EAT “calls out” Council to include voluntary overtime in holiday pay calculations
Whilst July saw the busiest number of flights in and out of UK airports ever recorded, this week the Employment Appeal Tribunal (EAT) has also had a focus on holidays by confirming that regular payments for voluntary overtime had to be taken into account in calculating an employee’s holiday pay.
Dudley Metropolitan Borough Council v Willets and others (UKEAT/0334/16/JOJ) is the most recent significant decision in the widely reported series of cases defining what should be included in holiday pay.
This case was brought by 56 employees of the Council who had set contract hours, typically of 37 per week, but could volunteer to perform overtime which was not a requirement of their employment contracts. The employees decided when they would perform this additional work and the Council had no right to enforce work. The claimants argued that their holiday pay should reflect voluntary overtime, call-out payments and mileage as well as out-of-hours standby pay.
It was established by the European Court of Justice in Williams v British Airways Plc  I.C.R. 847 that a worker should not be deterred from taking annual leave. The scope of holiday pay has been further clarified by Bear Scotland v Fulton and Another  I.C.R. 221 establishing that compulsory and non-guaranteed overtime should be included for holiday pay and Lock v British Gas Trading Ltd  I.C.R. 1 confirming commission earnings should be considered.
However, none of these decisions directly addressed payments received in respect of entirely voluntary overtime. As such the Tribunal was “sailing into uncharted waters” when it was found that these payments should be treated as forming part of a worker’s “normal remuneration” for the purpose of calculating holiday pay.
Employment Appeal Tribunal’s reasoning
The EAT held that the voluntary overtime payments had to be taken into account in calculating an employee’s holiday pay. In doing so the EAT emphasised that the right to paid annual leave is an important principle of EU and UK social law, so if normal remuneration is not paid then individuals would be deterred from taking leave to which they are entitled. Voluntary overtime which is regularly paid over a sufficient period of time could be considered as “normal remuneration” and excluding these payments from holiday pay would have the same deterrent effect on an individual taking his/her annual leave. Looking at the voluntary overtime received by the individual claimants it was paid with sufficient regularity to amount to “normal remuneration”.
This is an important decision providing further much needed clarification on the impact of previous decisions on voluntary overtime. It is now clear that voluntary overtime should be included in holiday pay if it is sufficiently regular. However, not all voluntary overtime should be included; if the voluntary overtime is ad hoc it need not be included. The dividing line between ad hoc and “sufficiently regular” may not always be clear and no doubt there will be further cases on this point.
Employers who pay overtime to employees should review the way they calculate holiday pay to determine whether they are affected by this ruling and whether steps are required to change current practices.
If any employers are concerned about the implications of this decision or wish to discuss the recent changes to the scope of holiday pay please contact our specialist employment solicitors.
This article was written by Ruth Moffett (firstname.lastname@example.org).