Voluntary overtime must be included in holiday pay confirms Court of Appeal

East of England Ambulance NHS Trust v Flowers

Summary

In the closely watched case of East of England Ambulance NHS Trust v Flowers the Court of Appeal has confirmed that on the facts both “non-guaranteed” and voluntary overtime must be included in holiday pay under the Working Time Directive.

The Court further confirmed that NHS staff are also contractually entitled under Agenda for Change to have these payments included in their remuneration during annual leave.

What happened?

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.

The decision

The EAT upheld the claims, finding that both types of overtime must be included in holiday pay. The Court of Appeal has now agreed with this decision.

In relation to voluntary overtime, the Court of Appeal cited the overriding principle 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 voluntary overtime payments must be included in holiday pay where “the pattern of work is sufficiently regular and settled for payments made in respect of it to amount to 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.

Crucially, the Court of Appeal in Flowers also upheld the EAT’s finding 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 under Agenda for Change to have both types of overtime included in their holiday pay.

Clause 13.9 of Agenda for Change states that “pay during annual leave will include regularly paid supplements including any recruitment and retention premia, payment for work outside normal hours and high cost area supplements. Pay is calculated on the basis of what the individual would have received if he or she had been at work. This would be based on the previous three months at work or any other reference period that may be locally agreed”.

The Court of Appeal held that this clause should be read as a whole. The fact that voluntary overtime is not specifically mentioned in Clause 13.9 is no reason to exclude it from the holiday pay calculation. The Court of Appeal also rejected the Trust’s submission that a distinction should be drawn under Clause 13.9 between voluntary and non-guaranteed overtime payments; both should be included in holiday pay.

What does this mean for me?

For employers outside the NHS who do not operate under Agenda for Change, this case reinforces previous case law to confirm that voluntary overtime should be included in holiday pay where it is “sufficiently regular and settled”.

Unsurprisingly, the decision does not give employers any guidance on what “regular and settled” means. This remains to be decided on a case by case basis by employers or employment tribunals.

For NHS employers, this decision will cause ongoing concern. The Court of Appeal’s interpretation of Clause 13.9 of Agenda for Change is likely to result in considerable upheaval.

If you would like to sense check your employees’ working patterns against the “regular and settled” benchmark, or talk through your organisation’s options going forward, please do not hesitate to get in touch.

Comment

We don’t yet know if this decision will be appealed further by the Trust to the Supreme Court. As soon as we know whether an appeal is, or may be, going ahead we will update you further. You may wish to hold back from making changes to the way you pay your employees until the position is clearer. However, arguably, following such emphatic statements of the law from both the EAT and Court of Appeal, a further successful appeal is unlikely.

However, if you would like to discuss your organisation’s strategy and approach to holiday pay in the interim we would be happy to advise you.

Emlyn Williams is a Partner in the Employment, Pensions and Immigration Team at Weightmans LLP. He can be contacted on 0151 243 9569 and emlyn.williams@weightmans.com. If you any questions or concerns arising from this case, please do not hesitate to contact Emlyn or speak to your usual Weightmans advisor.

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