08 August, 2017
The Employment Appeal Tribunal (EAT) has handed down its decision in the case of Dudley Metropolitan Borough Council v Mr G Willetts and Others (UKEAT/ 0334// 16/JOJ).
The EAT has held that voluntary overtime does fall within the scope of Article 7 of the Working Time Directive and so, within the concept of 'normal remuneration' for the purposes of calculating holiday pay.
A group of 56 employees employed by the Council brought holiday pay claims in respect of the statutory holiday pay they had received. The employees contended that they received the incorrect rate of statutory holiday pay and that the Council had failed to reflect voluntary overtime, out-of-hours standby pay and call-out payments in their statutory holiday pay calculations.
The claimants were contracted to work for 37 hours a week, which counted as their 'normal hours' but in addition they also performed additional duties on a voluntary basis.
The claimants were successful in their arguments and the Employment Tribunal found that pay received for voluntary overtime should be included in holiday pay calculations as it was paid with sufficient regularity and failure to pay would render the employees at a financial disadvantage when taking leave. The respondent appealed the decision.
The EAT dismissed the appeal and again found in favour of the employees. They confirmed the Employment Tribunal's decision that voluntary overtime, on-call allowances and out of hours payments are all capable of counting towards holiday pay.
The EAT upheld that the payments made were directly linked to tasks required under their contracts of employment even if by a separate agreement or arrangement. The EAT stated that any reduction in salary would deter workers from their rights to take paid annual leave and to exclude such payments would conflict with the principle of the Working Time Directive and its purpose to put workers in a position of remuneration, comparable to the position they would be in during periods of work.
What does this mean for employers?
This is an extremely important decision as it clarifies the previously unclear position on voluntary overtime for the purposes of calculating holiday pay and as an EAT decision it is binding on Employment Tribunals.
Employers must look carefully at how regularly voluntary overtime is being undertaken and to ensure that, where it is regular or recurring such time is taken in account when calculating holiday pay.
It is however important to note the emphasis placed by the EAT on the need for payments to be made with sufficient regularity and that purely ad hoc, irregular and exceptional overtime may still be excluded unless it is paid for a sufficient period of time on a regular and/or recurring basis.
With the back drop of the recent Supreme Court ruling in R (Unison) v Lord Chancellor (2017) in which the Supreme Court unanimously agreed that tribunal fees are unlawful we are likely to see an increase in holiday pay claims. There remains no set criteria as what amounts to 'normal pay' and this recent case highlights the need to assess your holiday pay calculations to ensure compliance rather than adopt a 'wait and see' approach.
If you are interested in the Forbes Employment team auditing your holiday pay process, please contact Sarah Petrie.