Employers warned that landmark legal decision could cost them dearly

A ruling  by the Employment Appeal Tribunal (EAT) is significant and could be potentially financially crippling, employers have been warned, following yesterday’s ground-breaking decision by the EAT to uphold an earlier Employment Tribunal’s decision that both compulsory and voluntary overtime must be included in addition to basic salary for the purposes of calculating a worker’s holiday pay. According to Shivali Chaudhry, an Employment solicitor at law firm Hamlins LLP: “Not only will employers have to increase the amount of holiday pay they pay workers to take into account all overtime, they may also face historic underpayment liabilities going back up to 16 years in respect of some workers.” However, Mike Emmott, Employee Relations Adviser at the CIPD says the ruling still leaves much to be resolved – particularly on the issue of backdating. He said: “The ruling means that employers will have to change how they calculate holiday pay in future to take account of voluntary overtime. However it does seem to have limited the scope for substantive retrospective claims, which was the biggest concern in terms of possible costs for employers.”

Employers groups were critical of the ruling, which John Cridland, CBI Director-General, said was: “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.”

Prior to the ruling, which concerned the calculation of holiday pay in three separate cases, the Director General of the Institute of Directors, Simon Walker said: “The holiday pay timebomb could have a hugely detrimental impact on businesses up and down the country.”

And Mike Emmott warned that employers would now “face considerable ongoing uncertainty because the judgement is likely to be appealed, which is not good for business or jobs.”