EMPLOYMENT E-BULLETIN ARTICLE
A recent EAT decision has provided further confirmation that when voluntary overtime is made with sufficient regularity it will be "normal remuneration" and will need to be reflected in holiday pay. James Collings, partner, looks at the case and highlights the key points to take away.
The decision of Dudley Metropolitan Borough Council v Willetts is the latest in a string of cases that have considered the position around reflecting overtime in holiday pay focusing on when voluntary overtime may be caught. A previous decision, Patterson v Castle Borough Council, held that voluntary overtime should count as normal pay but it was not fully argued in that case and it was only a tribunal decision. However, as the current case is an EAT decision, it will bind lower tribunals (although it may of course still be appealed to the Court of Appeal).
By and large, what the case says is broadly in line with the cases that have come before, namely that under the EU Working Time Directive, holiday pay must correspond to ‘normal remuneration’(bear in mind that this relates to the 4 weeks provided for under the EU Directive, and not the full enhanced 4.8 weeks provided for under the UK Working Time Regulations) . The EAT therefore held that where payment for 'voluntary overtime' was made with sufficient regularity for it to fall within this definition then it had to be taken into account.
The facts of the specific case itself involved a group of 56 employees who were employed within a directorate that carried out housing repairs for the Council. They each had set contractual hours (which for almost all of them was 37 hours per week) which represented their 'normal working hours'. In addition, they volunteered to perform additional duties which were not required by their contracts of employment. Significantly, this work was done almost entirely at the whim of the employee, with the Council having no right to enforce work.
Although participation in the standby rota was voluntary, once an employee’s name was on the rota, he or she was required to attend work if called upon. Thus, it was intrinsically linked to the work required under the contract. The employees argued, and the tribunal accepted, that they should be entitled to voluntary overtime, out of hours standby pay, call-out allowances and associated mileage allowance (the portion that was above the amount to recompense for travel and which amounted to a benefit in kind).
In its decision upholding the tribunal's position, the EAT repeated principles that emerged from earlier decisions, namely that workers should not be deterred from taking annual leave by being at a financial disadvantage and therefore they should receive their "normal remuneration" during periods of holiday. However, it took one step further into the "unchartered waters" of purely voluntary overtime and effectively closed the door to the potential argument that voluntary overtime is something completely distinct from the 'main' contract of employment. Instead, the EAT put very heavy weight on the 'main' issue being whether or not the overtime is worked with sufficient regularity and over a long enough period that it becomes part of the 'normal' working hours. Whether this is the case or not will be a question of fact and degree.
The EAT also decided that the division of pay into different elements should also not affect the principle of being entitled to "normal pay". Payments made over a significant period of time (and which are not exceptional) may need to be reflected in holiday pay if there is an intrinsic link between the payment and the performance of tasks required under the contract. It suggested that the absence of such an intrinsic link though would not automatically mean that a payment did not need to be taken into account. The EAT also held that even if it was wrong on that and there is a requirement of an intrinsic link between the payment and the tasks required under the contract, there was such a link in this case as, without a contract of employment, the arrangement for voluntary overtime would not exist. Consequently, all the payments made were directly linked to the contract and should be caught by holiday pay.
Unfortunately, what the EAT still haven't done in this decision however is give any meaningful clarity around the specific point of where the line falls between something which is truly voluntary/irregular/ad-hoc (which you wouldn't need to factor in), and something with is regular/settled/predicable enough to be able to be classified as 'normal' (which you would need to factor in).
In many respects therefore, the case doesn't necessarily add anything particularly new. It simply reaffirms that if the voluntary overtime is regular and predicable enough, then it's capable of forming part of 'normal' pay for holiday pay calculation purposes. It is however yet another example of a case moving in the same direction as before around more needing to be factored in on the holiday pay calculations, and reinforces that in any case where you have an employee doing additional hours with any degree of regularity, you'll need to keep that under careful review as it may need to be included in holiday pay calculations.
For more information around the issue of holiday pay and for a simple calculator to help estimate your potential liability please see our Foot Anstey Holiday Pay Calculator. If you would like to discuss this case or the issue of holiday pay generally, please contact your usual Foot Anstey contact in the employment team or James Collings, partner on +44 1872 243307 or email firstname.lastname@example.org.