Two recent employment tribunal decisions have shed some light on the vexed question of whether voluntary overtime should be included in holiday pay calculations. While these decisions are not binding on other tribunals or higher courts, they are the best indication yet of how tribunals will approach this question.
As is now well known, the current holiday pay saga follows a number of cases which challenged the previously accepted position that employees who have “normal working hours” should not have variable payments included in the calculation of holiday pay.
Until know we had not had a decision looking at whether purely voluntary overtime (being defined as work that an employee can refuse, and which the employer is not obliged to offer) should be included.
Although the EAT confirmed in Bear Scotland v Fulton that non-guaranteed overtime (where the employee is obliged to work overtime if required, but the employer is not obliged to provide overtime) should be included in holiday pay, the question of how to approach voluntary overtime had been left open.
While in the Northern Irish case of Patterson v Castlereagh Council it had been concluded that voluntary overtime should be included, this decision is not binding in Great Britain. The issue appeared from this to be whether the overtime is paid with sufficient regularity to be part of “normal remuneration,” suggesting that one-off instances of voluntary overtime should not be included.
White & Others
In White & Others v Dudley Metropolitan Borough Council (White), we have the first British decision from the tribunal on this point. White involved 56 claimants (employed by Dudley MBC) who worked as skilled tradesmen to repair and maintain the Council’s social housing. The workers were invited to work on a Saturday on a purely voluntary basis and they also elected to go on standby every 4 weeks to deal with emergency call-outs and repairs - again, not at the employer’s discretion. The Council calculated holiday pay on core contractual hours (i.e. basic pay) alone.
The principle question in White was not whether the work was “intrinsically linked to the employment contract”, but whether it had become “normal pay” i.e. that which is normally received. The Judge ruled that the employees on-call rota and voluntary overtime had been in place for such a period, and with such regulatory, that it had become part of their “normal work” and accordingly part of their “normal pay" and should therefore be reflected in holiday pay.
While White seems to go some way in laying the foundations for the principle that voluntary overtime, standby and call-out payments should be factored into holiday pay, there remain unanswered questions around what can be deemed "sufficiently regular” to form “normal pay.” In White the pattern was very well established. This may be more difficult for others to show, and for now at least it appears that a case-by-case approach will be taken, with a close focus on the particular facts.
Whitehead & others
The approach in White was also adopted in another first instance decision from the Leicester employment tribunal in Whitehead & Ors v EMH Housing Regeneration Limited (Whitehead). Here, the Employment Judge awarded sums in respect of the employer’s failure to calculate holiday pay to include standby and call-out allowances. As in White, the Judge said that the real issue was whether, as a matter of fact, these payments formed part of the workers’ “normal remuneration.” In Whitehead the payments had been part of almost every wage packet going back several years. These payments increased the workers monthly pay by over 50% and the Judge stressed that there would be a clear financial disincentive to taking holiday were holiday pay calculated on basic pay alone. Interestingly, the Judge was happy to accept the employee’s own assessment that a reference period of three months was appropriate here, although we urge caution in treating this as any sort of rule going forward, given it was noted that the self-assessment of loss was accepted on the basis that it “wasn’t challenged in evidence.”
While these first instance decisions are not binding, they are a helpful indication of the approach tribunals are likely to take. If these cases are followed then the correct approach to calculation will be to focus on whether the overtime has become part of “normal pay,” and not simply what the contract says.
A difficult question remains over defining regularity. While once a month may be sufficient, where does the dividing line fall? Employers will be keen to see if either decision is appealed. Clarity from the EAT after this long period of uncertainty, particularly over voluntary overtime, would certainly be welcomed.