Voluntary Overtime and Holiday Pay

Nathaniel Caiden

Nathaniel Caiden considers the recent Employment Appeal Tribunal (EAT) judgment in Dudley MBC v Willetts UKEAT/0334/16/JOJ that concerns the inclusion of voluntary overtime normally worked in calculating holiday pay.

Introduction

On 31 July 2017, when many were actually on holiday, the EAT handed down the latest judgment dealing with holiday pay litigation – the result is that voluntary overtime is included.  However, the judgment itself deals with much of the earlier case law and its reasoning appears to provide further guidance for determining what other types of pay are included in ‘holiday pay’.

Context and understanding the limit of Bear Scotland

As with all holiday pay judgment it is important to appreciate what ‘right’ exactly is being determined.

The starting point is that this judgment only deals with the four weeks annual leave per annum guaranteed under EU law by virtue of Directive 2003/88 – the Working Time Directive (WTD).  It is Art.7 WTD that deals with this and domestically this is found in reg.13 of the Working Time Regulations 1998 (WTR).  So this judgment does not affect the additional 1.6 weeks of leave granted by virtue of reg.13A WTR; this is a domestic provision and as such as to what pay is or is not included is unencumbered by EU law (see judgment at [9]).  Applied to these facts the employees in this case were not arguing that ‘voluntary overtime’ had to be included in the holiday pay for these 1.6 weeks.  Indeed, this position appears to be settled law (see Bear Scotland Ltd v Fulton [2015] IRLR 15 and Sood Enterprise Ltd v Healy [2013] IRLR 865), which means the matters included as ‘pay’ (and hence the amount received) in reg.13 WTR are different from reg.13A WTR.

Secondly, one needs to appreciate that whilst Bear Scotland dealt with overtime being included in the calculation, that case concerned so-called ‘non-guaranteed’ overtime (for our earlier three blogs on this case please click here, here and here).  That is overtime which is not contractually guaranteed but if offered had to be worked.  The case of Dudley MBC was dealing with ‘voluntary overtime’, that is overtime which was not contractually guaranteed and when offered to the employee he/she had the choice whether to work (incidentally the EAT in Dudley MBCalso confirmed that it was not bound by the decision in Patterson v Castlereagh Borough Council [2015] NICA 47 in light of there being a concession as to the inclusion of voluntary overtime pay in holiday pay calculation, for more on this decision see the earlier two blogs on this case by clicking here and here).

The concept of ‘intrinsic link’, ‘normal remuneration’ and what is included

The premise of the Appellants argument in Dudley MBC was the use of the ‘intrinsic link’ test (or rather phrasing) in the earlier CJEU cases of Case C‑155/10 Williams v BA (at [24] and [26] in particular in that case) and Case C‑539/12 Lock v British Gas (at [32] in particular in that case ) which was said to mean that one had to have an

‘intrinsic link between the payment and the performance of tasks that the worker is required to carry out under his contract of employment.’ (Dudley MBCat [30], and see also [31]-[32]).

The EAT rejected this argument for two main reasons (a) the WTD right to time off is an important social right (b) EU law requires normal and not contractual remuneration to be included in order to ensure that workers are not financially deterred from taking the leave, the so called overarching principle (judgment at [36]-[37]), and as such Lock v British Gascannot be taken as having actually narrowed the test.

However, the more important points emerging from the decision (from [39]-[44] of the judgment) which set out a useful guide for analysing pay packets are:

• The overarching principle is that whilst on holiday one should get ‘normal’ pay (that is the pay one would normally receive when he/she is working);

• To count as ‘normal’ pay, it must be paid over a sufficient period of time, which is a question of fact and degree, and as such the role of a fact finding employment tribunal, the issue being whether it is made on a regular and/or reoccurring basis;

• Items which are not normally paid or are exceptional will not count as ‘normal’ pay’;

• An ‘intrinsic link’ between payment and performance of tasks under the contract is a decisive criterion, but not the or only decisive criterion (so an absence will not automatically exclude the payment from counting’);

(As an aside the EAT found that if it were wrong and there was a need for an ‘intrinsic link’ test as argued by the Appellant, the link was between the payment in question and tasks which a worker is required to carry out under his contract of employment, and that such was on the facts made out, judgment at [46]).

So where are we now (when not on holiday)…some concluding remarks

The abandonment of the need to have an ‘intrinsic’ link and focus on contractual duties arguably makes it easier for one to advise and for people to predict what is going to be included in ‘holiday pay’.  Indeed there is a genuine ‘overarching’ principle and one does not have difficulties of determining issues with seniority payments, travel payments and some other aspects of pay packets.  Equally the term given to the payment is also of less relevance and this is not a case where there can be, it appears, drafting to carve out payments.

It does leave open the practical question however of how the issue is going to be dealt with in respect of terms in contracts of employment and meeting the requirements of section 1 of the Employment Rights Act 1996 which requires an employer to give holiday pay particulars sufficient to enable the employee's entitlement to be precisely calculated.  Are employers going to want to identify elements of pay, reference periods for working out ‘normal pay’, or be much vaguer and thus arguably in breach of section 1?