By Jonathan Davies

Leading business figures and organisations have been reacting to the news that overtime should be taken into account when calculating holiday pay.

Reacting to a far-reaching ruling from the UK Employment Appeal Tribunal (EAT), John Allan, FSB National Chairman said:

“Today’s ruling leaves many questions unanswered. It has the potential to be very damaging to small businesses, presenting a real risk of small firms being forced to close down if faced by retrospective claims.

“Clearly it would be desperately unjust to expect businesses to pay retrospective compensation for how they calculated holiday pay when they where fully compliant with the law as it was understood at the time.

“The FSB has been appointed to a Government taskforce to examine this issue and will be fighting hard for small businesses to be insulated from the uncertainty and legal risks this ruling brings.”

John Cridland, CBI Director-General, said:
“This is a real blow to UK businesses now facing the prospect of punitive costs potentially running into billions of pounds — and not all will survive, which could mean significant job losses.

“These cases are creating major uncertainty for businesses and impacting on investment and resourcing decisions.

“This judgment must be challenged. We need the UK Government to step up its defence of the current UK law, and use its powers to limit any retrospective liability that firms may face.”

Glenn Hayes, an employment law Partner at national law firm Irwin Mitchell, said:

"There was considerable concern that today’s decision could lead to thousands of claims for backdated holiday pay, possibly going back 16 years. This looks to be unlikely because the Employment Appeal Tribunal (EAT) appears to have shut down the argument that employees could back date claims on the basis that they had suffered a series of deductions from their wages when taking holiday albeit there remains some uncertainty as to what denotes a ‘series’ and how this can be broken.

"Basically, it appears that if there is a gap of more than three months in any alleged series of deductions, the EAT loses jurisdiction to hear claims for the earlier deductions. It appears as though the Appeal Tribunal has accepted that including overtime in the holiday pay calculation only relates to 20 days holiday required under the Working Time Directive and not to the additional eight days provided under UK law. This means that employees who took their full entitlement could not claim that they suffered an unbroken series of deductions."

Emma Bartlett, a partner in the employment team at law firm Charles Russell Speechlys LLP, said: "Full details are awaited but this ruling will have a real impact on all employers who pay overtime for staff, as large numbers could potentially be entitled to more holiday pay.

"However, the decision is limited in that it is reported that one aspect of the employers appeal relating to limitation was successful; when determining a series of deductions the EAT accepted that a break of more than three months will limit the ‘series of deductions."

Alex Mizzi, an Associate in the Employment Department at law firm Howard Kennedy LLP said: “John Lewis had to pay out £40 million to staff last year because of the way it had been calculating holiday pay. Other businesses will be relieved not to crippling bills for backdated pay, as well as the administrative headache of trying to calculate what was owed — particularly tricky if the business had changed hands. This issue has been complicating business acquisitions; this case clarifies the law and limits the financial exposure.”

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