ECJ holiday pay ruling could cost SMEs millions, claims CBI

CBI urges government to protect UK businesses from 'unacceptable' ECJ ruling on holiday pay

ECJ holiday pay ruling could cost SMEs millions

Here at Elite Business we love all things European. From a delicious pain au chocolat for breakfast to flat-packed furniture and yes, even the Eurovision song contest. However, putting all the culinary delights and bearded Austrians to one side, a recent European Court of Justice (ECJ) judgement could see many of our beloved small businesses facing huge backdated holiday payment claims.

At present, holiday pay in the UK excludes all working allowances, expenses, overtime, commission and bonus payments. But the ECJ’s recent ruling in the Lock v British Gas Trading case stated that holiday pay should include commission if it is related to the number of sales made while at work. This ultimately means that companies will have to pay employees commission on sales that were never made. With proceedings underway on cases of commission and overtime, businesses have an uncertain wait to see how the UK courts interpret the ECJ’s ruling. The most troubling concern, apart from the potential issue of backdated tax and pension contributions, is that employers could face retrospective claims possibly dating back to 1998.

“Backdated claims on holiday pay could lead to bills of millions of pounds for each business, and ultimately threaten their very existence,” said Katja Hall, deputy director-general at the Confederation of British Industry (CBI). 

“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.”

Manufacturing, construction and civil engineering sectors are the most at risk while the long-term effects of these changes could include a reduced ability to deliver major infrastructure projects, loss of overtime for staff and a negative image for the UK as a place to invest. 

If the government is to maintain its relative popularity among the business community of late, strong action on this potentially crippling piece of legislation seems vital. 

James Dyble
James Dyble

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