Labour & European Law Review Weekly Issue 632 07 August 2019
It is well established in law that workers are entitled to be paid “normal remuneration” when their holiday pay is calculated. In Flowers and ors v East of England Ambulance Trust, the Court of Appeal held that holiday pay should also include voluntary overtime that is sufficiently regular and settled when calculating “normal remuneration” as opposed to overtime that is “exceptional and unforeseeable”.
A group of NHS Trust employees brought claims for unlawful deductions from wages on the basis that their holiday pay should take account of overtime which fell into two categories. The first was non-guaranteed overtime (also referred to as shift overrun payments) and the second was voluntary overtime.
They first argued that they were contractually entitled to the payments given that clause 13.9 in the NHS Terms and Conditions of Employment provides 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 or 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”.
Secondly, they relied on the Working Time Directive on the basis of the decision by the Court of Justice of the European Union (CJEU) in British Airways plc v Williams and ors that holiday pay should correspond to a worker’s normal pay.
Tribunal and EAT decisions
The tribunal held that the claimants were entitled under their contract to have non-guaranteed overtime taken into account in the calculation of their holiday pay, but not voluntary overtime. With regard to the WTD, the Trust conceded that it applied in relation to non-guaranteed overtime but not voluntary overtime.
The claimants appealed on the basis that voluntary overtime should have been taken into account (under both the contract and the Directive) in the calculation of holiday pay. The Trust cross-appealed against the finding that non-guaranteed overtime should have been taken into account under the contract.
The EAT held that there was no basis to distinguish between non-guaranteed and voluntary overtime under the terms of the contract set out in clause 13.9. Both payments should therefore have been included (weekly LELR 588). As regards a claim under the Working Time Directive relying on the decision in Dudley Metropolitan Borough Council v Willetts and ors (weekly LELR 536), the EAT held that voluntary overtime can amount to normal remuneration if paid over a sufficient period of time. It therefore dismissed the Trust’s cross-appeal.
Decision of Court of Appeal
Dismissing the Trust’s appeal that for overtime to be included it should be specifically identified in clause 13.9, the Court held that it was clear from the clause that overtime was part of pay. As the clause had to be read as a whole in order to include the phrase “what the individual would have received had he or she been at work”, the EAT was right to conclude that they were contractually entitled to the inclusion of voluntary overtime when holiday pay was being calculated.
Although it was not strictly necessary to consider the WTD, the Court went on to point out that European case law had clearly established that the question in each case was whether the pattern of work was “sufficiently regular and settled for payments made in respect of it to amount to normal remuneration. There was no separate requirement that hours of work are compulsory under the contract”.
Although the decision of the CJEU in Hein v Albert Holzkamm GmbH at the end of last year seemed to contradict that approach, the Court of Appeal interpreted that decision as making a distinction between exceptional and unforeseeable overtime payments on the one hand and broadly regular and predictable ones on the other. As such, Willetts was correctly decided and the EAT had been right to follow it in this case.
Given the finding that holiday pay includes voluntary overtime under the NHS terms this means that overtime payments should be included in the calculation of holiday pay for all of an employee’s holiday entitlement, rather than just the minimum four weeks under the Working Time Directive.