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Archive for June, 2015

Holiday pay – where are we now?

24/06/2015 | Andrea London
Entitlement to holiday pay Article 7 of the EU Working Time Directive 2003/88/EC (the “WTD”) states that: “Member States shall take the measures necessary to ensure that every worker is e

Entitlement to holiday pay

Article 7 of the EU Working Time Directive 2003/88/EC (the “WTD”) states that:

“Member States shall take the measures necessary to ensure that every worker is entitled to paid annual leave of at least four weeks…” (Basic Annual Leave)

Domestically, the Working Time Regulations 1998 (the “WTR”) and the Employment Rights Act 1996 (the “ERA”) seek to give effect to this requirement.  However, recent case law has called into question the method of calculating holiday pay under the ERA and the elements that should be included when calculating an employee’s holiday pay for the purposes of their Basic Annual Leave (the basic 4 week entitlement required by the WTD, and not the additional 1.6 weeks provided for by the WTR which is over and above that required under the WTD).

Recent case law has held that when calculating holiday pay during Basic Annual Leave, it should equate to the employee’s “normal remuneration”.  The key question is therefore what elements should be included within this, apart from basic salary?

1)     Obligation to pay commission

In Lock and Ors v British Gas Trading Limited ET/1900503/12 (“Lock”), the ECJ held that where a worker’s “normal remuneration” includes commission, that commission should be taken into account when calculating their holiday pay during Basic Annual Leave. The ECJ’s rationale was that an employee who is paid less during their holidays will suffer a disadvantage in exercising their right to take annual leave, since they would receive less money than if they had worked. It was stated that the calculation of holiday pay should therefore include the average commission earned during a “reference period which is considered representative”.

What is an appropriate “representative” reference period when calculating holiday pay for Basic Annual Leave?

It was suggested in Lock that to comply with the WTD, the reference period must be “representative”.  Consequently, it is now unclear whether the 12-week period which has been used in the ERA is appropriate.  Whilst it should be noted that the Advocate General in Lock suggested a reference period of 12 months, the ECJ decided that this was a matter to be decided by domestic courts. Employers must therefore be cautious to ensure that the time period is representative of the employee’s working conditions, particularly where these vary significantly from week to week or month to month.

2)     Obligation to include overtime and other payments

The later case of Bear Scotland Ltd & Ors v Fulton & Ors [2014] UKEAT(“Bear”) considered the inclusion of overtime and travel allowances in the calculation of holiday pay during Basic Annual Leave.

Compulsory overtime?

The EAT held that, there must be an intrinsic or direct link between the payment being claimed as holiday pay and the work the employee is required to carry out.

Therefore, where an employee is required (it is compulsory) to work overtime, it should be included in the calculation of holiday pay.  The overtime should however be worked regularly over a “sufficient period” so as to be included in the employee’s “normal remuneration”. The obligation to include overtime when assessing pay during Basic Annual Leave will therefore vary in respect of each individual employee and is likely to be decided on a case by case basis.

Voluntary overtime?

The tribunal in Bear left the issue in relation to voluntary overtime open as the question did not fall within its facts. Employers should not, however, assume that voluntary overtime will definitely be excluded when calculating holiday pay during Basic Annual Leave.  It is likely that uncertainty will remain in this area until it is dealt with in future cases.

Travel allowances?

It was decided by the EAT in Bear that travel allowances based on notional travel time (referred to in the case as a “Travelling Time Payment”) and distance travelled from home to work (referred to as a “Radius Allowance”) should be included within the remit of “normal remuneration”. It was stated that “HMRC treated some of the payment as a reimbursement of travelling costs, but the balance as taxable remuneration”. The taxable element formed part of the workers’ “normal remuneration” and should have been included in their holiday pay for Basic Annual Leave.

Productivity / performance based bonuses?

In Wood and others v Hertel (UK) Ltd and another ET/2603803/12 it was decided that productivity and performance bonuses (whether dependent on a group of employees or an individual) were intrinsically linked to the tasks of the employee and “the link is not made materially less intrinsic by the fact that part of it might, on occasion be withheld because of the conduct of others in the group”. Such bonuses will therefore form part of an employee’s “normal remuneration” and should be included in pay during Basic Annual Leave.

Discretionary bonuses?

Unfortunately, whether discretionary bonuses form part of an employee’s “normal remuneration” remains a grey area and will be left for the courts to decide in the future.

Limitation – how far back can underpayment claims go?

Employees can bring claims under the WTR and the ERA in relation to holiday payments owed.  Any claim under the WTR must be brought within three months of the specific underpayment, whereas a claim under the deduction from wages provisions of the ERA can be brought within three months of the last in a series of deductions.

Until recently there was concern that when claimed as a series of deductions, liability for underpaid holiday could therefore stretch back several years.  However, the recent implementation of the Deduction from Wages (Limitation) Regulations 2014 (“DFW”) means that claims for holiday pay brought (under the ERA) after 1 July 2015 will have a backstop date of two years.  Whilst claims brought before 1 July 2015 are not subject to any backstop date, employers can draw further comfort from the EAT’s decision in Bear, which confirmed that a gap of three months in an alleged series of underpaid holidays will “break the chain” and therefore limit such claims.

Can employees also bring a claim for breach of contract?

The DFW confirmed that regulation 16 of the WTR does not give employees a contractual right to paid leave. This amendment took effect from 8 January 2015 and was aimed at preventing employees from circumventing the DFW and the WTR by bringing a claim for breach of contract.

In view of this, employers should check the provisions and contractual rights contained within their employees’ contracts to assess whether they create an express or implied contractual right to have non-guaranteed overtime, commission and/or travel allowances included in holiday pay (giving employees six years in which to bring a claim).

Conclusion

It is important to emphasise again that case law only really affects the calculation of holiday pay during Basic Annual Leave.  The additional 1.6 weeks’ of leave provided by the WTR and/or any contractual entitlement to holiday over and above the Basic Annual Leave entitlement need not be paid on the basis of the additional elements noted above and can, if the contract of employment states, be paid on the basis of “basic salary” only.

Further, whilst recent case law and statutory amendments have brought some guidance, uncertainty remains about the extent to which certain payments such as voluntary overtime and discretionary bonuses should be included in holiday pay.  There is also uncertainty about the reference period over which holiday pay should be calculated.  Employers should seek legal advice if concerned.

This article should not be taken as definitive legal advice on any of the subjects covered. If you do require legal advice in relation to any of the above, please contact Andrea London of these offices on 020 7955 1433 or by e-mail at andreal@rosenblatt-law.co.uk 

Disclosure of Control of UK Companies

04/06/2015 | Nick Foss-Pedersen
The last Government first trailed its intention to create a central register of information about beneficial ownership and control of UK companies as part of its “Transparency & Trust” reform

The last Government first trailed its intention to create a central register of information about beneficial ownership and control of UK companies as part of its “Transparency & Trust” reforms announced at the UK hosted G8 summit in June 2013.  This was the opening shot in its campaign to increase trust in UK business, and tackling tax evasion, money laundering and terrorist financing, through, amongst other things, enhanced transparency of company ownership and control.

The proposals have now taken shape and the parts of the implementing legislation (The Small Business, Enterprise and Employment Act 2015) relating to companies’ obligation to create and maintain a register of “people with significant control” (PSC) will come into effect on 1 January 2016.

Obligation to Keep a PSC Register

From 1 January 2016 most UK-incorporated companies will be required to keep a register of PSCs.  PSCs are individuals who (alone or as a joint holder of the share or right in question):

  1. hold, directly or indirectly, more than 25% of the shares or voting rights in the company; or
  2. hold the right, directly or indirectly, to appoint or remove a majority of the board of directors of the company; or
  3. have the right to exercise, or actually exercise, significant influence or control over the company; or
  4. have the right to exercise, or actually exercise, in relation to the trustees of a trust or the members of a firm that is not a legal person who meet one or more of the above conditions in their capacity as such (or would do if they were individuals), significant influence or control over the activities of that trust or firm.

The legislation requires the Department for Business, Innovation and Skills (BIS) to publish guidance on the meaning of “significant influence or control” and it is due to do so in October 2015.

As with registers of members, companies must keep the PSC register open for inspection by the public and, from April 2016, must file the information contained in the PSC register at Companies House.

Companies that are subject to the voting rights disclosure requirements in Chapter 5 of the FCA’s Disclosure Rules and Transparency Rules sourcebook (DTR), such as those admitted to trading on the London Stock Exchange’s Main Market or AIM Market, are not required to keep a PSC register.

Where a company that is required to keep a PSC register or is subject to Chapter 5 of the DTR has significant control over a company, the controlled company (such as a subsidiary) need only identify the immediate controlling company or legal entity rather than the ultimate individual PSC.

Information to be Included in the PSC Register

The PSC register must contain each PSC’s name, service address, country or state of usual residence, nationality, date of birth, usual residential address, the nature of his significant control and the date it was obtained, but a PSC’s particulars must not be included in the register unless they have been provided or confirmed to the company by the individual or with the individual’s knowledge.

A PSC’s usual residential address and the fact that his service address is his usual residential address will be excluded from the information made available for inspection by the company and the public register at Companies House.

BIS may make regulations allowing the suppression of information on the PSC register from public disclosure in certain circumstances.  It has announced that it is minded to limit those able to apply for protection to individuals at serious risk of violence or intimidation arising from the company’s activities.

Obligation to Gather and Provide PSC Information

Companies are under certain information gathering duties in relation to their PSCs.  They must, for example:

  1. take reasonable steps to find out whether there are persons who should be included in their PSC register and, if so, identify them
  2. serve notices on anyone they know or have reasonable cause to believe is a PSC, or knows the identity of a PSC, requiring confirmation by the person and the provision of the particulars to be recorded in the PSC register
  3. require confirmation from PSCs if they know or have reasonable cause to believe that the PSC has ceased to be a PSC or his particulars recorded in the PSC register have changed

Persons who know or ought reasonably to know that they are PSCs in relation to a company must identify themselves to the company and provide the necessary particulars of their interest and any changes in their particulars.

Sanctions

The company and every officer in default commit a criminal offence if the company fails to comply with its various duties in relation to the PSC register, including its information gathering duties (punishable by a fine or, in relation to the information gathering duties, imprisonment).

Persons who fail to comply with their notification obligations or a company’s requests for information commit a criminal offence (punishable by a fine or imprisonment).  In addition, and perhaps of more interest to companies, such failure allows companies to disenfranchise the shares held by the relevant person (without a court order) and to apply to the court for an order that the shares be sold or transferred.

Next Steps

BIS has established a working group to oversee the development of guidance required to support the implementation of the PSC register.  In particular, it must publish statutory guidance on what is meant by “significant influence or control” in the context of the PSC register and anticipates doing so in October 2015.

Companies will need to develop and put in place internal processes and procedures necessary for them to create and maintain their PSC registers.  As there will be little time available between the publication of guidance on the meaning of the “significant influence or control” limb of the definition of a PSC and the obligations in relation to PSC registers coming into effect on 1 January 2016, it makes sense for companies to start reviewing corporate structures and identifying so far as possible potential PSCs now, and for potential PSCs to consider the UK-incorporated companies in relation to which they may be PSCs.

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