Joe Aiston and Michael Chattle: Holiday pay claims decision upheld by the EAT

The law surrounding the calculation of holiday pay has seen a string of important cases recently; however this is an area of employment law where there is still a certain level of uncertainty for employers. An Employment Appeals Tribunal (EAT) decision earlier this month (May 2017) has provided some small measure of certainty, albeit regarding only a small element of the wider issue.

The case of Fulton v Bear Scotland has been moving between the employment tribunal and the EAT for the last couple of years. When the case was first referred to it, the EAT included in its ruling confirmation that a gap of three months between non-payment or underpayments of holiday pay breaks the series of deductions for the purpose of assessing when an employee is time barred from bringing a claim for these amounts.

Upon the case being remitted to it, the Tribunal applied this finding and accordingly dismissed a number of the claimant’s claim for underpayment of holiday pay as being out of time due to the gaps in between the alleged underpayments. The claimants then appealed once again, arguing that the EAT’s original decision did not create a binding rule that a period of three months will always break the chain but rather that this was merely guidance which could be rebutted by evidence.

This appeal has now been dismissed by the EAT, which has held that its original decision was intended to create a binding rule, with the Tribunal correct to apply it and dismiss a number of the claimant’s claims. This decision, therefore, sets clear guidance that a gap of over three months between non-payments or underpayments of holiday pay by an employer will mean that an employee cannot treat the previous deductions as one series of deductions, so will be limited in the extent of the claim they could bring against their employer.

Employers can take some comfort from this clear guidance by the EAT because it provides clarity in relation to the extent of any potential historic liability for underpayment or non-payment of holiday pay. However, it does highlight the importance for employers to get a grip of their approach to holiday pay and ensure that they are paying it correctly.

If an organisation is not compliant, the sooner this is rectified and the three-month period therefore commences, the sooner potential liability for previous breaches will be mitigated. Otherwise, if non-payment or underpayment continues and gaps between these either do not exist or are all shorter than three months, employees’ potential claims continue to run and accumulate in value.

A further practical consideration is that if a period exists in the year in which one or more employees do not take holiday, for example, the run up to Christmas for retailers, and where no non-payments or underpayment are made, it is possible for such a three-month period to limit the organisation’s liability in respect of possible holiday pay claims.

Joe Aiston (left) is senior associate and Michael Chattle (right) is associate in the employment, pensions and mobility group at international law firm Taylor Wessing