The highest decision regarding the inclusion of voluntary overtime payments in holiday pay, where the overtime is normally worked, has been decided in favour of the workers by the Employment Appeal Tribunal.
In Dudley Metropolitan Borough Council v Willetts and others, Council-employed tradesmen were regularly invited to work on Saturdays or go on standby for emergency call outs. This work was not part of their contractual work and was completely voluntary; staff could decide when they put themselves down on the rotate for these shifts. The employees all worked different shift patterns and carried out different amounts of voluntary overtime. Five employees brought a claim of unlawful deductions on behalf of 56 other employees arguing they had not received the correct rate of holiday pay because it did not include amounts for voluntary overtime, voluntary standby allowances, voluntary call-out payments and travel allowances.
At the employment tribunal (ET), the overtime was considered to be purely voluntary and worked at the whim of the employee; the employer had no right to enforce work. Regardless of this, by applying previous EU and domestic case law, the ET found that normal pay has to be included in holiday pay. Therefore, if voluntary overtime payments were sufficiently regular to constitute normal pay these should be included in the calculation for holiday pay.
Applying this to the facts, one employee worked every Saturday and another worked most Saturdays. This overtime was sufficiently regular for it to be considered normal. On the other hand, another employee only worked overtime in major emergencies and on odd occasions and this was considered not sufficiently regular or normal.
The Council appealed the ET decision on the grounds that there was no intrinsic link between the employee’s contract of employment and the voluntary overtime.
The Employment Appeal Tribunal reiterated that EU law requires that normal, not contractual, payment has to be maintained during the four-week period of annual leave guaranteed by EU law. On these grounds, the EAT decided that where the pattern of work, though voluntary, extends for a sufficient period of time on a regular or recurring basis to justify being classed as ‘normal’, the voluntary overtime pay must be included in holiday pay.
What this means for employers:
- This judgment only applies to the first 4 weeks of annual leave guaranteed under EU law.
- Irrespective of the label placed on the payment – the question to ask is whether the payment forms part of the worker’s normal remuneration?
- The EAT did not give further guidance on the definition of “sufficient period of time” or “regular or recurring”, however, it will be for the employment tribunal to determine whether overtime payments are sufficiently regular and settled to be classed as normal.
- This determination will look at a number of factors including whether overtime pay is included in every pay packet, whether overtime is worked during every pay period and whether there is a link between payment and the contractual tasks of the worker.
- A worker can bring a claim for unlawful deductions from wages and can seek back pay for a maximum of two years where there is a gap of fewer than 3 months between each underpayment.
- The case is likely to be appealed – any tribunal claims brought in the interim are likely to be stayed until a final outcome is decided.