Another case about holiday pay!
This case decided by the Court of Appeal is one of a long line about holiday pay and how it is calculated. We have reported on many of the past cases and within this case the Court of Appeal give a clear decision taking into consideration the cases which come before it.
The law regarding holiday entitlement and holiday pay in the UK is set out in the Working Time Regulations.
The Working Time Regulations bring into effect in UK law the Working Time Directive which is a European Directive which sets out minimum standards required by member states (members of the EU).
The Working Time Directive sets out a minimum paid leave period for all employees and workers of 4 weeks. The Working Time Regulations set out a minimum paid leave period for all employees and workers in the UK of 5.6 weeks. Therefore, UK employees and workers are entitled to 1.6 weeks more than the EU requires.
The calculation of holiday entitlement is fairly straightforward and there have been fewer cases on this topic, however if you were paying attention to the last newsletter you would have seen the case I reported on about the calculation of holiday entitlement for term time workers.
The issue which has arisen, and which has been unsettled for some time is how you calculate what you pay an employee/worker when they actually take their holiday.
In this case a number of employees made a claim collectively that their employer, the East of England Ambulance Service NHS Trust had made unlawful deductions from their wages when they took holiday.
The employees of the Trust in this case had two categories of overtime:
- Non-Guaranteed Overtime which arose when an employee was carrying out a task which needed to be completed after their shift had ended.
- Voluntary Overtime being extra working time that they were offered but were not obliged to work.
The Trust would calculate the employees holiday pay including the Non-Guaranteed Overtime that had been worked but not the Voluntary Overtime.
The employees relied on a contractual right to be paid it, which was contained in the NHS Terms and Conditions of Service Handbook (Section 13 – clause 13.9) which stated:
‘Pay during annual leave will include regularly paid supplements, including any recruitment and retention premium, payment for work outside normal hours and high cost area supplements. Pay is calculated on the basis of what the individual would have received if he or she had been at work. This would be based on the previous three months at work or any other reference period that may be locally agreed.’
In addition to the contractual right the employees also relied on Article 7 of the Working Time Directive.
The Trust argued that in the previous cases decided by local and EU Courts it was not intended that Voluntary Overtime be included in the calculation of holiday pay.
Lord Justice Bean of the Court of Appeal gave a Judgement which reflected on the previous decisions on the issue of holiday pay and the Judgement provides a helpful summary of the current position. In particular, in reaching the decision that the Trust were required to include Voluntary Overtime in the calculation for holiday pay, Lord Justice Bean discussed the following cases:
Robinson-Steele v RD Retail Services Limited  – workers must receive their normal remuneration for the period of rest taken.
British Airways PLC v Williams  – Flying pay supplements and ‘time away from base’ allowances were material components of pay that should be included in holiday pay calculations.
Lock v British Gas Trading Limited  – Commission should be included for the calculation of holiday pay.
Bear Scotland Limited v Fulton  – Non-guaranteed overtime which the employer was not obliged to provide but which the employee was obliged to perform on request should be included.
Dudley MBC v Willetts  – regular, but voluntary overtime, should be included in the calculation of holiday pay. The Employment Appeal Tribunal in their conclusion stated, ‘There is also no doubt that payments in respect of overtime (whether that be compulsory, non-guaranteed or voluntary), constitute remuneration as a matter of domestic and EU law.’
The Court of Appeal decided that in this case Voluntary Overtime worked regularly would need to be included in holiday pay calculations, the EU ‘case law establishes clearly that the question in each case is whether the pattern of work is sufficiently regular and settled for payments made in respect of it to amount to normal remuneration. There is no separate requirement that the hours of work are compulsory under the contract.’
With regards to the Contract claim, the Court of Appeal concluded that their interpretation of the Contract Terms means that there is no distinction between the Overtime payments and both Non-Guaranteed Overtime and Voluntary Overtime should be included.
Points to Note
All of the cases that have come before this one has emphasised that holiday pay should be ‘normal pay’ so that it represents the pay that the employee/worker would have receive if they had been at work in any event.
What constitutes normal is a matter of fact depending on the circumstances of the particular case. Taking into consideration the Judgement in the Dudley MBC v Willetts case which stated ‘for a payment to count as “normal” it must have been paid over a sufficient period of time. This will be a question of fact and degree. Items which are not usually paid or are exceptional do not count for these purposes. But items that are usually paid and regular across time may do so.’
The EU decisions on this issue only apply in respect of the payment of the 4 weeks annual leave required by EU law and therefore different rules apply to the additional 1.6 weeks added by UK law. You could therefore take a view and apply different calculations to the holiday pay, however you may find that the administration involved in working it out and stipulating which is EU entitlement and which is UK is too much hassle verses the additional costs that may be involved in paying the same amount for all holidays.
You may decide that if you have employees/workers who have variable pay on a regular basis, that as a matter of course you merely take their average pay in the previous 12 weeks and pay this when they take holiday to ensure that you do not find yourself with a claim for unlawful deductions from wages and back payments.
Action to Take
- If you have not already, check how you are calculating your staff pay when they take holiday.
- Check your employment contracts and ensure that you contracts reflect how you are actually calculating and paying for holiday.
- It can be a complicated area to get your head round so please do give me a call if you would like to discuss further.
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