Case update (1): Holiday pay and voluntary overtime

holiday pay

What do we already know?

We updated you in our August 2017 Newsletter Case update (3): Holiday pay and voluntary overtime on the EAT’s decision in Dudley Metropolitan Borough Council v Willetts and Others.  It was decided in this case that payments for voluntary overtime that is normally worked must be included when calculating holiday pay for the first four weeks of holiday provided by EU law and the Working Time Regulations.

What’s new?

Summary:  Should non-guaranteed and voluntary overtime pay be included in calculating holiday pay under contractual terms and/or the Working Time Directive (WTD)?

Yes, under the WTD, says the EAT in Flowers v East of England Ambulance Trust, available here, if it’s paid over a sufficient period of time.  Yes, under the applicable NHS Agenda for Change terms and conditions.

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’. The non-guaranteed overtime was also known as ‘shift overrun payments’ which related to times when there was a requirement to continue working so that patient care was not compromised. Although mandatory, ‘non-guaranteed overtime’ was irregular. Voluntary overtime was genuinely voluntary and was also irregular.

The employees’ contracts of employment provided that pay during annual leave would “include regularly paid supplements, including… payments for work outside normal hours…” and that pay would be calculated “on the basis of what the individual would have received had he/she been at work. This would be based on the previous three months at work or any other reference period that may be locally agreed“.

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 Working Time Directive (WTD) to be paid “normal remuneration” (as a public body the Trust could rely on the WTD rather than WTR) and (2) a contractual entitlement under their terms and conditions.

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 that their voluntary overtime pay should not be taken into account.  The Trust cross-appealed the decision that the employees’ contracts allowed non-guaranteed overtime to be taken into account.

In respect of point (1), the EAT referred to its decision in Dudley Metropolitan Borough Council v Willetts (see above). 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 Trust argued that the EAT in Dudley had wrongly interpreted European Court of Justice case law and accordingly the decision should not be followed.  The Trust also argued that, in any event, the present case could be distinguished from Dudley on its facts.

The EAT did not accept either of the Trust’s arguments. The EAT referred these 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 Trust argued that, under the contract, components of holiday pay were basic pay and regularly paid supplements.  As overtime was not a “supplement” and was not “regularly paid“, neither ‘non-guaranteed overtime’ nor ‘wholly voluntary overtime’ fell within the contractual provision. However, the EAT found no basis to distinguish between the two types of overtime payments. The purpose of the clause was to calculate holiday pay on the basis of what the employee would have been paid if at work and held that both ‘non-guaranteed’ and ‘wholly voluntary overtime’ fell within the category of “pay”. As such, holiday pay should include payments in respect of both types of overtime in the previous three month period or other locally agreed reference period in accordance with the terms of the employees’ contracts of employment.

The question will go back to the Tribunal for an assessment of whether the overtime of each of the employees was actually “regularly paid” within the meaning of that contract clause.

Implications:  This case is a useful clarification that for WTD holiday (i.e. four weeks per year):

  • Guaranteed overtime should always be included in calculations.
  • Non-guaranteed overtime, which is compulsory when offered, should also always be included.
  • Purely voluntary overtime, where there is no obligation to offer it and no obligation to do it if offered, should be included if it is paid over a sufficient period of time on a regular and/or recurring basis, so as to qualify as ‘normal’ remuneration.

The findings in respect of the contractual claim have wider implications as they are not limited to WTD holiday and will apply to all holiday entitlement under the employees’ contracts (and to all employees employed on the same NHS terms). They also do not require the same regularity as is required for overtime payments to be part of “normal remuneration” for the purposes of a WTD/Working Time Regulations claim.

An application for leave to appeal to the Court of Appeal has been made. In the meantime, although this case concerned NHS terms, employers may wish to review their own contractual holiday provisions to identify whether the wording might create a similar contractual entitlement to the one in this case.