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Voluntary overtime and holiday pay: clarity for employers

Posted on 12 July 2019

Voluntary overtime and holiday pay: clarity for employers

The Court of Appeal has confirmed that holiday pay under the Working Time Directive(2003/88/EC) (the Directive) must include regular voluntary overtime (East of England Ambulance Service NHS Trust v Flowers [2019] EWCA Civ 947). The decision follows the overarching reasoning established in the European Court of Justice (ECJ) that reductions in worker remuneration during periods of annual leave might act as a deterrent to workers taking holiday.

Flowers makes it clear that the question in each case is whether the pattern of work is sufficiently regular and settled in order for payments made in relation to it to amount to normal remuneration. There is no separate requirement that hours of work are compulsory under a contract.

The dispute

Mr Flowers and 12 other claimants were employed by the East of England Ambulance Trust (the trust) in a range of roles concerned with the provision of ambulance services. They undertook both non-guaranteed and voluntary overtime as part of their roles. Section 13.9 of their NHS Terms and Conditions of Service states that: “Pay during annual leave will include regularly paid supplements, including ... payments for work outside normal hours ... Pay is calculated on the basis of what the individual would have received had he/she 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 trust did not include any overtime in the claimants’ holiday pay. The claimants brought claims for breach of contract and breach of the Directive (it being accepted that the trust is an emanation of the state).

At first instance, the employment tribunal held that non-guaranteed overtime should be included in the claimants’ holiday pay under their contracts of employment and the Directive. However, it rejected the claims that voluntary overtime should be included.

The claimants appealed and the Employment Appeal Tribunal (EAT) held that voluntary overtime should have been taken into account under both the contract and the Directive (in relation to the latter, following the earlier EAT decision in Dudley Metropolitan Borough Council v Willetts and others UKEAT/0334/16). Considering the contractual claim, the EAT found that the natural interpretation of the terms meant that the trust had to calculate holiday pay on the basis of what the claimants would have been paid if they were at work, based on the three-month reference period. The EAT also held that there was no basis to distinguish between non-guaranteed and
voluntary overtime under the contract. The trust appealed.

Court of Appeal decision

The court dismissed the appeal and endorsed the EAT’s decision with regards to the contractual claim. It held that the claimants had a contractual entitlement to have voluntary overtime taken into account for the purposes of calculating holiday pay. Although it was not strictly necessary to then consider the position under the Directive, the court nevertheless dealt with the question given that it would have wider implications. In addition, the court wanted to consider whether the EAT’s decision in Willetts was correct, as the trust had argued that it was not. In Willetts, the claimant employees often performed overtime in addition to their contractual overtime obligations. The EAT held that the intrinsic link between pay and the overtime was sufficiently regular and settled to satisfy the definition of normal remuneration. It also held that normal remuneration does not necessarily mean contractual remuneration only, and emphasised the importance of ensuring that workers do not suffer financial disadvantage by taking leave. It also warned that if regular overtime was not included in holiday pay, there was a risk that employers might set artificially low levels of basic contracted hours and categorise the remaining time as voluntary overtime, which would not be accounted for in holiday pay. The court in Flowers agreed with the clear and persuasive analysis set out in Willetts. In reaching its decision, the court also gave welcome consideration to the ECJ’s silence on voluntary overtime in Hein v Albert Holzkamm GmbH & Co KG (C-385/17).  The ECJ’s view, in Hein v Albert Holzkamm GmbH & Co KG, the European Court of Justice held that if contractual overtime is regular and predictable, and the corresponding pay constitutes a signify cant element of  the total pay received by the worker, it should be included in holiday pay (C-385/17; see News brief “Overtime: to be or not to be included in holiday pay?”). However, while Hein clarified the position in relation to contractual overtime under EU law, it did not expressly consider voluntary overtime.

The court in Flowers expressed surprise at the suggestion in Hein that, as a general rule, overtime should not be included in holiday pay calculations due to its exceptional and unforeseeable nature.

Flowers rejected that proposition and the inference that voluntary overtime should not be included in the calculation of holiday pay under the Directive. It considered that this interpretation would represent a handbrake turn on established ECJ case law and could not have been the ECJ’s intention. The court concluded that the ECJ was drawing a distinction between voluntary overtime which is sufficiently regular and settled, and that which is exceptional and unforeseeable. This accords with previous case law that regular and predictable payments, whether deriving from contractual obligations or voluntary work, should be included in holiday pay calculations.

Impact on employers

Although this case concerns the Directive rather than the Working Time Regulations 1998 (SI 1998/1833) (WTR), the domestic courts and tribunals will interpret, at least for now, the WTR in line with the Directive. Employers will need to consider carefully whether a particular worker’s voluntary overtime meets the threshold of sufficient regularity. If it does, then employers will need to include that voluntary overtime in holiday pay calculations. Employers and practitioners should assess each relevant element of pay in light of the Directive’s objective of maintaining normal remuneration so that holiday pay corresponds to pay while working.

An element of uncertainty remains

Questions about whether to include voluntary overtime in holiday pay will still depend on the particular facts and circumstances in each individual case. Drawing a clear distinction between regular and irregular overtime will not always be a straightforward task. It will then be for the tribunal to determine whether a particular pattern of voluntary overtime is sufficiently regular and settled.

From an EU law perspective, some may see this as a missed opportunity for further clarity, as the court did not refer the decision to the ECJ to obtain the certainty on voluntary overtime that many employers and workers are looking for. The court considered making a reference to the ECJ but decided that, quite apart from Brexit, it would not assist the parties in Flowers given that the claimants won their case on the basis of contract. Although the decision scrutinises the comments made in Hein, those comments may leave open further challenges on the point in the future. Finally, this may not be the end of the issue, as the authors understand that the trust plans to seek leave to appeal to the Supreme Court.

This article first appeared in the July 2019 issue of PLC Magazine.

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