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Holiday Pay: oh oh…overtime

SOC
BY Scott O'Connor
Employment Law & HR

In the ever-developing area of holiday pay, another judgement has been handed down by the Court of Appeal in the case of East of England Ambulance Service NHS Trust v Flowers which confirms the position on voluntary overtime when calculating holiday pay.

With this latest decision – we felt it would be useful to track the development of the law in this area and assess where this leaves employers now in relation to calculating an employee’s holiday pay.

What does the law actually say?

As a starting point, Article 7 of the Working Time Directive (WTD) provides that member states must ensure that a worker has the right to at least four weeks paid annual leave.

It is helpful to have a look through the cases that have shaped the current landscape.

Normal remuneration

In Williams and others v British Airways plc it was found that holiday pay should not be limited to basic salary but also should include remuneration which is “intrinsically linked to the performance of the task which he is required to carry out under his contract of employment and in respect of which a monetary amount, included in the calculation of his total remuneration is provided.”

Put simply, the European Court of Justice (ECJ) interpreted that, while the WTD does not specify how holiday pay should be calculated, holiday pay should be calculated requiring “normal remuneration”.

As the employees in this case were receiving the two supplementary payments as part of their normal remuneration, they were entitled to receive this as part of their holiday pay.

The law developed further this area in Lock v British Gas Trading Ltd where the ECJ decided that commission and bonus which is normally paid to a worker should be included as part of their normal remuneration when calculating holiday pay.

Non-guaranteed overtime must be included in calculation of holiday pay

The question on whether overtime could be included for the purposes of calculating holiday pay was addressed in the Bear Scotland case. In this case the EAT decided that non-guaranteed overtime must be included in the calculation of holiday pay.

They found that as the worker would be required to work the overtime if offered – this would amount to normal remuneration and should be included in the calculation of holiday pay. The EAT did not definitively address the situation on voluntary overtime. Which was inevitably going to be the next area of contention.

Voluntary overtime could be included

As promised, voluntary overtime was the order of the day in the case of Dudley Metropolitan Borough Council v Willetts and others In Willetts, the EAT decided that holiday pay should correspond to normal remuneration, as had been the principle established by the ECJ. The EAT decided for a payment to be deemed as “normal” then it must have been paid over a sufficient period of time on a regular or recurring basis.

How this will be determined is a question of fact. An employee will have to show that the payments were sufficiently regular or recurrent to meet the test of normal remuneration. In theory, if the voluntary overtime followed a pattern, then it could also attract holiday pay on top.

All overtime is to be considered

The case of Flowers and others v East of England Ambulance Trust has built upon the previous case law. Mr Flowers and his fellow claimants worked both non-guaranteed and voluntary overtime. They raised a claim for unlawful deduction of wages, claiming that their holiday pay calculation should include both types of overtime. The ET held that non-guaranteed overtime was payable; however, voluntary overtime was not to be paid as there was no regular pattern. The claimants appealed to the EAT.

The EAT decided in line with the decision handed down by Willetts that voluntary overtime could be included in WTD holiday pay calculations provided it met the test of regularity and form part of a worker’s normal remuneration.

The Court of Appeal rejected an appeal from the ambulance service and affirmed the decision taken in Willetts.

Hot off the press

The Court of Appeal in Northern Ireland (NICA) has just added their opinion to the mix of case law in this area. In Bear Scotland it had been decided by Justice Langstaff that a gap of more than three months between deductions broke a series and limited the amount of compensation that could be claimed.

NICA have decided in the case of Chief Constable of Northern Ireland v Agnew that this gap of three months could lead to unfair results. Lord Justice Stephens has decided that there was nothing in the legislation which imposed a limit on the gaps between deductions when making up a series. He decided if there was sufficient similarity of the subject matter and that the events are factually linked then it would be enough to amount to a series.

This is an interesting development in this area. Although Northern Irish law is not formally binding on Tribunals in Great Britain, it does present some persuasive authority on any future appeal arguing that Justice Langstaff was wrong.

Conclusion

The position has evolved dramatically in recent years and it is important to keep up-to-date with the changes in this area to avoid the awkward conversation of not paying the correct amount of holiday pay. It will be interesting to see if the judgement in Agnew will increase the likelihood of claims, or appeals, based on a series of deductions being broken by a gap of more than three months. It is expected that this position will be tested in Great Britain as well in the not-too-distant future.

If you are in doubt over holiday pay calculations and what you should include, you can contact your dedicated Employment Solicitor who will be able to help guide you through this ever-evolving area.

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