A landmark ruling this morning that overtime should be included in holiday pay could open the floodgate for claims but cripple thousands of firms
Up to five million workers have won a big boost to holiday pay thanks to a landmark ruling yesterday.
Companies will now have to include not only basic salaries but also overtime when calculating holiday pay, a court has decided.
Unions have hailed the decision as a victory for workers’ rights. But business groups are warning it will cost industry billions and drive some small firms to the wall.
The ground-breaking case at the Employment Appeal Tribunal ruled workers doing voluntary overtime will be able to make claims backdated three months.
But lawyers say some staff may be due holiday pay compensation from when the European Working Time Regulations came into force in 1998.
The Government estimates about five million workers get paid overtime but the number of people entitled to compensation is likely to be limited.
And if the ruling is referred to the Court of Appeal, a final decision may be years away.
Business Secretary Vince Cable immediately ordered a review to determine what impact the ruling would have.
The tribunal ruled on two cases, one involving electricians, scaffolders and semi-skilled operatives who worked on a project at the West Burton power station site in Nottinghamshire.
Howard Beckett, of the union Unite, which represented the workers, said: “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.”
TUC General Secretary Frances O’Grady said: “Failing to count overtime when calculating holiday pay is quite simply wrong.
“This ruling marks a victory for people who work long and hard to make a living, and who deserve to be properly paid when they take their well-earned leave.”
But CBI director general John Cridland 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. 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.”
Institute of Directors’ Allie Renison said: “Overtime has never been included in holiday pay before and many companies are rightly worried about the administrative nightmare this judgement creates.
"The extra complexity will be hard for small firms in particular to handle.
“There is some consolation that backdated claims may be limited to three months, but it’s not clear how watertight this limitation is.
"Overall, it will increase costs for businesses.”
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