Tribunal cases on holiday pay could put firms out of business

Holiday pay in the UK is currently calculated on the basis of a “week’s pay” – based on basic salary and excluding payments such as working allowances, expenses, overtime, commission and bonus payments, all of which refer to specific work done by someone while performing their duties.

A recent European Court of Justice (ECJ) judgment redefined holiday pay to include an allowance for commission, despite the fact that commission is paid on sales made and the employee would not have delivered those sales while on holiday.

If liabilities on holiday pay are backdated, individual firms may face bills of tens of millions of pounds. Some medium-sized businesses have told the CBI that backdated claims could push their otherwise profitable businesses into insolvency, resulting in significant job losses.

Katja Hall, CBI Deputy Director-General, said: “Backdated claims on holiday pay could lead to bills of millions of pounds for each business, and ultimately threaten their very existence.

“Businesses that have done the right thing and fully complied with UK law suddenly face the threat of substantial additional costs. And the companies most at risk are in vital sectors for our economy, such as manufacturing, construction and civil engineering.

“Moving the legal goalposts in this way is unacceptable. Although most businesses believe we are better off in a reformed EU, there is a real danger of expansive decisions being made by the European Court of Justice on the UK labour market. As part of an EU reform programme, this has to be addressed and it’s time to put a stop to back-door EU employment law being made.

“We need the UK Government to take a strong stand and do all it can to remove this threat. Otherwise we face the very real prospect of successful firms in this country going out of business, with the jobs they provide going too.”

Owen Pugh Group, a medium-sized business based in Northumberland and operating in the civil engineering contracting industry, is one company that could be under threat.