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Government announces Regulations to limit holiday pay claims

Following our newsflash in November on the decision to include overtime in holiday pay, please see below for our guidance on the announcement by the Government to introduce legislation to put a time limit on back-dated claims for overtime in holiday pay.

What happens now?
Due to the publicity the decision has already attracted, businesses can expect to be presented with queries from staff regarding their entitlement to holiday pay.

More sophisticated employees and those supported by Trade Unions, external lawyers and claims management companies are likely to make detailed requests for disclosure.

It is important that the manner in which you respond to those requests does not expose your business to unnecessary cost.

What is happening?
On 18 December 2014, the Government laid before Parliament The Deduction from Wages (Limitation) Regulations 2014 (the Draft Regulations).

The Regulations aim to amend the Employment Rights Act 1996 and place a two-year limitation of claims brought by employees for unlawful deductions from wages. This means that claims for holiday pay cannot stretch back more than two years.

Why is this happening?
In November 2014, the Employment Appeal Tribunal decided the case of Bear Scotland Ltd and others v Fulton and others.

It held that non-guaranteed overtime should be included in holiday pay in relation to a worker’s statutory annual leave, being the 20 “Euro” days.

Currently, workers have three months from the incorrect payment to bring a claim. Where the worker has been paid incorrectly over a long period of time, claims could be backdated as long as the worker can demonstrate that they were paid incorrectly and that there was not a break of more than three months between these incorrect payments.

In response, the Government set up a “taskforce” to assess the impact that this ruling would have on employers. These new Regulations form part of the Government response.

When do the Regulations take effect?
The Draft Regulations will come into force on 8 January 2015, but they will only apply to claims presented to the Tribunal on or after 1 July 2015.

Employees therefore have six months in which to bring a claim against employers without a time limit on how far back the claim can go.

The Draft Regulations will also amend the Working Time Regulations 1998 by clarifying that a right to holiday pay is a statutory right and not a right under a worker’s contract.

How will the Regulations change the situation?
In a press release from The Department for Business, Innovation and Skills (BIS), the Government said it considered that the Draft Regulations would “reduce potential costs to employers and give certainty to workers on their rights on holiday pay”.

The Draft Regulations will limit the effect of Bear Scotland on employers from 1 July 2015 and protect UK businesses from potentially large claims for backdated holiday pay from that date.

They also prevent employees from trying to argue that a failure to pay holiday pay correctly is a breach of contract which would allow them to claim in the civil courts where the limitation period is 6 years and the corresponding back payment could potentially stretch further than with a claim in the Employment Tribunal.

How can Ward Hadaway help?
For further guidance on this important issue or on any other aspect of employment law, please do not hesitate to get in touch.