Landmark ruling on overtime is good news for workers in UK

But bad news at Rolls-Royce as it will lay off more than 2,500 employees

It was a day of contrasting fortunes for British workers yesterday. First there was good news in the form of a landmark ruling that overtime should be included in holiday pay, a decision that could benefit some five million people.

However, just hours later, engineering group Rolls-Royce revealed plans to axe 2,600 jobs in its aerospace division, with the threat of more cuts to come.

First, the good news – for employees, at least. The Employment Appeal Tribunal (EAT) ruled that where workers were regularly required to do overtime, calculation of their holiday pay should include those extra hours, rather than be based only on basic pay.

The ruling followed test cases taken by Unite, Britain's largest union, which hailed the tribunal's decision. Howard Beckett of Unite said workers required to do overtime had been penalised for taking the time off they were entitled to and that the ruling "not only secures justice for our members who were shortchanged, but means employers have got to get their house in order".

The ruling is, of course, bad news for employers, who will see wage bills rise significantly. Lobby groups have warned it could cost billions, will lead to jobs losses and may even force some businesses into bankruptcy, although these claims were dismissed as “scaremongering” by the TUC.

The government's position on overtime is that it should not be included in holiday pay, and business secretary Vince Cable is keenly aware of the anger among employers – as soon as the ruling was delivered, he announced that the government was to set up a taskforce to assess its impact and to limit the cost to employers.

It could have been far worse for big business, however. Unions had been hoping the ruling would give workers the right to submit claims stretching back to 1998, when the UK adopted the European Working Time Directive. But backdated claims will be limited to just three months and only the four weeks paid time off required under the directive will be included.

Despite that significant partial victory, employer lobby groups are up in arms. The Institute of Directors said businesses “have had the rug pulled from under them”, warning that implementing the ruling would prove “an administrative nightmare”.

John Cridland, director-general of the Confederation of British Industry described it as "a real body blow" and said the decision must be challenged.

A challenge is very likely, which means the five million workers who regularly work overtime may have a long wait before they can hope to enjoy the same rate of pay on their annual holiday as they receive in a normal working week.

Job cuts at Rolls

At Rolls-Royce, meanwhile, it was (almost) all bad news as the FTSE 100 aerospace and defence engineering group shocked the market with news of a further 2,600 job cuts and the abrupt departure of its finance director.

The cuts, which chief executive John Rishton warned "will not be the last", follow profit warnings from the group in February and October.

The jobs will go over the next year and a half and although the group declined to specify exactly where the axe will fall, unions fear that up to 1,200 posts could be at risk at its operations in Derby and Bristol. Some 24,000 of its 55,000-strong global workforce are based in the UK.

Describing the cuts as “a bitter blow”, unions said the group was in danger of making decisions in the short term that it would regret later,warning that skilled engineers let go will be hard to replace when business improves.

The finance director being let go, Mark Morris, joined the group as a graduate 27 years ago, but looks to be paying the price for the run of bad news this year. His replacement is David Smith, who joined Rolls-Royce earlier this year as finance director of the aerospace division.

Smith said yesterday that Rolls-Royce needed “to accelerate progress on our priorities – customer, concentration, cost and cash – most especially cost”. That is more worrying news for the Rolls-Royce workforce.

But the stock market liked the tough message, marking the shares 1.5 per cent higher yesterday. So for shareholders, who saw more than £2 billion slashed from the group’s stock market value when its shares crashed 11 per cent after the October profits warning, there just a little good news.

Fiona Walsh is business editor of theguardian.com