The European Court of Justice (ECJ) is forcing Britain’s small and medium-sized enterprises to face the prospect of a multi-billion pound bill for back-dated holiday pay which could send many companies out of business.
EEF, a manufacturers’ organisation, is warning that the government must introduce emergency legislation following a series of ECJ rulings which will allow workers to claim for holiday pay and overtime as far back as 1998, the year the EU’s Working Time Directive came into force.
The rulings are all related to the British interpretation of the directive which granted every worker four weeks’ paid leave, with UK law increasingly out of step with that of Europe.
“This is potentially catastrophic for companies who have been fully compliant with UK law, yet now find themselves in a position which they could not have foreseen,” a spokesman for the organisation said. He urged the government to bring forward legislation limiting the backdated liability companies will face.
According to EEF calculations, an average cost for a company with a turnover of £30m will be a £2.5m bill for holiday back-pay, as well as potential National Insurance and pension contributions which could add an extra £250,000 to the bill.
Over a four year period SME companies could face potential costs of £4m. The EEF estimates that complying with the ruling from now on is likely to add an extra 4 per cent to a company payroll.
This follows a related ECJ employment law decision which ruled that workers who earn commission pay are entitled to receive commissions even while on holiday.
The Wall Street Journal summed up the judgment: “Taking vacations and receiving ‘normal’ pay on vacations are ‘rights’ protected by European law, the court reasoned.
“Therefore, depriving workers in Mr. Lock’s [the plaintiff’s] situation of commission pay during holidays discourages them from exercising their sacred right to relax on a beach. Never mind that the purpose of commission pay is to create an incentive for competitive behaviour and going the extra mile.”
The court failed to specify how commissions on non-existent sales should be calculated, leaving the door open to further litigation by employees against companies, another EU-blow to British SMEs.