Regular voluntary overtime to be included in holiday pay
27 April 2016
An employment tribunal ruling adds another layer of complexity to the already onerous holiday pay calculations.
The Midlands West Employment Tribunal have just ruled that in calculating the amount of holiday pay that an employer pays to its workers, it has to include payments for voluntary overtime, voluntary standby and voluntary call out payments, providing that work has been undertaken with sufficient regularity to have become part of the worker’s normal pay.
With thanks to St Philips Barristers for providing not only the details of this latest case, but a comprehensive summary of related cases and regulations:
The case ‘White & Others v Dudley Metropolitan Borough Council’, concerned 56 workers who were employed by Dudley MBC as specific and multi-skilled tradesman, who were engaged in the repair and maintenance of the Council’s housing stock. All of the employees worked a standard 37 hour contract, with some also working 2 or 4 hours additional contractual overtime.
The Council calculated their holiday pay based on those core contractual hours (ie basic pay) only. In addition to those hours the employees worked additional voluntary overtime (often at weekends) and, again on a purely voluntary basis, joined a one in four or five week rota in which, when their rota week came round, they remained on standby for out of hours emergency work and if necessary call out if emergency work was required during those hours. The workers would then be paid an additional payment for all voluntary work, standby out of hours and call outs that they undertook.
In addition, some were paid a mileage allowance for trips between jobs. Those payments consisted of the cost of the trip plus an additional sum which was taxed as a benefit in kind. The Council excluded all of the additional payments from their calculation of holiday pay, on the grounds that it was not contractual pay. They argued that there was no contractual obligation to do the extra work and as the work was voluntary, it could not be said to have derived from their contracts.
There are three types of holiday leave:
- The first type is holiday leave under regulation 13 of the Working Time Regulations, which implements Article 7 of the Working Time Directive. It relates to the first 20 days of annual leave that a worker has in any leave year.
- The second type of holiday leave is under regulation 13A of the Regulations. This covers 8 additional days, essentially the bank holidays.
- The last type relates to any extra days that a worker may have under their contract. Both regulation 13A and purely contractual days are to be determined by s221-224 of the Employment Rights Act 1996 and relate to work done under the contract of employment.
Purely voluntary work cannot be said to be under the contract of employment, so this case concerned the first 20 days’ leave only, under regulation 13 of the Working Time Regulations.
The starting point is that workers must be paid their normal levels of remuneration during their rest periods or annual leave. Article 7 of Working Time Directive 2003/88/EC states:
- Member States shall take the measures necessary to ensure that every worker is entitled to paid annual leave of at least four weeks in accordance with the conditions for entitlement to, and granting of, such leave laid down by national legislation and/or practice.
The Working Time Regulations 1998 (SI 1998/1833), as amended, state:
13 Entitlement to annual leave
… a worker is entitled to four weeks’ annual leave in each leave year…
13A Entitlement to additional annual leave
… a worker is entitled in each leave year to a period of additional leave determined in accordance with paragraph (2)
The period of additional leave to which a worker is entitled under paragraph (1) is…
(e) in any leave year beginning on or after 1st April 2009, 1.6 weeks…
16 Payment in respect of periods of leave
A worker is entitled to be paid in respect of any period of annual leave to which he is entitled under regular 13 and regulation 13A, at the rate of a week’s pay in respect of each week of leave.
Sections 221 to 224 of the 1996 Act shall apply for the purpose of determining the amount of a week’s pay for the purposes of this regulation…
Section 13 of the Employment Rights Act 1996 (‘ERA’) gives workers the right not to suffer unauthorised deductions from wages. Section 23 ERA gives workers the right to present a complaint about such a deduction to a tribunal (now to be read as giving workers the right to notify ACAS of a dispute) within three months of the deduction or of the last deduction or payment in a series.
In British Airways plc v Williams the Supreme Court determined, following a referral to the CJEU that, for the duration of annual leave remuneration must be maintained and that workers must receive their normal remuneration for that period of rest. The purpose of the requirement of payment for that leave is to put the worker, during such leave, in a position which is, as regards remuneration, comparable to periods of work. The Supreme Court quoted the CJEU (at paras 23 and 24) ‘although the structure of the ordinary remuneration of a worker is determined, as such, by the provisions and practice governed by the law of the Member States, that structure cannot affect the worker’s right … to enjoy, during his period of rest and relaxation, economic conditions which are comparable to those relating to the exercise of his employment. …. Accordingly, any inconvenient aspect which is linked intrinsically to the performance of the tasks which the worker is required to carry out under his contract of employment and in respect of which a monetary amount is provided which is included in the calculation of the worker’s total remuneration, … must necessarily be taken into account for the purposes of the amount to which the worker is entitled during his annual leave’ and ‘the concept of normal remuneration as a temporal component. Accordingly to the natural meaning of the word, ‘normal’ can only refer to something which has existed as a point of reference for comparison … the expression essentially implies that remuneration which in itself fluctuates at regular intervals is levelled out to an amount representing average earnings’.
In Lock v British Gas, the Employment Tribunal held (after a referral to the CJEU) that the commission earned by Mr Lock must be taken into account when calculating his holiday pay. In Bear Scotland Ltd & Ors v Fulton & Ors, the EAT held that non-guaranteed overtime must be taken into account when calculating the pay to which a worker in entitled during a period of paid annual leave. Langstaff P defined ‘non-guaranteed overtime’ as the situation where there is no obligation on an employer to provide overtime, but if that work is available then the employee is obliged to perform it. He continued: ‘voluntary overtime’ is work which the employer asks an employee to do but which the employee is free of any contractual obligation to perform unless he agrees at the time to do so’.
Thus, it has been known for some time now that the first 20 days of annual leave (or regulation 13 leave under the Working Time Regulations) must contain all elements of contractual pay including non-guaranteed overtime. It was not at all clear whether it should also include all elements of non-contractual voluntary pay. In a possible landmark decision of the Birmingham West Employment Tribunal, Employment Judge Warren (Birmingham’s designated Holiday Pay Judge) accepted that for regulation 13 pay, the question was not whether the work was ‘intrinsically linked to the contract’ but whether it had become ‘normal pay’, i.e. that which is normally received. The Judge referred to the judgment of Langstaff P. (as he then was) in the EAT decision of Bear Scotland in which the Judge said in paragraph 29 ‘The purpose of the requirement for that leave is to put the worker during such leave, in a position which is, as regards remuneration, comparable to periods of work’ at paragraph 34 ‘what was inconvenient in Williams related to what an employee could be required to carry out. The question was not that, but what ‘normal remuneration’ actually was’ and finally in paragraph 44 ‘despite the subtlety of many of the arguments, the essential point seem relatively simple to me. Normal pay is that which is normally received’. Employment Judge Warren went on to find that for the test Claimants in the case the voluntary overtime, standby, call out work and mileage that they had done, had been done for such period and such regularity to become part of their normal work and accordingly part of their normal pay. In the circumstances the Judge ruled that the payment for that work had to be included in the calculation of holiday pay for the first 20 days of annual leave, under regulation 13 of the Working Time Regulations. The 8 additional days’ holiday (essentially the bank holidays) under regulation 13A and any extra purely contractual holiday were based on the contractual work undertaken and thus excluded purely voluntary work, so holiday leave for those remaining days will continue to be calculated as before.
Two recent cases were put before the Employment Judge, although neither were binding on her, as the first was from the Northern Ireland Court of Appeal and the other was a first instance decision of the Employment Judge Camp, then sitting in the Leicester Employment Tribunal. In Patterson v Castlereagh Borough Council, the NICA had to determine the status of purely voluntary overtime. In that case the Employer’s QC conceded that voluntary overtime should be included for the purposes of regulation 13 leave. The NICA it reviewed Williams, Lock and Bear Scotland paragraphs 14 to 18 of the judgment before concluding paragraphs 21 and 22 that the concession had been well made stating ‘there is no reason why voluntary overtime should not be included as a part of a determination of entitlement to paid annual leave. It will be a question of fact for each Tribunal to determine whether or not that voluntary overtime was normally carried out by the worker and carried with it the appropriately permanent feature of the remuneration to trigger its inclusion in the calculation’ and ‘Unravelling the threads of the decision we have come to the conclusion that the Tribunal erroneously determined that voluntary overtime could not as a matter of principle be included in the calculation of holiday pay for the purposes of the WTR’.
In Whitehead & Ors v EMH Housing & Regeneration Limited EJ Camp awarded the Claimants sums in respect of unauthorised deductions from wages in respect of the Respondent’s failure to calculate their holiday pay to take account of the payments they received for standby allowances and call-out payments. EJ Camp found that the standby and call-out payments were not directly linked to tasks any of the claimants was contractually required to carry out, and held that that was not the relevant question. He held that the “real issue in dispute is: are standby and call-out payments parts of remuneration that must be reflected in holiday pay under the Directive?” relying on paragraphs 19 and 20 of Williams which state ‘for the duration of ‘annual leave’ within the meaning of [the Directive], remuneration must be maintained… in other words, workers must receive their normal remuneration for that period of rest’. The purpose of paid leave is to put the worker, during such leave, in a position comparable to the one he is when he is working; and a reduction in holiday pay may deter him from taking holiday, contrary to the purpose of Article 7.
We don't know if there will be an appeal submitted on this latest case ‘White & Others v Dudley Metropolitan Borough Council’. It is also likely that there are other cases still waiting to be heard that may also have an impact in this area. We have contacted BIS for advice about the effect of this judgement on payroll and we will publish their response when we receive it.