Dudley Metropolitan Borough Council v. Willetts and ors

The issue of holiday pay has been back in the courts.

Following the EAT's decision in Bear Scotland and the Court of Appeal's decision in Lock, it's fairly clear that statutory holiday pay derived from the Working Time Directive should be based on "normal remuneration", and must include:

  • payments intrinsically linked to the performance of the tasks which the worker is required to carry out under their contract of employment;
  • payments which relate to the worker's professional and personal status; and
  • an amount to reflect the contractual results-based commission a worker ordinarily receives.

In other words, holiday pay should include commission, guaranteed compulsory overtime, "non-guaranteed overtime" and, potentially, bonus.

Facts

In Dudley, the EAT has upheld a Tribunal's decision that regular payments for voluntary overtime should also be taken into account in calculating employees' holiday pay.

The case involved a group of 56 employees with set contractual hours. In addition, the employees volunteered to perform additional duties which their employment contracts did not require them to carry out. The EAT noted that this work was done almost entirely at the whim of the employee, with the Council having no right to enforce work. Notwithstanding that, the employees sought to argue that their holiday pay should, amongst other things, reflect the voluntary overtime.

At first instance, the Tribunal held that the voluntary overtime payments were paid in such a manner, and with sufficient regularity, to be considered part of normal remuneration and should, accordingly, be included for the purposes of calculating holiday pay.

Decision

The Council appealed to the EAT and the EAT dismissed the appeal. The EAT noted that the ECJ in British Airways plc v. Williams and ors had set down the overarching principle that holiday pay should correspond to "normal remuneration" so as not to discourage workers from taking leave, and that the division of pay into different elements cannot affect a worker's right in this regard. In order to be considered "normal" a payment must have been paid over a sufficient period of time. This will be a question of fact and degree.

The Council sought to assert that overtime payments were not "normal remuneration" because they lacked an intrinsic link to the performance of tasks required under the employment contract.

The Tribunal held at first instance that if there is an intrinsic link between the payment and the performance of tasks required under the contract, this will be decisive in that the payment should be included as part of "normal remuneration". However, whilst this was a decisive criterion, it was not the only determinative criterion, and the absence of such a contractual link does not automatically mean that a payment need not be taken into account.

The EAT agreed, rejecting the Council's narrow interpretation. In any event, on the facts, the EAT found a clear link between the payments and the performance of the workers' duties because, when they were working the overtime, they were essentially performing the same tasks as under their contracts.

Practical impact

We'll have to wait to see whether this decision will be appealed, but the direction of travel seems to be clear from the prevailing case law. As a rule of thumb, if voluntary overtime payments are regularly made to employees, it is highly likely that they should be included for the purposes of calculating holiday pay.