Case update (2): Holiday pay – What about voluntary overtime?

What do we already know?

Calculating holiday pay has been made much more complex over the past few years. The Court of Justice of the European Union (CJEU, formally  known as the ECJ), EAT and subsequent Tribunal decisions in Bear Scotland Ltd v Fulton and Lock v British Gas have meant that payments such as commission and bonuses, should now be included in holiday pay. For further detail please see our updates here.  However, there is still uncertainty in respect of voluntary overtime.

In our July 2015 Newsflash Holiday pay – what about voluntary overtime? we updated you on the case of Patterson v Castlereagh Borough Council in which the Northern Ireland Court of Appeal held that, in principle, there is no reason why voluntary overtime should not be included as part of annual leave calculation.

The Court went on to say that it would be a question of fact in each particular case as to whether the voluntary overtime should be included, and this would depend upon whether the overtime is worked with “such regularity so as to become part of the employee’s normal remuneration“.

In our June 2016 Newsletter Case update (1): Holiday pay – what about voluntary overtime? we updated you on the case of White and others -v- Dudley Metropolitan Borough Council in which an English Tribunal held that voluntary overtime could be considered part of an employee’s normal pay for the purposes of calculating holiday pay, if it is undertaken with “sufficient regularity”.

What’s new?

The written reasons for the decision in the above case of White and others -v-Dudley Metropolitan Borough Council have now been published and so we can provide more detail on the case, which is now known as Brettle v Dudley Metropolitan Borough Council.

Summary: Should voluntary overtime payments be included in calculating holiday pay?

Yes, says the Tribunal in Brettle v Dudley Metropolitan Borough Council, available here, provided the voluntary overtime is worked with “sufficient regularity” to constitute “normal pay”.

Facts: Five employees brought a claim against their employer, Dudley Metropolitan Borough Council (the Council), on behalf of 56 other employees.

The employees had received holiday pay but argued that they had not received the correct rate of pay as their holiday pay did not include amounts in respect of voluntary overtime, voluntary standby allowances, voluntary call-out payments and travel allowances which they would have received had they been in work.

The employees all worked different shift patterns, and undertook different amounts of voluntary overtime and the frequency which they worked voluntary overtime also varied.

In order to reach its decision the Tribunal considered the law on Working Time (both the European Directive and the UK’s Working Time Regulations 1998) and the existing case law in relation to holiday pay.

The Tribunal concluded that the majority of the additional elements, which were all in relation to voluntary work, should be included in the Claimant’s holiday pay. Specifically:

• Voluntary out of hours standby payment/on-call rotas: The Tribunal concluded that the payments made over a number of years at a rate of one week in four, or one week in five, with occasional variation, fall within the Working Time Regulations and the case law definition of “normal pay”. Although the employees could choose to leave the rota arrangement, and in that sense their involvement remained voluntary, they received the pay consistently and regularly and to not pay the amount may deter them from taking their holiday entitlement. The Tribunal concluded that the payments should be averaged out on an individual basis (to accommodate some employees being on-call one week in four and other less).
• Voluntary call out allowance:  The Tribunal didn’t comment on how this should be calculated for holiday purposes but was satisfied that although this element of pay related to a voluntary rota, for those on the rota it was a normal part of their pay and holiday pay should reflect what is normally received, so it should be included in holiday pay calculations.
• Voluntary travel allowance:   In this case, the allowance went beyond mere reimbursement of expenses and the Tribunal found that the element of the allowance that was subject to tax as a benefit in kind was part of the employee’s normal pay and so should be included in holiday pay calculations.
• Voluntary overtime:  The Tribunal found that some of the employees undertook regular voluntary overtime which should be included in holiday pay calculations (i.e. that overtime which is not occasional, unusual, rare or ancillary). However, other employees either did not undertake regular overtime or undertook voluntary overtime so infrequently it could not form part of their normal pay and so should not form part of holiday pay calculations.

By way of example, two employee worked regular Saturdays – one worked every Saturday and the other one worked most Saturdays, but not every week. Both these employees were considered to work this overtime sufficiently regularly for it to be considered part of “normal pay”. However, another employee only received overtime in major emergencies and on other odd occasions; as a result that pay was not considered normal pay.

The Tribunal went on to clarify that its decision only applied to the first four weeks of holiday leave (i.e. the statutory holiday entitlement provided for under the Working Time Regulations). The calculation of holiday pay in respect of any further leave would only need to include regular pay plus any element of agreed contractual overtime.

Implications: Although technically non-binding as this is only a Tribunal level decision, it is in keeping with the general direction of travel in relation to holiday pay cases which is to require payments in respect of sufficiently regular voluntary overtime to be included in “normal pay” for the purposes of calculating holiday pay. This inevitably means that whether or not voluntary overtime pay forms part of “normal pay” for holiday pay calculation purposes will continue to need to be determined on the facts of each case. However, what this decision does clarify is that such payments only need to be included in calculating pay for the first four weeks of EU derived holiday entitlement and not in respect of the additional 1.6 weeks UK law provides.

Ultimately the decision for employers at this stage is to decide whether they take a risk averse approach and include such “sufficiently regular” voluntary payments in their calculations going forward or wait for this issue to be decided at a higher level in the EAT (with hopefully further guidance on what constitutes “sufficiently regular” voluntary overtime) before taking such steps.