Thousands of workers entitled to overtime windfall

Hundreds of thousands of workers could be entitled to payouts linked to overtime following a court ruling. Picture: Getty

The Employment Appeal Tribunal decision could lead to claims by any private and public sector employees who work extra hours.

Legal experts likened the decision to the payment protection insurance (PPI) mis-selling scandal in its potential to generate demands for compensation, leading the Federation of Small Businesses to warn that up to 30,000 Scottish firms could be forced to cut jobs or close sites to meet the costs.

The tribunal yesterday ruled on cases involving road maintenance firm Bear Scotland, as well as engineering firms Amec and Hertel. It said payments for overtime were part of “normal remuneration” and should be included in the calculation of pay for holiday leave. Unions welcomed the ruling but the CBI said it was a “real blow” for business.

Last night, Prime Minister David Cameron’s official spokesman said the UK government had “concerns in regard to the potential cost to businesses” of the ruling and announced that a taskforce has been set up to assess its impact.

But Howard Beckett, of the Unite union, said: “Up until now some workers who are required to do overtime have been penalised for taking the time off they are entitled to.

“This ruling not only secures justice for our members who were short-changed, but means employers have got to get their house in order.

“Employers will now have to include overtime in calculating holiday pay, and those that don’t should be under no illusion that Unite will fight to ensure our members receive their full entitlement.”

However, CBI director-general John Cridland said the costs involved would be “punitive”. He added: “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.”

Andy Willox, Scottish policy convener for the Federation of Small Businesses, added: “[This] ruling leaves questions unanswered for small firms across the length and breadth of Scotland.

“It has the potential to hurt thousands of Scottish businesses, presenting a real risk of closures and job losses if they face large retrospective claims.

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

The tribunal ruled workers can make backdated claims, but only for a limited period.

However, the ruling is expected to be referred to the Court of Appeal, meaning a final decision could be years away.

The tribunal’s ruling included the rejection of an appeal from Bear Scotland, which maintains large sections of Scotland’s trunk road network, after it was found to have made unauthorised deductions for wages of two employees, David Fulton and Douglas Baxter, by failing to include overtime and other payments associated with their work in calculating the holiday pay due to them. The firm said it was “disappointed” by the decision and would reflect on its position before responding.

Diane Nicol, head of employment law at legal firm Pinsent Masons, said the ruling had the potential to generate the level of claims associated with the PPI scandal.

“That says something about the scale of this issue – although a more direct comparison might be the equal pay claims which have rumbled on in the public sector for years and have cost the public sector millions,” she said. “There will also be significant complicating factors relating to pensions and benefits.

“HR directors have been aware of this problem for some time but have not always been able to get the necessary traction with their boards that this is a material risk. This decision changes that.”

She said the ruling could further dampen prospects of pay rises, with some employers also restricting other financial allowances for workers as a result.

Amanda Jones, a partner in the employment pensions and benefits team at Maclay Murray & Spens, said it was time for all employers to review their policies on how leave is approved and pay calculated.

She said: “The issue is, how far back can employees claim holiday pay? Should any claims be subject to the usual three-month deadline? Is it possible to claim that all holiday pay going back until 1998, when the Working Time Regulations were introduced, should be recalculated or can employees bring a claim of breach of contract that could result in claims going back five years?

“Here the judgment leaves us waiting for more.”

A Scottish Government spokesman said: “Employment law is a reserved matter, and we will liaise with the UK government. We recognise that the decision may be open to appeal.”

Business Secretary Vince Cable said an expert panel had been set up to review the judgment as a “matter of urgency”.

He said: “To properly understand the financial exposure employers face, we have set up a taskforce of representatives from government and business to discuss how we can limit the impact on business. The group will convene shortly to discuss the judgment.

“Employers and workers can also contact the Acas helpline for free and confidential advice.”