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The Employment Appeal Tribunal (EAT) has decided in the case of Dudley Metropolitan Borough Council v Willets and others  that voluntary overtime must be taken into account in the calculation of holiday pay under the Working Time Regulations  1998 (WTR) because it forms part of “normal remuneration”  which must be paid during periods of annual leave.

 

In Bear Scotland v Fulton [2015] the EAT found that in order to comply with the requirement of the European Working Time Directive (WTD) when calculating holiday pay for the basic 4 week’s entitlement under the WTD both guaranteed and non-guaranteed overtime worked for a sufficient period of time must be taken account of. However this left open the position in relation to truly voluntary overtime where there was no obligation on the employer to offer it nor on the employee to work it.

The Dudley case case concerned a group of 56 employees who carried out housing repairs. They each had normal contractual hours of 37 per week. In addition they volunteered to carry out additional duties which the Council did not have contractual right to require they undertake. The employees argued that their holiday pay should reflect these voluntary overtime, call out payments, and mileage and standby allowances. The Tribunal found in their favour and the Council appeal to the EAT. The Council’s key argument, relying on the decision of the European Court in British Airways v Williams [2012], was that payments for such work should not count as “normal remuneration” because they lacked the necessary “intrinsic link” to the performance of tasks required under the contract of employment.

The EAT stated that in Williams the European Court has laid down an overarching principle that holiday pay should correspond to “normal remuneration” in order to avoid workers being deterred from taking leave. For a payment to count as “normal” it must have been paid over a sufficient period of time. This will be a question of fact and degree. Furthermore Williams did not set an exclusive test of normal remuneration as dependent on a link with the performance of duties undertaken under compulsion of the contract of employment. The absence of such a link did not automatically exclude such a payment from counting. Such an interpretation would be excessively narrow and would run the risk that employers might set artificially low levels of basic hours in order to exclude remaining working time and avoid paying for it in respect of annual leave resulting in a real financial disadvantage for workers deterring the exercise of the right to leave. The EAT went on to say that if it was wrong and there was a requirement for an intrinsic link with work that requires to be carried out under the contract then this test was in fact met in this case; once the employees started working a shift of overtime (even if voluntary) they were performing tasks required under the contract. On that basis the Tribunal was right to decide that voluntary overtime pay which was paid with sufficient regularity amounted to normal remuneration and this therefore had to be reflected in holiday pay due under the WTR.

Comment

This is the first binding decision of the UK courts on the question of whether voluntary overtime should be included in normal remuneration for the purpose of the calculation of paid annual leave under the WTD and the WTR. Subject to any further appeal the decision looks like the end of the line for employers in terms of the ability to resist the inclusion of any form of regularly worked overtime within the calculation of holiday pay for the purposes of the basic 4 weeks entitlement under the WTR. The EAT seems to be actively concerned to avoid what it regarded as the real risk of abuse by employers “as demonstrated by the current proliferation of zero hours contracts”. The only area of uncertainty will be the question of whether the overtime has been worked over a “sufficient” period of time to qualify as normal remuneration in the particular circumstances of a case.

On that basis employers who may be impacted by the decision should revisit their holiday pay calculations and consider a strategy for dealing with any exposure identified. If you have any queries about holiday pay issues, please get in touch with a member of the Stronachs Employment Team.

Eric Gilligan, Partner 

 

Chambers UK 2106

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