The Court of Appeal has confirmed in East of England Ambulance Service v Flowers that voluntary overtime which is sufficiently regular and settled should, under the Working Time Directive, (the Directive) be included in holiday pay.
The decision follows the overarching principle when it comes to calculating holiday pay that workers should not be worse off in terms of remuneration when taking annual leave and thereby be a deterrent from taking holiday.
The Court of Appeal’s decision has confirmed the EAT’s 2017 decision in Dudley Metropolitan Borough Council v Willetts that ‘normal remuneration’ must be paid during the four weeks’ annual leave guaranteed by the Directive. If payments for voluntary shifts are normally paid, they must be included in pay for holiday leave.
Mr Flowers and 12 colleagues were paramedics whose contracts provided that “pay during annual leave will include regularly paid supplements, including payments for work outside normal working hours. Pay is calculated on the basis of what the individual would have received had he/she been at work.”
The employer did not include any voluntary overtime in the employees’ holiday pay and therefore they brought employment tribunal claims alleging unlawful deduction from wages and breach of contract on the grounds that voluntary overtime should count towards their normal remuneration and therefore be included in holiday pay.
Court of Appeal decision
The Court of Appeal held that the employees had a contractual entitlement to voluntary overtime.
The Court also considered the position under the Directive and in particular considered the recent decision by the ECJ in Hein v Albert Holzkamm GmbH & Co, KG (Hein) where the ECJ commented that overtime should not be included in holiday pay given its ‘exceptional and unforeseeable nature’. The ECJ’s decision cast doubt on whether voluntary overtime payments should be included in holiday pay.
The Court of Appeal decided that the ECJ did not intend to make a ‘handbrake turn’ contradicting its own previous decisions but was distinguishing between ‘regular and predictable’ overtime and ‘unforeseeable’ overtime. To conclude otherwise would leave workers at risk of abuse by unscrupulous employers who could engage workers on low levels of basic contractual hours and categorise additional hours as ‘overtime’ in order to reduce holiday pay.
Impact on employers
Although the Court of Appeal decision gives clarity, following Hein, that voluntary overtime should be included in holiday pay calculations, if it is sufficiently regular and settled, this is not the end of the matter. The Court has given no guidance on what is meant by ‘sufficiently regular and settled’ which means that it will be for a tribunal to decide on a case-by-case basis whether voluntary overtime should have been included in the calculation of holiday pay.
Practical steps for employers
Following the Dudley case in 2017, employers should have been including regular voluntary overtime payments in their calculation of holiday pay.
As it may be unclear where to draw the line between ‘regular and settled’ overtime and ‘exceptional and unforeseeable’ overtime, it may be difficult for employers to decide whether to include certain types of voluntary overtime in the calculation of overtime pay. It is expected that we will see more holiday pay claims arising as a result.
An important point for employers to note is that the Court of Appeal decision only applies to the four weeks’ annual leave under the Directive and does not apply to the additional 1.6 weeks of holiday provided for under the Working Time Regulations.
It is understood that the Ambulance Trust is intending to seek leave to appeal to the Supreme Court and therefore this may not be the end of the issue.
If you would like to discuss any issues around holiday pay, please contact a member of our Employment team here.