Case Update (1): Holiday Pay and Voluntary Overtime

holiday pay

What do we already know?

We updated you in our July 2018 Newsletter Case update (1): Holiday pay and voluntary overtime on the EAT’s decision in Flowers v East of England Ambulance Trust that non-guaranteed and voluntary overtime pay, paid over a sufficient period of time, should be included in calculating holiday pay under contractual terms and/or the Working Time Directive (WTD).

The employer appealed to the Court of Appeal.

What’s new?

The Court of Appeal upheld the EAT’s decision that voluntary overtime pay which is regular and settled should be taken into account when calculating holiday pay.  This is the case both under the employer’s contractual terms in this case and under the Working Time Directive.

Summary:  Should voluntary overtime, which is sufficiently regular and settled, be taken into account when calculating holiday pay?

Yes, says the Court of Appeal in Flowers v East of England Ambulance Trust available here.

Facts:  The employees were all employed by the East of England Ambulance Trust (‘the Trust’) in a range of roles concerned with the provision of ambulance services. The issue was whether their holiday pay should take account of overtime falling within two categories: ‘non-guaranteed overtime’ and ‘wholly voluntary overtime’. Although mandatory, ‘non-guaranteed overtime’ was irregular. Voluntary overtime was genuinely voluntary (i.e. the ambulance crew were free to choose whether or not to do it).

The employees brought claims in the Tribunal for unlawful deductions for wages, alleging that they had been underpaid holiday pay. They argued: (1) a right under the EU’s Working Time Directive (WTD) to be paid “normal remuneration” (as a public body the Trust could rely on the WTD rather than the UK’s Working Time Regulations) and (2) a contractual entitlement under their terms and conditions.

Tribunal decision

The Tribunal held that the employees’ contracts and the WTD entitled the employees to have their non-guaranteed overtime taken into account when calculating holiday pay, but not their voluntary overtime.  The employees appealed the decision.

EAT decision

In respect of point (1) – the WTD – the EAT referred to its decision in Dudley Metropolitan Borough Council v Willetts. The EAT had decided in this case that payments for voluntary overtime fell within the concept of “normal remuneration” where such overtime was carried out over a sufficient period of time on a regular and/or recurring basis to justify the description “normal”.

The EAT held that the correct interpretation of CJEU case law had been set out in the Dudley decision and referred the claims back to the Tribunal for an assessment of whether the wholly voluntary overtime of each of the employees had a pattern that was “sufficiently regular and settled” to be taken into account in the calculation of “normal remuneration”.

In respect of point (2), the contractual claim, the EAT found that the employees’ contracts did include the right to holiday pay which took into account both types of overtime.

The Trust appealed to the Court of Appeal.

Court of Appeal decision

The Court of Appeal upheld the employees’ contractual claims (point (2)) succeeded and found that they did have an entitlement under their terms and conditions to have voluntary overtime taken into account for the purposes of calculating holiday pay.

Nevertheless, the Court of Appeal went on to consider the WTD claim (point (1))  because “Employers need to know whether the decision in Dudley Metropolitan Borough Council v Willetts was correct.”

The Court of Appeal found that the decision in Dudley was correct and:

  • confirmed that voluntary overtime should be included in holiday pay if the pattern of work is ‘sufficiently regular and settled’ for payments made in respect of it to amount to ‘normal remuneration’.
  • rejected the argument (made following comments in a 2018 CJEU case called Hein v Albert Holzkamm GmbH) that for overtime pay to be included in the calculation of holiday pay the worker had to be required by their contract to work it (thereby excluding voluntary overtime).
  • noted that the exclusion of voluntary overtime from the calculation of holiday pay would carry the risk of encouraging employers to set artificially low levels of basic contractual hours and to categorise the remaining working time as overtime (referring to zero hours contracts).
  • noted that excluding regular voluntary overtime could create a financial disincentive to taking annual leave, contrary to the purpose of the WTD.

Implications:  The Court of Appeal has confirmed that voluntary overtime should be included in holiday pay calculations where it is sufficiently ‘regular and settled’ for payments made in respect of it to amount to ‘normal remuneration’. What this means in practice will be for Tribunals to decide on a case-by-case basis, based on the individual facts.

Drawing the line between regular and irregular overtime will not always be straightforward. Arrangements may not fall neatly into one category or the other, and may not be consistent throughout the year, or between different teams or individuals within the same team.