (EAT) decided that in some circumstances overtime should be taken into account when working out what constitutes normal remuneration for the purposes of calculating what holiday pay is due.
However, particularly in the licensed trade, it is important to note that the ruling only relates to non-guaranteed overtime as opposed to genuinely voluntary overtime.
To be considered as non-guaranteed overtime there must be a situation where the employer is not obliged to offer overtime but the employee is contractually required to do overtime if this is offered.
A lot of employers in the licensed trade would not expect their employees to have that in their contracts (if, indeed, they have contracts at all) and so their exposure may be less than in other sectors.
It is also important to note that tips, service charges and gratuities paid by customers directly to employees will not form part of the calculation of a week’s pay.
This will also be the situation that applies where a tronc system is in use.
In order to ensure that they are not exposed, employers should carry out a detailed review of their contracts and processes.
In particular, they should consider ensuring that contracts provide for voluntary rather than non-guaranteed overtime.
Thought should also be given to using agency staff to cover periods where overtime would traditionally be used. This may be a particular consideration in the run up to the festive period.

John Grant
John Grant

There is also still some uncertainty in relation to how far any claims for holiday pay could be backdated and that is likely to be the position for some time given that both parties in Bear have been given leave to appeal.
However, fears that liability in respect of arrears on unpaid holidays could go back for long periods of time (potentially up to 16 years) seem largely unfounded at this stage, as the EAT held that workers cannot use each shortfall in holiday pay as part of a series of deductions where a period of more than three months has elapsed between the deductions.
Unsurprisingly, reaction to the judgment has been mixed.
It has been welcomed by trade unions, with Unite’s executive director stating: “This result not only secures justice for our members who were short changed, but means employers have got to get their house in order.”
However, business secretary Vince Cable also announced that “government will review the judgment in detail as a matter of urgency” and that a taskforce will be set up to assess the impact of the decision.
• John Grant is an associate at Wright, Johnston & Mackenzie LLP.