Firms must look at their practices after court ruling on holiday pay, writes Amanda Jones
AS THE dust begins to settle on the judgment of the Employment Appeals Tribunal in the holiday pay cases, there is an opportunity for calm reflection on its practical implications.
The dramatic headlines immediately before the decision, warning that many businesses would have to close and employers facing huge payouts, seem to have dissipated. The court must have been acutely aware of the political and economic context of its implications, in that respect, the ruling was somewhat of a judgment of Solomon: half the baby went to the employees in recognising that workers’ holiday pay should be linked to what they were normally paid while at work; the other half went to the employers, who could find solace in aspects which addressed the backdating of claims.
Employers will undoubtedly change their practices in the future to address the issue. For example, should staff regularly work overtime, where they are paid for extra hours, rather than operate a system of time off in lieu? Should enhancements to pay simply be included in the overall pay, if that is what they have in fact become? And what exactly is the purpose of enhancements?
A starting point for every employer should be to conduct an audit of the enhancements to pay, and consider when overtime is worked and by whom – and whether it is actually necessary.
Some employers may create complicated schemes where holidays can only be taken at certain times of the year, when enhancements are not within the reference period for calculating holiday pay. However, complicated schemes can backfire. Is it not better to accept the underlying principle that employees should receive pay while on holiday, which is the same as what they would have received when they were at work, and organise systems based on this principle?
It could take years before the full implications become clear, so employers will have to consider their general approach to this issue. A balanced approach should be taken and now is a good time to have discussions with staff and trade unions.
Employers may consider – like the John Lewis Partnership has – heading off claims by making a payment to staff for potential underpayments. Clearly, if agreement can be reached, employers need to ensure they are protected from future claims for back pay. A compromise at this stage will give certainty to employers about past liability and is worth considering.
Employers may be holding out for the findings of the taskforce, which was swiftly set up by the government. However, it is not clear exactly what the taskforce can do, as it is a group that appears to be constituted without the direct involvement of either employment lawyers or employee representatives. Undoubtedly it has been given a remit of finding ways to limit the impact of the decision and the fallout from future appeals. However, unless there is a referendum in favour of a complete withdrawal from Europe and the obligations to comply with European law are withdrawn, the taskforce must recognise that it does not have the power to overrule the court.
While the earlier headlines may have overestimated the likely impact, it is clear employers will have to give careful thought to their pay and reward systems and policies. Approaching these issues in a positive manner, balancing the interests of business with the underlying principles of the decision, could present an opportunity, rather than be a burden on business.
• Amanda Jones is a partner in the employment, pensions and benefits team at Maclay Murray & Spens LLP
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