EAT overtime ruling may open door for more onerous regs

Richard Stuart-Turner
Monday, November 24, 2014

Earlier this month the Employment Appeal Tribunal (EAT) ruled under the Working Time Regulations 1998 (WTR) that compulsory overtime should be factored in when firms calculate the amount of holiday pay employees are entitled to.

Overtime and Holiday
Overtime and Holiday

The ruling had initially been expected to encompass all types of overtime but ultimately only referred to compulsory overtime; overtime always outlined in a contract of employment that, if offered, an employee is required to do.

Prior to the ruling there had been speculation that employers could be liable for claims dating back to the WTR’s introduction in 1998. And although claims can be backdated, they are restricted to a three-month gap between holiday periods, making it unlikely for an employee to be able to form a long retrospective chain.

The ruling also only applies to the four weeks of statutory holiday provided by the EU-wide Working Time Directive (WTD) and not to the extra eight days provided by the WTR, or any additional holiday that an employee might be entitled to.

Therefore, employers may be able to limit their liability for back pay claims as the four statutory weeks will be taken first during any holiday year and usually within the first nine months, leaving a three-month gap before the next holiday year starts.

However, business analysts now predict that similar rulings on voluntary overtime are around the corner. And, for firms of all sizes in the print industry, the potentially even bigger issue of a ruling on commission payment during holiday is imminent.

In February the Leicester Employment Tribunal is due to consider the Court of Justice of the European Union’s (CJEU) judgement on this matter following its decision in May in the Lock vs British Gas case that British Gas energy salesman Joe Lock should be paid commission payments during annual leave.

The CJEU found that Lock could be dissuaded from taking annual leave due to the financial disadvantage he would suffer, as commission payments made up a significant proportion of his wages.

Domestic courts and tribunals will now consider how the CJEU’s decision can be incorporated into existing UK law. If Lock is successful in the February hearing, subsequent dates in March will consider other issues including the reference period for the payments and how long they should go back.

Alex Flynn, a spokesman for union Unite, says: “For some people as much as 50% of their salary is made up of commission. If they’re on holiday they obviously can’t earn commission as they’re not there, so they’re taking a big hit.”

Big impact

The outcome of this case could have a significant impact on the print industry as many salespeople rely on commission payments as a significant part of their salary.

John Walding, a spokesman for the Forum of Private Business (FPB), says: “While there has been a lot of attention on the overtime ruling, commission payments are likely to have a much bigger impact and prove more costly.

“Employers should therefore be prepared to review their annual leave arrangements to ensure that commission or other relevant variable payments are factored into holiday pay calculations.”

Unions have also argued that voluntary overtime should be included as part of holiday pay as many employees rely on it to top up their earnings. Separate future test cases for voluntary overtime are expected in due course.

BPIF head of legal Anne Copley says: “I would expect to see something about voluntary overtime coming through in the next couple of years and in five years’ time I think we will be paying holiday pay averaged on all payments that employees get. This will include commission and, in my view, all overtime. The effect will be that printers’ payrolls will have to operate quite differently going forwards.”

A final decision on the compulsory overtime ruling could be years away as it is likely to be taken to the Court of Appeal, or referred to EU courts in Luxembourg, and this has created some uncertainty among business owners as to what to do next.

Where employers previously paid holiday pay based on basic salary, they will now not only have to take into account compulsory overtime but will also need to be mindful of the impact of outstanding rulings and domestic interpretations on commission and voluntary overtime.

Jack Neill-Hall, a spokesman for the Federation of Small Businesses, says: “Essentially, businesses just won’t know what to do when calculating holiday pay because the standard model that everyone’s been using for years no longer exists. They may need to start putting money aside or taking legal advice or they may want to be pre-emptive and start averaging out pay now.

“We have been appointed to a taskforce that has been put together with the government and some other business groups to try and bring some certainty to this and work out what it all means. In the meantime businesses will feel very confused about what they should be doing.”

With so much uncertainty still surrounding the outcome of the compulsory overtime ruling and subsequent rulings, without exception, every print firm chief that PrintWeek contacted to comment on the issue declined to contribute publicly about the ramifications their business might face.

One boss says: “Clearly we will comply with whatever the law says, but at the moment interpretation of the ruling is not that easy. Things are still a bit up in the air, even though I don’t think it will have a significant effect on us because we don’t force people to do overtime.”

And BAPC chairman Sidney Bobb believes that the ruling could have an effect on industry pricing. “It’s all a strain on businesses, which may in turn be a strain on prices because inevitably it has to lead to price increases.

“All that businesses can do is react to the outcome of the rulings in the appropriate manner. We’ve just got to suck it and see but there may be a need for businesses to restructure the way in which people are paid.”

There is likely to be an administrative cost to both amending holiday pay systems and dealing with any back payments. Employers now have a number of options going forwards to both manage these changes and limit the impact of claims that could be brought by employees.

They could begin to pay all holiday leave at the same rate with im-mediate effect, reduce the use of compulsory overtime in their businesses or use temporary staff to cover periods where overtime would normally be used.

The FPB’s Walding concludes: “Our advice to businesses is not to panic. However, it would be advisable to undertake an audit of how overtime is currently used in the business in order to assess the extent to which the EAT decision could impact on your circumstances.” 


OPINION 

If this ruling is upheld it may do more harm than good

dani-novickDani Novick, managing director, Mercury Search & Selection

This initial ruling is probably a bit of a storm in a teacup for the majority of the industry. It is also likely to be appealed, in which case its true impact, even if upheld, is likely to be a long way off and even then rather limited.

While overtime is more routine in some companies than others, it is pretty much on a voluntary basis; and in our experience there is no shortage of volunteers. There are several factors that will burden print companies should voluntary overtime be factored into holiday pay. 

The first, and most obvious, is that holiday pay will be more expensive with overtime included. However, the administrative burden of keeping track of average earnings over a period and using them to calculate holiday pay may in fact be more significant.

I have seen an averaging period of 12 weeks quoted but, of course, the actual amount of overtime worked per week could vary significantly week to week. So imagine needing to track average earnings for every individual based on a rolling period of the previous 12 weeks every time you need to pay holiday pay. This looks like a headache and, when combined with the increase in the wage bill, may lead to unintended consequences.  

It may lead to employers hiring additional staff on standard rather than overtime rates, using temps or proposing wholesale changes to contracted terms such as annualised hours. The long-term result may be that workers who have relied on overtime to boost their earnings lose out as employers are disincentivised from offering it.

Looking forward it is clear that employers shouldn’t force or rely on employees constantly working overtime; it’s not good business and it’s not good for the health and performance of staff. Perhaps more importantly though, those advising and lobbying on behalf of employees should be careful not to bite the hand that feeds them. Rulings intended to benefit employees could make them worse off.

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