Voluntary overtime payments must be included in holiday pay

2 August, 2017

The EAT has handed down a judgment concerning the calculation of paid annual leave due under the Working Time Regulations 1998 (“WTR”). In Dudley Metropolitan Borough Council v Mr G Willetts and Others, the EAT has held that payments for entirely voluntary duties, such as voluntary overtime, standby, call out work and travel time linked to that work, fall within the scope of Article 7 of the Working Time Directive (“WTD”), and therefore within the concept of “normal remuneration” for the purposes of calculating the four weeks holiday pay due under regulation 13 of the WTR.

This case is important because it is the first binding authority to consider after full argument whether truly voluntary overtime should be included in “normal remuneration” for the purposes of the calculation of paid annual leave. Bear Scotland ltd v Fulton [2015] (EAT) left that question open, since the overtime considered in that appeal was “non-guaranteed”, being overtime which the employer was not obliged to offer, but which the employee was obliged to undertake if offered. This EAT decision now sets a legally binding precedent which employment tribunals in the UK are obliged to follow.

Facts

The 56 Claimants were employed by Dudley Metropolitan Borough Council (“the Respondent”) as tradesman involved in the repair and maintenance of the Respondent’s housing stock. The Claimants had set contractual hours and also volunteered to perform additional duties which their contracts of employment did not require them to carry out. The Claimants argued that their out-of-hours standby pay, call out allowance, voluntary overtime and mileage or travel allowance should be taken into account in the calculation of holiday pay. The Respondent had not taken those payments into account when calculating holiday pay, which it had paid based on contractual hours only.

Despite finding that on-call and additional overtime work was entirely voluntary on the part of the employee, the Employment Tribunal had nevertheless held that those payments should be included in the calculation of holiday pay as the additional payments had been paid with sufficient regularity to be considered part of the Claimants normal pay. It was also noted by the employment tribunal in this case that once an employee had volunteered for a rota, they were committed to it.  

The Employer’s Argument

On appeal to the EAT, the Respondent argued that the decisions of the Court of Justice of the European Union (“CJEU”) in British Airways plc v Williams [2012] and Lock v British Gas Trading Ltd [2014] made it clear 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’s Decision

The EAT dismissed the appeal. It was noted by the EAT that the right to paid annual leave had been regarded by the CJEU as a particularly important principle of EU social law. EU law required that normal (not contractual) remuneration must be maintained in respect of the four week period of annual leave. That overarching principle meant that payments should “correspond to the normal remuneration received by the worker” while working. The purpose of that requirement was to ensure that the worker suffered no financial disadvantage by taking leave, which was liable to deter him from exercising this right.

In order for a payment to count as “normal” it must have been paid over a sufficient period of time. That would be a question of fact and degree. Questions of frequency and regularity are likely to play a part in determining whether a payment is normal. Items which are not usually paid or which are exceptional do not count, but items which are usually paid and regular across time may do so.

It was felt by the ECJ that the exclusion as a matter of principle of payments for voluntary work which is normally undertaken would amount to an excessively narrow interpretation of normal remuneration. It would give rise to the risk that employers would fragment pay into different components to minimise levels of holiday pay.

Implications

This EAT decision highlights that cases regarding what should be included in holiday pay will turn on their own specific facts. Therefore it is important for employers at this stage to take stock of their voluntary overtime and standby patterns and the regularity of those in order to determine whether or not payments for such are sufficiently regular and settled to require inclusion in holiday pay. Unfortunately the EAT offered little guidance as to what level or regularity or frequency is required for a payment to be deemed “normal remuneration”. Therefore until more cases start trickling through the tribunal system, there will remain some uncertainty for employers going forward.