Forthcoming cases – some general observations on holiday pay cases

The calculation of holiday pay, questions about whether commission and overtime payments ought to be included, as well as how you calculate pay for atypical workers, has long vexed the UK courts and continues to do so. Such issues can rumble on many years after a case first sets the hare running. Holiday pay cases tend to have a huge impact on business because although the sums involved for each individual are often small, it is a problem of scale, affecting the whole workforce and pay bill.

The Bear Scotland litigation had the potential to expose employers to claims for backdated holiday pay going back several years, until the interpretation of when a series of deductions is broken in the EAT Bear Scotland case put a significant brake on that, along with legislation introduced by the Government which limited claims to two years' worth of deductions.

This year the question of whether Bear Scotland was rightly decided is back again, thanks to the Northern Ireland case of Agnew (see below). So too is the issue of whether voluntary overtime ought to be included in holiday pay (Flowers), with the Supreme Court hearing an appeal in June. In addition, the Brazel appeal will clarify how holiday pay should be calculated for term time or part year workers, the current position being that a broad brush calculation (based on a pro rata concept) is not acceptable.

Up until now, EU case law has driven the many complex developments in case law on holiday pay. But post-Brexit, could this be one area where we see the beginnings of divergence? Could we even see the government legislating in this area in due course, to simplify the rules going forward?

Agnew (series of deductions)

Background to appeal

In 2019, the Northern Ireland Court of Appeal in Chief Constable of the Police Service of NI and others v Agnew held that the EAT's analysis of what amounts to a series of unlawful deductions in Bear Scotland was incorrect and had resulted in 'arbitrary and unfair' results. It said that a series of deductions is not broken by lawful payments, or by a gap in payments of three months or more.

This meant that over 3,300 police officers and staff could recover around £40 million in underpaid holiday.

Decisions of the NI Court of Appeal are not binding in England, Wales or Scotland. However, the employers have appealed to the UK Supreme Court and the hearing will take place on 23–24 June 2021. Its decision will be binding on all UK employers so could have far-reaching consequences.

Significance of appeal

Most employers have been able to rely on the EAT's judgment in Bear Scotland to limit their holiday pay liabilities to a worker's current holiday year. If the Supreme Court agrees with the NI Court of Appeal, workers will be able to recover underpayments going back up to two years in England, Wales and Scotland.

Flowers (voluntary overtime)

In Flowers and others v East of England Ambulance Trust, thee Court of Appeal decided that holiday pay must include regular voluntary overtime. The Supreme Court will hear the employer’s appeal against this decision on 22 June 2021.

Brazel (calculation for part year workers)

Background to appeal

In Brazel v The Harpur Trust, the Court of Appeal decided that a teacher engaged on a term time only contract was entitled to 5.6 weeks holiday per year, even though she did not work for the whole year. This was the minimum requirement and it could not be pro-rated to reflect the number of weeks she actually worked. Nor could the employer apply a commonly relied on 12.07% 'formula' for working out her holiday entitlement. The employers have appealed to the Supreme Court and the hearing will take place on 9 November 2021.

Significance of appeal

Many organisations engage individuals on term-time or other part year contracts and have pro-rated their holiday entitlement to reflect the number of weeks actually worked and have historically underpaid staff. If the Supreme Court agrees with the analysis of the Court of Appeal, employers may face claims from such workers for underpaid holiday and will have to regularise the position going forward.

Cases awaiting judgement

National minimum wage (Mencap)

Background to appeal

In Royal Mencap Society v Tomlinson Blake the Court of Appeal found that care workers who were merely available for work (rather than awake for the purposes of carrying out work) during sleep-in shifts were not entitled to the national minimum wage during such periods The Supreme Court heard the employee’s appeal against this decision in February 2020 and judgement is still awaited.

In Mencap v Tomlinson-Blake, the Court of Appeal said that under the National Minimum Wage Regulations, workers are either available for work or actually working. Those who provide sleep in cover are only available for work and, therefore, only have to be paid at appropriate NMW rates if they have to get up during the night to help a patient or do some other work. They don't have to be paid at NMW rates when they are in bed or resting.

Significance of appeal

Organisations on very tight budgets (such as care homes) welcomed the clarity provided by the Court of Appeal. If the Supreme Court reverses this decision, many will be exposed to claims they have underpaid staff.

Individuals who are not paid the correct NMW for the hours worked can recover up to six years underpayments. More significantly, HMRC can impose huge fines on employers who have breached the NMW of up to £20,000 for each underpaid worker.

Equal pay (Asda)

In Asda v Brierley the Court of Appeal found that female workers in Asda’s retail stores could compare themselves with men working in separate distribution depots for the purposes of equal pay claims as they were in "comparative" employment. This decision meant that the case could move to the next stage to assess whether the work of the two groups was of equal value. However, in the meantime Asda has appealed the Court of Appeal’s decision and we are now awaiting the Supreme Court’s decision on Asda’s appeal which took place in July 2020.

Employment status and gig economy (Uber)

Background to appeal

Judgment is still awaited in the Supreme Court case of Uber BV and others v Aslam and others, heard in July 2020. The majority of the judges in the Court of Appeal decided that Uber drivers were workers for the purposes of holiday pay and the national minimum wage. One of the Court of Appeal judges, Underhill LJ, disagreed. It remains to be seen whether the Supreme Court will agree with the majority of judges in the Court of Appeal (and uphold the judgement), or whether it will agree with Underhill LJ (and overturn the Court of Appeal).

Uber has consistently argued that it is a technology platform (not a taxi service) which puts drivers in touch with passengers. It operates on the basis that its drivers are self-employed and are free to accept or reject work. This model of gig working is extremely tax efficient for the employer as it reduces employee NI and PAYE deductions and VAT.

Significance of appeal

It has always been difficult to correctly determine the employment status of some individuals, particularly those engaged under self employed contracts, or who work on a casual basis. The law has been interpreted in numerous cases, but the courts have not been able to devise a single test that will conclusively point to the distinction in all cases.

Although this case will not provide a single test, it will provide authoritative guidance that other companies operating 'gig' arrangements will be able to apply to determine whether their self employed contractors are workers and entitled to some employment rights.