The latest holiday pay decision expands the concept of “normal remuneration” again

The EAT handed down another decision in the long-running and well-publicised series of cases defining what elements should be included in holiday…

The Employment Appeal Tribunal this week handed down another decision in the long-running and well-publicised series of cases defining what elements should be included in holiday pay. The EAT upheld the decision of a lower Tribunal which said that entirely voluntary overtime should be included within holiday pay calculations as long as it was normally worked. Further, it held that there was no error with the lower Tribunal’s decision that doing voluntary overtime as little as once every four or five weeks counted as normally working it.

The impact of the decision will be felt by all employers who operate overtime payments and approaches to calculating holiday may need to be reassessed once again.

What happened?

Over the past few years, two well-known domestic cases (Bear Scotland v Fulton and British Gas Trading Ltd v Lock) have gradually expanded the scope of what elements of pay should be included when calculating holiday pay. Bear Scotland established that compulsory and non-guaranteed overtime should be reflected in holiday pay, whilst Lock added commission earnings. What neither of those domestic cases, nor any of the European cases which preceded them, addressed however was voluntary overtime. The only guidance we have had until now was a case in the Northern Ireland Court of Appeal which had no binding effect in this jurisdiction.

In this new case, Dudley Metropolitan Borough Council v Mr G Willetts and others, an Employment Tribunal decided that out of hours standby pay, call out allowance, voluntary overtime and travel allowance linked to those elements should be included within holiday pay calculations. The Council appealed, arguing that as the overtime was entirely voluntary anything which staff did during overtime was not required of them under their contracts and therefore the employer should not have to reflect it in holiday pay.

The EAT rejected the Council’s appeal. It said that the law requires normal remuneration to be paid to workers in the form of holiday pay in order that they do not suffer a financial disadvantage by taking holiday. If normal remuneration is not paid then this would act as a deterrent to taking the leave to which they are entitled. The EAT decided that if voluntary overtime was carried out sufficiently regularly so as to be “normal” but was not reflected in holiday pay then this would have a deterrent effect as well. It is a matter for an Employment Tribunal to decide whether overtime is carried out sufficiently regularly to constitute it being part of “normal” pay, but if it is then it should be included in holiday pay as well. The Council’s objection to the work not being required under the contract was also rejected on the basis that without the contract of employment the framework for overtime would not exist so therefore any overtime carried out is related to the contract of employment.

The Council further argued that the original Tribunal had confused the concept of “normal” with “regular” in deciding that work done one week in every four or five weeks was “normal”. The EAT also rejected this argument, saying again that it was a matter of fact for the Tribunal to decide.

What does this mean for me?

As with the previous decisions, this could have a significant impact for a large number of employers. Whilst it does not provide any definitive guidance as to what you must include in holiday pay calculations, with a number of issues ultimately coming down to a fact finding exercise by a Tribunal, it does demonstrate again the sort of assessments you must make when deciding what elements of pay count. With the further expansion of scope, the judgment makes it even more important that you audit your approach to holiday pay to identify any areas of risk. It is entirely possible that it may make further grievances and claims around holiday pay more likely.

Comment

This is the first decision at appeal level in England and Wales on the subject of voluntary overtime. As a result, any holiday pay cases with voluntary overtime elements which have been stayed at Employment Tribunal level are now likely to become active again, alongside any new claims which may now be brought.

We understand that the lack of definitive guidance from the courts is unhelpful and that approaches to overtime and incentive schemes vary widely from employer to employer. This ever growing line of decisions from the EAT and Court of Appeal do not provide one answer that can easily be applied to every individual situation. The individual circumstances that apply to your workforce and your business will ultimately govern what approach is best for you, and therefore before making any decisions as to the risks you face do take advice on what it might mean for you and your staff.

If this case raise any issues for your organisation or you have any concerns about what is proposed, please speak to your usual contact in the Weightmans employment, pensions and immigration team, or contact;

Jawaid Rehman (jawaid.rehman@weightmans.com) is a is a Partner in the Employment, Pensions and Immigration team and is based in Birmingham

Paul McFarlane (paul.mcfarlane@weightmans.com) is a Partner in the Employment, Pensions and Immigration team and is based in London.

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