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Overtime and Holiday Pay – Tribunal Rules on Vital Test Case

PLEASE NOTE: Information in this article is correct at the time of publication, please contact DFA Law for current advice on older articles.

In a landmark decision which will increase the pay packets of millions of workers, the Employment Appeal Tribunal (EAT) has ruled that those who are required to work overtime are entitled to have that taken into account when calculating their holiday pay.

The decision mandated widespread increases in holiday pay. However, the prospect of an avalanche of retrospective claims in respect of unlawful deductions from wages, potentially worth billions, was dispelled after the EAT ruled that any such complaints had to be brought within a three-month time limit.

The EAT was dealing with three appeals which raised similar issues of principle. In each case, workers claimed that they had received too little holiday pay because overtime which they were obliged to work, but which was not guaranteed by their employers, had been left out of account when assessing their entitlement.

Ruling in the workers’ favour on that issue, the EAT found that remuneration they received for overtime which they routinely worked as part of the ‘settled pattern’ of their employment was ‘normal pay’ which was ‘normally received’. Such overtime pay thus had to be taken into consideration when calculating holiday pay under the terms of the Working Time Regulations 1998.

However, the EAT went on to find that claims in respect of unlawful deductions from holiday pay were subject to the three-month limitation period contained within the Employment Rights Act 1996. That decision greatly limited any retrospective liability on the part of employers and effectively ruled out a large number of historic claims which had been awaiting the outcome of the test case.

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