Do we need to include voluntary overtime in holiday pay? Latest EAT guidance is bad news for the NHS
EAT holds that both “non-guaranteed” and voluntary overtime should be included in holiday pay for NHS staff
The Employment Appeal Tribunal (EAT) has made a further contribution this month to the evolving issue of how holiday pay should be calculated.
In Flowers and others v East of England Ambulance Trust the EAT held that both “non-guaranteed” and voluntary overtime should be included in holiday pay for NHS staff.
Broadly speaking, this judgment reinforces the principles arising from earlier holiday pay decisions including last years EAT decision in the Willetts case. However, the case could have wide-reaching implications for all NHS employers and may fundamentally change how some staff are paid for annual leave.
Ambulance workers at East of England Ambulance Trust are employed under the NHS terms and conditions of service (known as Agenda for Change).
They are required to work overtime if their shifts over-run. Such overtime is characterised as “non-guaranteed” in that the Trust is not obliged to offer it, but employees must complete it when the need arises. Separately, ambulance workers can also undertake voluntary overtime by volunteering for additional shifts (although there is no contractual obligation on them to do so).
A group of ambulance workers brought employment tribunal claims for unlawful deductions from wages, alleging that both types of overtime should be factored into their holiday pay.
Following the high profile case of Bear Scotland and others v Fulton the Trust conceded that “non-guaranteed” overtime should be included in holiday pay. However, it disputed the voluntary overtime claim.
The employment tribunal found that, as the employees were not contractually obliged to perform voluntary overtime, this did not form part of their ‘normal remuneration’ and therefore need not be included in holiday pay.
However, following an appeal by the employees, the EAT disagreed with this finding. They said that the overarching principle is that holiday pay must reflect the ‘normal remuneration’ received by the worker. Excluding voluntary overtime that is regularly worked from this calculation would present a distorted picture of an employee’s normal earnings and might lead to pay structures being manipulated to minimise levels of holiday pay. Therefore, if an employee works a pattern of voluntary overtime that is “sufficiently regular and settled” this will form part of their “normal remuneration”.
This part of the decision follows the earlier findings of the EAT in Dudley Metropolitan Council v Willetts, the first appeal level case to hold that voluntary overtime should be included in holiday pay. This case established that whether voluntary overtime is ‘regular’ enough to count as ‘normal remuneration’ will be a matter of fact in each case, depending on how the overtime has been worked in practice.
However, crucially, the EAT in Flowers went on to find that the ambulance workers not only have a statutory right to these payments (arising from the Working Time Directive and the body of case-law that has built up on the issue) but also a contractual right to have both types of overtime included in their holiday pay.
Clause 13.9 of Agenda for Change provides that pay for annual leave “is calculated on the basis of what the individual would have received had he/she been at work” based on “the previous three months at work or any other reference period that may be locally agreed”. The EAT held that based upon this wording there was no reason to exclude purely voluntary overtime from the definition of pay under this section.
What does this mean for me?
For employers who do not operate under Agenda for Change, this case simply follows previous case-law to reinforce the point that voluntary overtime should be factored into holiday pay if it is “sufficiently regular and settled”.
However, this decision has been closely watched by the healthcare sector and, the EAT’s decision will cause great consternation among NHS employers.
What happens next?
Leave to appeal this decision to the Court of Appeal is being sought by the Respondent Trust. As soon as we know whether leave has been granted and an appeal is going ahead we will update you further. You may wish to hold back from making changes to your pay practices or systems until the position on any appeal is clearer.
However, if you would like to discuss your organisation’s position and options in the interim, or start seeing grievances or issues being raised by employees or Trade Unions on the back of this decision, we would be happy to advise you.
Emlyn Williams is a Partner in the Employment, Pensions and Immigration Team at Weightmans LLP. If you any questions or concerns arising from this case, please do not hesitate to contact Emlyn or speak to your usual Weightmans advisor.