A ruling that employees should receive extra holiday pay for working overtime has been condemned by businesses, who claim it will cost them billions of pounds.
The Government has sided with company executives and set up a taskforce to assess the impact of the landmark ruling, one that has paved the way for payouts worth thousands of pounds to workers.
A decision by the Employment Appeal Tribunal overturns the previous system whereby companies only had to count basic pay when calculating wages for annual leave.
The business lobby expressed dismay at the decision, with the CBI’s director general John Cridland declaring: “This is a real blow to UK businesses now facing the prospect of punitive costs possibly running into billions of pounds – not all will survive, which could mean significant job losses.”
But the Unite union, which brought the case, described such responses as “hysterical”, saying far fewer people would be affected than business groups had claimed. Some suggested companies faced making extra payments to five million workers – a figure dismissed by the union.
The Business Secretary, Vince Cable, declared he was setting up a “taskforce” to assess the impact of the ruling. Notably, the panel only included major business groups lobbying against the rule change, like the CBI, Institute of Directors and Federation of Small Businesses .
“Government will review the judgment in detail as a matter of urgency,” Mr Cable declared.
Unite dismissed this panel as “ludicrous”, with a spokesman saying: “It is just full of the business lobby who have been whipping this judgment up into a storm to meet their own ends. Sadly Vince Cable has fallen for it.”
The union brought the case on behalf of 16 people working at a Nottingham steel plant. The employees were obliged by the contractors Amec and Hertel to work overtime as part of the job. Their basic-plus-overtime pay level was therefore “normal”, yet was not paid during leave.
The union’s legal director Howard Beckett said: “In this case our members were continually obliged to work overtime, it was contractual. Yet they were not paid the same during their holiday periods. Most right-minded people will think that’s reasonable.”
Mr Cridland, however, declared the reverse was true, urging: “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.”
In reality, however, the tribunal specifically ruled out holiday pay claims from previous years. This, lawyers said, meant that the ruling was actually far better than businesses had feared.
Ed Goodwyn, an employment lawyer, said: “The ruling is certainly positive for employers because there will be little immediate prospect for back pay claims going back years.”
Time is money what the judgment means
How much extra will I be paid?
It depends how much overtime you regularly do. Payments will be based on average total wages, in the same way employers calculate the average pay of their workers to ensure they comply with the minimum wage rules.
It doesn’t actually state in my contract that I must do overtime, but in reality I always have to or I can’t get the work finished. Does that rule me out of this extra money?
Technically, yes. Yesterday’s judgment was about groups of workers whose overtime was stipulated in their contracts, yet who were not paid for those extra hours when it came to holidays. Regular “voluntary” overtime is not covered, and may have to be tested in future tribunals. But the trade unions say it is clear that the spirit of the court judgment is that employees deserve to be paid for the regular hours they worked.
Can I claim for all the years my employer has underpaid me?
The way the judgment was worded limits the likelihood of backdated pay claims being allowed. But it allows for any money that should have been paid in the past three months.
So how do I claim for my August holiday?
Consult a lawyer or the Citizens Advice Bureau.