Which payments should be included when calculating holiday pay? This legal runaway train keeps on rolling, following the Employment Tribunal's recent decision in Brettle and Others v Dudley Metropolitan Borough Council.

Holiday pay: the background

The landmark Supreme Court decision of Williams and Others v British Airways back in 2012 first expanded the conventional wisdom on this area, with the finding by the European Court of Justice that the Working Time Directive requires that workers must receive their “normal remuneration” for that period of rest, ie remuneration which is “intrinsically linked to the performance" of tasks under the employment contract, and not just basic salary.

However, subsequent decisions in the Lock v British Gas litigation really opened the can of worms, with the finding that holiday pay must extend beyond basic salary to include commission payments The reasoning was that such payments were paid with sufficient regularity for them to form part of the worker's normal remuneration, and that failure to pay these during holiday time would place the worker at a financial disadvantage (and therefore potentially discourage them from taking holiday).

We have reported on the courts' increased willingness to expand the scope of what other payments should also be included in this calculation – most notably the EAT's decision in Bear Scotland v Fulton and Others in relation to compulsory non-guaranteed overtime and the subsequent Northern Irish appeal case of Patterson v Castlereagh Borough Council. This ruled that voluntary overtime could, depending on the circumstances, be required to be included in holiday pay calculations. The decision in Brettle takes this a step further by finding that, on the facts of this particular case, payments for voluntary additional work were required to be included.

Payments for voluntary additional work must be reflected in holiday pay

The claimants in Brettle worked various shift patterns, as well as additional voluntary overtime, and volunteering for call-out and standby duty for which they received additional payments.

The Tribunal found that where voluntary overtime was regularly worked, it was part of "normal remuneration" and hence should have been included in the calculation of the claimants’ holiday pay. Although voluntary, once the claimants had signed up to the additional work, they were required to attend (or to be on standby). The Tribunal found that these additional payments were therefore intrinsically linked to work required to be performed under the contract.

The Tribunal also focused on the fact that these voluntary payments had been made with a high degree of consistency and regularity, and therefore could be seen as being part of “normal remuneration” (although in one case overtime was found to be so rare as not to fall within "normal remuneration"). As in Bear, they also found that failure to include such supplemental amounts in the calculation would deter staff from taking leave, against the aims of the Working Time Directive, which is intended to ensure workers take sufficient time off.

What does this mean for employers?

Whilst it should be noted that Brettle is only a first instance decision, it appears consistent with the direction of travel in recent cases, which has tended to widen the scope of what payments should be reflected in holiday pay. The Tribunal focused on the issue of whether supplemental payments are regularly or consistently received (as a basis to determine whether they form part of “normal remuneration), as well as whether failure to include such sums could deter the employees from taking leave - which could arguably be said of virtually any payment linked to work other than basic salary.

In light of this trend, employers who do not take into account supplemental payments which are regularly received in their calculation of staff holiday pay appear to be at risk of a claim. However, given the uncertainty in the law, some employers may prefer to await higher court authorities on the point before committing to an increased holiday pay bill to reflect voluntary overtime. The UK’s formal withdrawal from the European Union could of course have an impact here, to the extent the UK reforms working time rules following a formal exit, which could result in further clarification or changes. However, for the time being, this is an issue which is likely to continue to plague employers, particularly in the retail and industry sectors where such supplemental payments are a common way of linking work and pay.